Comparing Volunteer Protection Laws to Directors & Officers Liability Insurance
Nonprofit organizations are increasingly questioning the necessity of directors’ and officers’ liability insurance in mitigating risks stemming from wrongful acts or omissions. This reconsideration is spurred by a growing awareness of the protections provided to nonprofits under the federally mandated “Volunteer Protection Act of 1997.”
Enacted to promote volunteerism, this legislation shields volunteers from liability for harms resulting from their actions or omissions while acting on behalf of a nonprofit or governmental entity. However, despite the apparent safety net, these protections have limitations that may leave nonprofit organizations exposed to significant risks.
What does the Volunteer Protection Act entail?
The Volunteer Protection Act exempts volunteers from liability unless their actions fall outside their duties, lack necessary credentials, involve motor vehicle operations, or exhibit willful misconduct or gross negligence. While these provisions offer a degree of security, they don’t shield volunteers from lawsuits or cover compensated individuals, such as employees or directors.
Moreover, the Act excludes protection for misconduct involving violence, hate crimes, sexual offenses, intoxication, or violations of civil rights, labor laws, or tax regulations. For instance, claims related to discrimination, considered a civil rights violation, wouldn’t be covered under this law.
Additionally, even if a volunteer is shielded under the Act, it doesn’t prevent claimants from pursuing remedies against the organization itself, which is often automatically included in lawsuits.
Why opt for Directors’ and Officers’ Liability Insurance?
Directors’ and Officers’ Liability Insurance complements the Volunteer Protection Act by addressing gaps in coverage, such as those mentioned above. This insurance safeguards individuals and entities against legal expenses arising from lawsuits not covered by volunteer protection laws.
These policies typically include a duty-to-defend provision, obligating the insurer to provide legal representation for the insured parties. This proactive approach ensures protection during legal proceedings, sparing nonprofits from substantial financial burdens.
While the Volunteer Protection Act offers valuable safeguards, it was never intended to replace existing risk management strategies like directors’ and officers’ insurance. Effective risk management requires a comprehensive approach, encompassing multiple protective measures to secure a nonprofit’s financial future.
