Partner Content

Should I worry about personal liability when
 joining a board?

© ismagilov via iStock

Without question, an invitation to join the board of a corporation peopled by friends and colleagues, or a not-for-profit organization with a mission you support, is hard to resist. But before you accept, I caution you to think of being on a board not as a benign hobby-like activity, but as a business deal. In your business, you and your advisors make certain you are protected from exposure to judgments that could result in personal liability. You need to do the same before you join a board.


If you are a director of a for-profit company, no personal lines underwriting insurance company will offer coverage to protect you from exposure if the firm suffers a devastating judgment and cannot cover the cost. The newsis a bit better if you become a director of a not-for-profit board. For starters, several major carriers offer personal policy coverage for board members of nonprofit entities, condominium associations or cooperative corporations. But this personal policy to supplement the non-profit’s protection has limitations.

First, given the fact that many nonprofits operate with limited budgets, the coverage they secure is often minimal, as little as $1 million for an entire board. But know that the personal policy you rely on to supplement this coverage is limited to bodily injury, property damage and personal injury. Adding to the limitations of the personal policy are some qualifications, specific to the underwriter, regarding any director’s compensation. That means each underwriter’s policy contract must be reviewed.

Think of being on a board not as a benign hobby- like activity, but as a business deal.

The second caution is that personal policy nonprofit director coverages do not provide for fiduciary claims, such as wrongful employment acts or monetary loss from errors or omissions, except in extremely limited situations. Because nonprofit organizations typically can afford only the minimum amount of liability insurance, the limits may be exhausted. If a court-ordered amount exceeds that limit, board members—that is, you—can be personally liable for the judgment amount in excess of the exhausted coverage; that puts your personal assets at risk.

While our firm is working with our underwriters in an effort to address this fiduciary claim void, the developments are severely limited and available only in some states. So, what can you, a well-intentioned individual willing to serve as a board member, do? For starters, read the sidebar on this page, and proceed with caution.

Insurance services provided through NFP Property & Casualty Insurance, Inc., a subsidiary of NFP Corp. Doing business in California as NFP Property & Casualty Insurance Services, Inc. (Calif. License # 0F15715).

This article was originally published in the August/September 2016 issue of Worth.


Disclaimer: Worth magazine is a financial publisher and does not recommend or endorse investment, legal, insurance or tax advisors. The listing of any firm in the 2019 Worth® Leading AdvisorsTM Program does not constitute a recommendation or endorsement by Worth magazine of any such firm and is not based upon Worth magazine’s experience with, or prior dealings with, any advisor. The information presented for each advisor, including but not limited to any related profile, statistical data, presentation, report, commentary, recommendation or strategy, has been provided by such advisor without review or independent verification by Worth magazine. Any such information is the sole responsibility of the advisor. Worth magazine makes no representation or warranty as to the accuracy or completeness of such information, assumes no liability for any inaccuracies or omissions therein and disclaims responsibility for the suitability of any particular investment recommendation or strategy for any person. Nothing contained in Worth magazine constitutes or should be construed as any form of investment, legal, insurance or tax advice or as a recommendation to buy, sell, hold or trade any securities, financial instruments or assets. Readers are advised to consult their legal, financial, insurance and tax advisors prior to making any investment or pursuing any investment strategy. Past, model or hypothetical performance is not indicative of future results.

back to top