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Real estate, land use and zoning attorney. I use my twenty-five years of experience and bar licenses in CA, NV, OR and WA to assist landowners and land trusts in large-scale conservation easement projects.

Why Land Trusts Should Carry Directors and Officers Insurance

Land trusts, and especially smaller land trusts, often ponder whether they should purchase Directors & Officers Insurance (D&O Insurance).  For those land trusts asking this question, there is really one answer: Yes.  The following brief post explains why D&O insurance is always a good bet, suggests some additional risk management strategies and contains a link to a dated, but more relevant than ever, primer on D&O Insurance published by the Nonprofits’ Insurance Alliance of California and the Alliance of Nonprofits for Insurance.   Here, in bullet format, are the reasons every land trust should have D&O coverage.

I.  To Protect Against Lawsuits From Employees.

  • Employment related lawsuits, i.e., lawsuits by employees against their employers (including the organization, its board of directors and officers) are increasingly common – to the point of being a fact of corporate life.
  • Employment related lawsuits can arise from many circumstances, the most common being wrongful termination, harassment and discrimination.
  • When your organization is sued, the board of directors will invariably also be sued, usually individual-by-individual, and often the highest level officers as well.   This is because lawyers are trained that if they don’t name every possible party the lawyers themselves may be subject to liability for malpractice.
  • The price tag on a lawsuit can be enormous.  Small dollar lawsuits don’t attract lawyers who have to make substantial investments of time and resources to bring a viable lawsuit.  If a lawsuit is brought against the organization it will be because the stakes are sufficiently high to cover legal fees, experts fees, court costs and otherwise financially motivate a plaintiff’s lawyer.  In other words, expect to see lawsuits coming it at a $1,000,000 minimum.
  • Lawsuits against uninsured land trusts are always lose-lose for the land trust and any other named parties, such as the directors.  This is because even if the land trust and named parties win, they are still likely to be out their legal fees and costs, which could themselves be in the millions of dollars.  In the event of a loss, things are much worse as the land trust and named parties may have to pay not only their own legal fees and costs but the legal fees and costs of the prevailing party and monetary damages as well.
  • Many land trusts are caught by surprise by lawsuits brought by employees because the land trusts believe that their general liability policies will protect them against such a lawsuit.  To the contrary, very few (if any) general liability policies would protect the organization, its directors and officers against such a lawsuit.  One technical reason for this is that employment related lawsuits often result from “intentional” acts of the organization while general liability insurance protects only against “negligent” acts.

II.  To Protect Against Lawsuits From Outside Parties.

  • Sooner or later your organization will get sued by an outside party.  We live in a litigious society and there are plenty of hungry lawyers ready to bring lawsuits.
  • All of the above warnings about employment lawsuits apply to lawsuits by third parties.  To summarize the nature of all lawsuits, whatever their source, for the uninsured land trust they will almost always be lose-lose.
  • While lawsuits brought by outside parties are usually covered by the organization’s general liability insurance, it is always good practice to see if this coverage can be extended or expanded by a D&O policy and, equally importantly, if a D&O policy is necessary to protect directors and officers from personal liability.

III.  To Protect And Keep Directors.

  • Most board members are uncompensated volunteers.  To keep good volunteer board members it is best policy for land trusts to provide board members with insurance coverage that will protect them in the event of a lawsuit.
  • Failing to provide D&O coverage may discourage board members who are deep pockets and thus would suffer disproportionate risk by serving on the board.

 IV.  To Protect And Keep Officers.

  • Officers of public interest non-profits are typically less highly compensated than officers in for-profit corporations, yet they can be exposed to the same level of legal and financial risk as their more highly compensated counterparts.
  • Providing officers with D&O coverage may be a necessary incentive to attract the highest quality officers, not to mention a  fairness and ethical issue.

V.  Other Strategies For Director Risk Management.

  • Even where a land trust provides adequate D&O coverage, directors should be encouraged to evaluate their own personal insurance coverages.  For example, individual insurance policies often require declarations that the insured sits on a board of directors for purposes of excluding coverage of liability incurred in the individual’s participation on the board.  On the other hand, in many cases it is possible for individuals to purchase umbrella policies that for a nominal additional amount will provide substantial amounts of additional coverage, including coverage for their activities as board members.
  • As noted in the primer on D&O coverage linked in this post, there are numerous practices and policies that land trusts can implement that will minimize the probability of lawsuits in the first instance.

Link to D and O Primer (2001)

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