What should a nonprofit board review about D&O insurance?

By Mark Melliand, owner, Melliand Insurance Agency · 13 years as an independent agent · Published October 28, 2026

The short answer

A nonprofit board should know what its directors and officers (D&O) policy actually says, not just that one exists. Review:

  • who the policy insures, and in which roles
  • which coverage parts were purchased
  • how defense works, and whether defense costs reduce the limit
  • the retentions
  • the main exclusions and their exceptions
  • what counts as a claim, and how and when to report it
  • what other coverage the organization needs

Nonprofit status, tax exemption and unpaid board service don’t remove the possibility of claims. Ask the nonprofit’s attorney whether any law, governing document or contract imposes insurance or indemnification requirements. Statutory protections and indemnification rights aren’t a substitute for reviewing the insurance, and questions about them belong with the nonprofit’s attorney.

For a general explanation of D&O coverage, see our guide to what D&O and management liability insurance covers.

The forms reviewed

This guide uses three illustrative documents, identified by form and edition:

These are examples, not confirmed current Texas offerings. The general terms and conditions that go with the two coverage parts weren’t available; those terms usually address matters such as notice, extended reporting and organizational changes. For The Hartford, only the declarations template was reviewed, not its coverage parts. No declarations or endorsements for the two coverage parts were reviewed. Each point below is attributed to the form that contains it. Your policy’s own wording controls.

Who is insured, and in what role

People

  • The BHSI form lists past, present and future roles, including directors, officers, trustees, trustees emeritus, regents, governors, department heads, committee members, faculty and staff members, and “any other employee.” Volunteers aren’t listed in that definition (BHSI EP-NFP-DO-001).
  • The Hiscox specimen’s “Executive” definition includes past, present and future directors, officers, trustees, trustees emeritus, executive directors, department heads, members of a duly constituted committee, and general counsel and risk managers (Hiscox NFP P002).
  • Its “Employee” definition includes part-time, seasonal and temporary employees, and volunteers in their capacity as such. Leased workers and contractors count only if the organization indemnifies them as it does its own employees (Hiscox NFP P002).

So directors, employees and volunteers may not have identical protection. Check each group against your own policy’s definitions.

The organization

The BHSI form defines the insured entity by reference to “the Organization,” a term defined in the general terms, which weren’t reviewed (BHSI EP-NFP-DO-001). Confirm which entities, such as affiliates, foundations or subsidiaries, are named or defined as insureds.

Capacity

Both forms tie a covered wrongful act to the person acting in their insured capacity (BHSI; Hiscox). The Hiscox specimen excludes claims for acts in other capacities (Hiscox NFP P002). Service for the nonprofit is therefore different from personal activities or other roles.

Outside board service

Both forms extend to service on another organization’s board only when that service is at the organization’s specific request or direction.

  • In the BHSI form, an “Outside Entity” means a not-for-profit entity, or a for-profit entity added by endorsement. Coverage for outside service is excess of the outside entity’s indemnification and insurance (BHSI EP-NFP-DO-001).
  • The Hiscox specimen excludes claims brought by the outside entity or its executives. For outside board service, it also excludes wrongful acts before its “Continuity Date” if any insured, as of that date, knew or could reasonably have foreseen that they could lead to a claim (Hiscox NFP P002).

How organizational and individual protection fit together

Both coverage parts have three main insuring agreements (BHSI; Hiscox):

  1. Coverage for individuals when the organization doesn’t indemnify them (“Side A” in the BHSI form; “Coverage A” in the Hiscox specimen)
  2. Reimbursement to the organization when it does indemnify them (“Side B” or “Coverage B”)
  3. Coverage for claims against the organization itself (“Side C” or “Coverage C”)

Insurer-specific features:

  • The BHSI form offers an optional Side A additional limit, available only if it is shown as included on the declarations, and only for claims against eligible insured persons. It attaches only after both the coverage part’s aggregate limit and any amounts payable under insurance written specifically to apply in excess of that coverage part are exhausted (BHSI EP-NFP-DO-001).
  • The Hiscox specimen pays Coverage A loss first if loss exceeds the remaining limit. At the organization’s request, it can hold payments under the other coverages (Hiscox NFP P002).

Indemnification matters, but not in a simple way. In the Hiscox specimen, the retention applies to loss the organization has indemnified or “is permitted or required to indemnify” (Hiscox NFP P002). The organization’s choice not to pay doesn’t, by itself, decide how the policy responds. Questions about what the bylaws, contracts or Texas law allow or require should go to the nonprofit’s attorney.

Defense, consent and allocation

Defense terms vary. The reviewed Hiscox edition says the insurer has no duty to defend; the insureds defend themselves (Hiscox NFP P002). Under that specimen:

  • Retaining counsel or incurring defense costs requires the insurer’s prior written consent, which isn’t to be unreasonably withheld.
  • The organization may tender the defense to the insurer in writing within 30 days of the claim. If the tender is accepted, the insurer assumes the defense and retains counsel.
  • The specimen provides for the insurer to advance defense costs before final disposition, subject to the applicable retention, written-request requirements, consent provisions and its other terms. Advanced amounts must be repaid to the extent they aren’t covered.
  • Settlements and admissions also require the insurer’s consent.
  • When the insurer has assumed the defense, rejecting a recommended settlement can limit the insurer’s payment under that specimen, subject to the provision’s conditions.

The BHSI coverage part reviewed didn’t contain defense and consent provisions. Those appear to be in its general terms, which weren’t reviewed.

Allocation decides how costs are split when a claim includes covered and uncovered matters. In the reviewed Hiscox edition, for such a claim where the defense was tendered in accordance with its Clause VII, defense costs are treated as covered and other loss is allocated pro rata (Hiscox NFP P002). That provision addresses mixed claims; it isn’t a promise to defend wholly uncovered claims. Ask how your policy allocates, and what happens if you and the insurer disagree.

Defense costs and limits: The Hartford declarations template states that defense costs reduce the available limit, and it offers optional “Defense Outside the Limit of Liability” elections (Hartford PP 00 H902 00). Check which applies to your policy.

Limits and retentions

The Hartford declarations template shows how much depends on the declarations page (Hartford PP 00 H902 00):

  • each liability coverage part (D&O, employment practices and fiduciary) is elected separately
  • an optional combined aggregate limit for all liability coverage parts
  • separate limits and sublimits for elective features
  • a retention and a prior or pending date for each part

Form-specific points:

  • In the BHSI form, no retention applies to Side A or to derivative demand investigation costs. Those costs are a sublimit within, not in addition to, the aggregate limit (BHSI EP-NFP-DO-001).
  • In the Hiscox specimen, one retention applies to claims alleging the same or related wrongful acts. If the organization can’t pay a retention because of financial insolvency, the insurer advances loss within it, subject to recovery (Hiscox NFP P002).

Exclusions and their exceptions

Exclusions often have exceptions and triggers that matter as much as the exclusion itself. From the forms reviewed:

  • Conduct: dishonest, fraudulent or illegal conduct and unentitled profit. These apply only if a final adjudication establishes the conduct; the BHSI form requires a final, non-appealable adjudication in the underlying proceeding. Both forms limit whose knowledge or conduct is imputed to other insureds or to the organization (BHSI; Hiscox).
  • Insured versus insured: the BHSI form excludes claims by insured persons, the organization, outside entities, members and attorneys general, with listed exceptions. These include certain independent member or attorney general claims, contribution or indemnity cross-claims, Side A defense costs, certain bankruptcy or receivership claims, and a former-insured exception with role, service and consulting conditions that must be checked in the actual wording (BHSI EP-NFP-DO-001). The Hiscox specimen excludes claims by the organization against individual insureds, with an exception for independent derivative claims (Hiscox NFP P002).
  • Bodily injury and property damage: both forms exclude these. The Hiscox specimen excepts claims for emotional distress or mental anguish arising from a wrongful act (BHSI; Hiscox).
  • Contract: both forms limit contract-based coverage for claims against the organization, and each excepts liability that would exist without the contract (BHSI; Hiscox).
  • Prior notice and pending or prior litigation: both forms exclude matters noticed under earlier policies and litigation pending before a stated date (the BHSI “Pending or Prior Date” and the Hiscox “Continuity Date”) (BHSI; Hiscox).
  • Employment practices: both forms exclude employment-related claims; EPLI is a separate coverage (BHSI; Hiscox).
  • ERISA and similar laws: both forms exclude violations of ERISA and related statutes; employee benefit plan fiduciary liability is a separate coverage (BHSI; Hiscox).
  • Wage and hour: both forms exclude certain wage-and-hour claims (BHSI; Hiscox).
  • Securities: both forms contain a securities exclusion with an exception for bond debt; the BHSI form limits that exception to tax-exempt bond debt (BHSI; Hiscox).
  • Professional services: neither coverage part reviewed contained a separately titled professional services exclusion. Professional services may still be addressed elsewhere in your policy, its endorsements or a separate policy, so ask.
  • Fines, penalties and taxes: review fines, penalties and taxes separately under the policy’s definition of loss. The reviewed forms address specified federal excess-benefit taxes, but that does not establish general coverage for fines, penalties or taxes (BHSI; Hiscox).

D&O doesn’t cover every dispute, intentional act, fine or penalty. Review the exclusions with their exceptions, and check endorsements that change them.

Claims, investigations and demands

What counts as a “claim” decides when coverage is triggered.

  • The BHSI form defines a claim to include written demands (including requests to toll a statute of limitations), civil and criminal proceedings, administrative or regulatory proceedings, and an investigation of an insured person by an enforcement authority once that person is identified in writing as a target. Its civil and criminal proceeding category excludes investigations. A derivative demand is a claim only for its separate investigation-costs extension (BHSI EP-NFP-DO-001).
  • The Hiscox specimen includes a formal investigation of an individual insured once that person is identified in writing as someone against whom a proceeding may be brought (Hiscox NFP P002).

In both forms, the investigation wording refers to individuals, not to the organization. Ask how your policy treats inquiries, subpoenas, attorney general activity and requests that come before a formal proceeding.

Reporting and claims-made timing

  • The Hartford declarations template states that its liability coverage parts are claims-made, apply to claims first made during the policy period and must be reported under the notice provisions (Hartford PP 00 H902 00).
  • The BHSI form makes written notice a condition of coverage. Notice is due as soon as practicable after certain senior positions learn of the claim, and no later than a stated period after the policy period ends (BHSI EP-NFP-DO-001).
  • The Hartford template includes an item for an extended reporting period, with its duration and premium. Its terms are in the policy conditions, which weren’t reviewed (Hartford PP 00 H902 00).

Name who on the board or staff is responsible for reporting, and keep the claims notice instructions from the declarations handy. For how claims-made dates, renewal, switching insurers and extended reporting work, see our guide to claims-made coverage, retroactive dates and extended reporting periods.

Mergers, dissolution and other changes

The coverage parts reviewed didn’t contain change-of-control, merger, acquisition or dissolution provisions. Those are typically in general terms, which weren’t reviewed. Before a merger, dissolution, new affiliate, significant change in activities or change of insurer:

  • Ask your agent how the policy treats the change.
  • Ask whether an extended reporting period or other option should be considered.
  • Ask whether notice must be given.

Board transitions also matter. Check whether former directors and officers remain covered for past service.

Related coverage to review separately

A D&O policy or management liability package doesn’t automatically include other coverages. The Hartford template lists D&O, employment practices liability and fiduciary liability as separate liability coverage parts, and crime and kidnap and ransom/extortion as separate non-liability parts. Only the parts marked as included apply (Hartford PP 00 H902 00). Review separately:

Board review questions

Board questionWhat to reviewWhat to clarify
Who is covered?Insured person and employee definitions; past and future rolesAre volunteers, committee members and former directors included?
Which entities are covered?Named insured and the organization definitionAre affiliates, foundations or subsidiaries included?
What about outside board service?Outside entity provisions and related exclusionsIs service at the organization’s request documented?
What did we buy?Declarations: coverage parts elected, limits, sublimitsIs the limit shared across coverage parts?
How does defense work?Defense, consent, tender and allocation provisionsDo defense costs reduce the limit?
What’s excluded?Exclusions, exceptions and endorsementsWhich exceptions apply to insured-versus-insured claims?
What’s a claim?Claim definition, including investigations and demandsHow are inquiries before a formal proceeding treated?
How do we report?Notice conditions and claims addressWho reports, and by when?
What else do we need?EPL, fiduciary, crime, GL, professional, cyber, abuse coverageWhich risks fall outside D&O?

Three examples to talk through

These hypotheticals are review questions, not predictions. The outcome in any real situation depends on the policy wording, the facts and the law.

1. A dispute over how the board allocated funds or made a management decision

  • Is the claimant an insured, a member or an outside party, and does the insured-versus-insured exclusion or an exception apply?
  • Does the demand meet the definition of a claim?
  • Who must give notice, and when?

2. An employment-related allegation naming the nonprofit and board members

  • Does the D&O policy exclude employment practices claims?
  • Is EPLI in place, and does it cover the individuals named?
  • How would defense be coordinated between policies?

3. A nonprofit preparing to merge, dissolve or change insurers

  • What do the general terms say about mergers or dissolution?
  • Is an extended reporting period available, and on what terms?
  • Do pending or prior litigation dates and prior notice exclusions affect the new policy?

Board review checklist

  • Named insured and covered entities
  • Insured people and capacities, including volunteers, committees, former board members and outside board service
  • Coverage parts actually purchased, as shown on the declarations
  • Limits, retentions and defense treatment, including whether defense costs reduce limits
  • Relevant exclusions, their exceptions, and endorsements that change them
  • Claim and notice definitions, including investigations and demands
  • Reporting instructions and the responsible contact
  • Renewal or organizational changes, such as mergers, dissolution, new affiliates or a change of insurer
  • Separate coverage needs: EPL, fiduciary, crime, general liability, professional liability, cyber, and abuse or molestation

Keep sensitive records protected

Don’t send claim files, board minutes about disputes, or personnel information through a website form or ordinary email. Ask what’s actually needed, and arrange an appropriate secure way to provide it.

Sources

About Melliand Insurance Agency

Melliand Insurance Agency is an independently operated insurance agency affiliated with Premier Group Insurance (PGI), a nationwide agency network.

If your board would like help reviewing its D&O coverage, call (972) 346-4666 or email melliandinsurance@gmail.com, Monday–Friday, 8 AM–5 PM Central.

This article provides general information only. It is not legal advice and is not a statement of coverage. Coverage depends on the policy’s declarations, forms and endorsements, which vary by insurer. The forms described are illustrative examples identified by form and edition and are not confirmed current Texas offerings. Questions about legal interpretation, Texas nonprofit law, volunteer protections or indemnification should go to the nonprofit’s attorney. Requesting a quote or completing an application does not bind coverage.