In helping their industry establish the standards that protect the public, those leaders may make mistakes or be subject to the errors of others on their team. A trade association carries financial risks that board members may fail to recognize or consider.
Lawsuits alleging mismanagement, negligence, and other claims can quickly drain an association’s limited budget. However, by securing directors’ and officers’ (D&O) insurance, trade associations of all types and sizes can find protection against potentially catastrophic legal costs.
There are several compelling reasons why every trade association should prioritize obtaining adequate D&O coverage to safeguard the personal assets of association board members and officers. D&O insurance covers the entity’s legal expenses and damages, too.
Here are 7 key reasons trade associations need D&O insurance as part of their risk management strategy:
1. Protects Personal Assets of Association Leaders
Serving on the board or as an officer of a trade association is a big responsibility. These leaders make strategic decisions that impact membership, programs, budgets, staffing, and more.
Despite acting in good faith, board members and officers face a real risk of being personally sued for their management decisions and oversight. Allegations may include mismanaging funds, conflicts of interest, failing to properly oversee staff, and other claims.
Without D&O insurance, any legal judgments would come out of the personal assets of the board members and officers. These assets can include their homes, retirement accounts, college savings, and other finances, which could be completely drained. In some cases, their spouses’ assets may even be pursued.
D&O coverage helps shield the personal finances of association directors, officers, and trustees. It pays for any legal judgments or settlement amounts they become legally obligated to pay because of a claim. This protection gives trade association leaders the confidence to serve without worrying about destructive financial liability.
2. Safeguards Association Finances
Since trade associations operate on budgets primarily funded through member dues, legal claims pose a monumental financial threat. Even small lawsuits could financially damage associations lacking the proper D&O insurance.
Defending against allegations and lawsuits requires substantial attorney fees. Large claims resulting in settlements or court judgments could bankrupt associations without protection.
D&O insurance covers these legal costs, allowing trade associations to serve members despite lawsuits. Beyond legal expenses, claims divert time and energy away from an association’s core operations.
Leaders forced to focus on their defense are distracted from membership programs, conferences, and other priorities. D&O Insurance reduces this operational disruption by providing a skilled legal team to skillfully manage the legal process of claims.
3. Covers Prior Acts of Association Boards
D&O insurance contains retroactive coverage for decisions made by previous association boards and leaders. This “prior acts” coverage ensures seamless protection between consecutive D&O policies.
Without prior acts coverage, a gap could exist whenever an association changes D&O insurance providers. If a new insurer doesn’t cover prior acts, lawsuits could arise over past decisions not covered under the new policy.
This exposes trade associations and their leaders; prior acts coverage eliminates this potential gap.
4. Attracts Qualified Leaders
Recruiting experienced and strategically-minded board members is essential for trade association success. However, many qualified leaders may hesitate to assume these roles without insurance protection as the potential financial risk gives pause.
By providing D&O coverage, associations alleviate this concern over personal liability. This makes board and officer positions more appealing to seasoned professionals despite the litigation risks of association management, enabling trade associations to build all-star leadership teams.
5. Handles Employment Practice Liability Claims
As employers, trade associations face employment-related lawsuits from current or former staff, just like corporations. Wrongful termination, discrimination, harassment, and other employee allegations can name association leaders individually as defendants.
Even if associations have separate Employment Practices Liability Insurance (EPLI), it may not fully cover directors and officers. There can be gaps between EPLI and D&O coverage. Carrying both policies ensures all bases are covered from an employment liability standpoint. D&O insurance picks up where EPLI limits are exhausted.
6. Provides Entity Coverage
In claims relating to association mismanagement, the entity will often be named as a co-defendant, along with individual board members and officers. General entity coverage protects associations directly when named in these lawsuits stemming from leadership decisions.
For larger trade associations, entity coverage takes the form of securities claims coverage. This ensures associations against substantial lawsuits related to membership shares, fundraising/investing activities, misrepresented financials, and other securities violations.
Entity coverage as part of a D&O policy is essential for associations with complex financial operations.
7. Covers Fiduciary Liability Risks
Mishandling employee benefits such as health insurance plans, pensions, or 401(k)s can trigger costly lawsuits alleging breach of fiduciary duties. As sponsors of these employee benefit plans, associations carry liability risks that require specialized fiduciary liability insurance.
Trade associations can seamlessly cover this increased exposure area by adding fiduciary liability as an endorsement or rider to their D&O policy. It protects associations administering benefits plans from potentially bankrupting claims of mismanagement. This coverage is relatively affordable and provides peace of mind.
Protect Your Trade Association with D&O Insurance from CI Solutions
Trade associations provide essential value but also carry risks requiring mitigation. By securing proper directors’ and officers’ liability insurance, associations protect their leaders, safeguard organizational finances, and ensure the continuity of member programs and services.
With these high stakes, associations must partner with an experienced insurance advisor. CI Solutions’ trade association insurance specialists have consulted with associations for years.
Our team will work closely with you to gain an in-depth understanding of your association’s particular risks and goals. Contact us today at 703.988.3665 or online to discuss securing the right D&O insurance to support your organization’s mission.