In The Public Eye: Thinking About Serving on a Board? Listen to this First!
By Alliant Specialty
You have been asked to serve on a board. Now what? When you agree to serve on a board of any kind, you’re probably thinking about how you can serve your community, both professionally and personally, but how are you going to be protected for personal liability? Carleen Patterson, Alliant speaks with Linda Bourn, Alliant Private Client, on the risks associated with serving on a board and what precautions should be put in place.
You're listening to the Alliant Specialty Podcast, dedicated to insurance and risk management solutions and trends shaping the market today.
Carleen Patterson (00:09):
Welcome back everyone to another episode of In the Public Eye Podcast. We dedicate our podcast to helping Public Entity risk managers with issues at hand, and today we're introducing a subject that is more of a personal risk rather than a risk to your entities. And that is, what if you've been asked to serve on a board, whether it's an association, state, or local homeowners association board, and wanted to talk a little bit about what some of the issues are and how being a potential board member, what you should do beforehand and how you can protect yourselves. So today I've invited Linda Bourn with Alliant Private Client to join us to talk a little bit about the risks and the protections of being a board member. Linda, welcome to the podcast.
Linda Bourn (01:00):
Thank you very much. Looking forward to our conversation.
Carleen Patterson (01:03):
Yeah, me too. So, before we get started, do you want to tell us a little bit about yourself?
Linda Bourn (01:09):
Sure, I'm Linda Bourn, I'm a Senior Vice President with Alliant Private Client. We're the national division within Alliant Insurance Services dedicated to personal risk and insurance needs of high net-worth individuals and families, and by extension, the area that we're discussing today is considered a personal liability and one that's an important issue for individuals and families often asked to be called to service.
Carleen Patterson (01:34):
Yeah, there are a lot of times when I work with a lot of national associations and some of my risk manager friends serve on those boards. And I got to thinking about what some of the challenges are, other than being elected or voted into that position. You know, what are some of the challenges from a personal aspect, and what those members should be thinking about? So, I guess, I'm going to open it up to you to kind of touch on some of the main concerns with serving on any kind of a board.
Linda Bourn (02:06):
So, one of the primary concerns that our clients often ask us about is how are they going to be protected for the personal liability of serving as a director. And they're concerned about having personal assets at risk in the event of potential litigation that might arise out of the organization. So, from experience, nonprofit organizations of all types and sizes can be under threat of litigation from a range of types of competitors, employees, donors, and vendors. The concern with being called a service is our clients often ask us how they can protect themselves against that liability, and so that's why we're having our conversation today.
Carleen Patterson (02:47):
Great. So, if you've been asked to serve on a board, what are some of the things that you should examine about that organization or the board? Or what should you ask that organization before you say yes?
Linda Bourn (03:01):
So first of all, I think it's important, and you mentioned some of these organizations before, what sort of organization is it? Clients serve on a host of things from museums, churches, public schools, charities, and hospitals. The first thing out of four or five issues to consider if you're evaluating your own role, what is expected of you as a board member? And so, learn from other board members. What's the time commitment, what are the responsibilities? And in particular, are you expected to fundraise as part of the board? Other considerations are who else sits on the board of directors. You might want to attend a board meeting before you commit to joining to see how the dynamics of the board play out. The most important thing everyone needs to do is to confirm the organization has adequate Directors and Officers liability insurance. Personal insurance does not automatically provide personal liability for Directors.
Carleen Patterson (04:01):
Okay. You talked about reviewing bylaws. Understanding the practices of the organization. Is most of that information available to you as a potential board member, or do you have to get on the board before you read that kind of document?
Linda Bourn (04:16):
Well, I think it's on a case by case, but typically you would want to know how you might be indemnified as a director by the organization. So, anything that falls outside of that, you want to know if bylaws provide advancement of defense costs, the things that are protective of a director's personal assets.
Carleen Patterson (04:36):
So, if you have, let's say, an eight-member board when you say Directors and Officers inadequate limits, is there a rule of thumb?
Linda Bourn (04:46):
So typically, a board will carry a minimum of 1 million dollars in liability and when you're looking at, I'll talk about it in a sense of the board, should carry a minimum of a million and probably higher depending on what their current organization and board determine is appropriate because they'll have insider knowledge as to what limits they need and that cover various types of things. So, when you look at how to protect yourself and the limits of insurance offered by personal insurance in your regular homeowner's policy, it will not automatically extend liability to serving as a director. It is typically offered under the personal excess liability policy of your homeowners, and it will be offered by endorsement, and it varies across a lot of different carriers. Typical carriers that have this sort of coverage are carriers that cater to high-net-worth clients and provide high limits of liability and tailored endorsements onto the policy. One of which is called not-for-profit Directors and Officers liability coverage but is very limited in scope. It requires, many carriers require the organization to carry a minimum liability underlying of a million, and this policy will sit in excess of that. It will only be defined around organizations that qualify. So, it's not going to cover every nonprofit. And check the policy carefully because various carriers have various types of limits and various restrictions.
Carleen Patterson (06:16):
And I think that you know, just thinking about it from a personal experience and thinking about serving on a board, it's a little bit sobering to think that if there is staff associated with the board, that the decisions of that staff can roll up to you as a board member. That's a little bit sobering to think about, but I think that it's interesting to know that it can be endorsed onto your own personal policy. I guess the question everybody would have when they're thinking about that is, is it expensive to endorse it onto your personal policy?
Linda Bourn (06:54):
Well, it's covered under your personal excess policy, typically by endorsement, and endorsements vary by carrier. Not every carrier offers it. But typically, carriers that identify in providing insurance to high net-worth individuals will offer varying degrees of personal liability for Directors and Officers and it varies on the limit. All of them require the underlying limit to be met, but all of them have varying costs involved and it depends on the limit of coverage available.
Carleen Patterson (07:22):
And also, you know, if the board is carrying higher than a million dollars in Directors and Officers Liability, you know, you can make the business decision about whether or not you want to actually endorse it onto your own personal insurance.
Linda Bourn (07:36):
Well, it's a careful decision based upon the organization, which you know about it, the five or six items I discussed earlier. And with respect to the minimum required underlying limits, you also want to make sure the organization has a quality insurer. So that’s really the best benchmark for that to understand the financial size and claims and capability. Typically, that might be an A-7 by example. We want to make sure that a quality carrier that covers the board, is going to be solvent because it's your first line of defense as a director serving on a not-for-profit board.
Carleen Patterson (08:10):
Right. Going back to your, you know, five or six things that you need to consider. One of the things that kind of stood out to me was when you said, talk to other board members and you know, what are the roles and responsibilities? And over time if no one really reads those bylaws, what the roles and responsibilities are or what's required as a board member can get diluted. So, it really is about, you know, the onus is on you as a board member to read and ask questions before making a commitment like that. Any other thoughts for our risk manager clients who might be considering serving on a board?
Linda Bourn (08:55):
I think board service is admirable, but also - trust, but confirm, as the old saying goes. So, if you're careful, you can really enjoy your board experience and be a leader in your community and contribute. And I think that that's at the heart of service.
Carleen Patterson (09:10):
Absolutely. My thanks to Linda for joining us today. We recognize this is a challenging time to be in public entity risk management, and we are focused on providing continued information and resources as we navigate 2022 and beyond.
Thank you for listening and for more information, visit us at www.alliant.com.
Alliant note and disclaimer: This document is designed to provide general information and guidance. Please note that prior to implementation your legal counsel should review all details or policy information. Alliant Insurance Services does not provide legal advice or legal opinions. If a legal opinion is needed, please seek the services of your own legal advisor or ask Alliant Insurance Services for a referral. This document is provided on an “as is” basis without any warranty of any kind. Alliant Insurance Services disclaims any liability for any loss or damage from reliance on this document.
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