Trade associations focus on improving the conditions in their industry and promoting commercial opportunities. They operate much like nonprofits and often engage in legislative lobbying to further the interests of their industry. However, it requires great care to ensure that trade associations are fairly representing the interests of their members and conducting their operations legally.
Many people choose to serve on the board of a trade association because it offers them a chance to lend their expertise and improve their industry. Being a director or officer can be a rewarding experience, both personally and professionally. However, directors and officers of trade associations do take on certain legal responsibilities as fiduciaries, which can make them vulnerable to lawsuits. Therefore, it is essential that trade associations have an adequate directors’ and officers’ (D&O) insurance policy in place to provide coverage for any expenses that arise related to legal claims.
What Is Covered By Directors And Officers Insurance?
This type of policy offers protection for claims of wrongful actions carried out by the trade association’s directors and officers. These can include everything from breaches of contract and violations of statutes to allegations of improper self-dealing and fraudulent conduct.
Outlined below are some more specific examples of claims where D&O policies offer protection to trade associations.
Allegations Of Wrongful Acts
These types of allegations may include issues such as improper dealing; violations of provisions of articles, by-laws, or statutes; breach of contract; conflict of interest; torts; fraudulent contracts, financial statements, certificates, or reports; and transactions with companies in which directors or officers have personal interests.
Allegations Of Mistakes Or Errors In Judgment
Mistakes or errors in judgment may include allegations such as the dissemination of misleading or false information, issuing misleading or false reports, disclosing material facts, and allowing the organization to make improper guarantees.
Allegations Of Financial Mismanagement
Financial mismanagement may include wasting assets, selling assets for an unreasonably low price, extending credit where it is not warranted, failing to ascertain whether an extension of credit is warranted, and inefficient administration that leads to losses.
Allegations Of Negligence
This may include failing to file annual reports, failing to detect and stop embezzlement of the trade association’s funds, failing to require withholding tax, failing to properly supervise the activities of others within the association, repeated absences from meetings, failing to fully examine documents and reports prior to signing them, failing to closely inspect the association’s books and records to stay abreast of its activities, shirking responsibilities, and failing to verify the facts listed in official documents prior to signing and filing them.
These types of allegations can be extremely expensive to defend in court, which is why many people are unwilling to serve on a trade association’s board without having this type of insurance in place.
There are ways trade associations can reduce the chances that their officers will face a lawsuit. Although trade associations can never truly guarantee that all of their members will act above board, they should be careful not to tolerate any types of discussions that may violate antitrust laws. Directors and officers also need to communicate to all members that their association does not accept violating antitrust laws.
Trade associations should also establish strict written guidelines for meeting etiquette and discussions to avoid any misunderstandings. All members involved in the association should read these guidelines.
Directors And Officers Insurance Coverage Exceptions
D&O insurance is broad and covers many of the claims that trade association directors and officers may face, but it does not protect against all types of claims. For example, intentional criminal acts such as fraud, cyber risk claims, third-party damage, and personal or bodily injury are not usually covered. Therefore, trade associations should take out separate policies to ensure all the bases are covered.
Other Policies That Protect Trade Associations
D&O insurance is just one of several policies that trade associations need. Outlined below is a brief look at other coverages that can provide maximum protection for trade associations.
These policies cover losses related to data breaches, which is a major concern in the modern business world. This can include the legal fees and expenses involved in notifying parties affected by breaches, the required monitoring of the affected parties’ information following a breach, and the expenses of recovering compromised data.
Trade associations need general liability insurance to provide protection against third-party claims, such as property damage, bodily injury, advertising mistakes, and copyright infringement.
Professional liability insurance provides trade associations with protection against financial losses resulting from errors, malpractice, and negligence.
Call The Experienced Directors And Officers Insurance Brokers
Keep your trade association protected by getting in touch with the experienced commercial insurance brokers at CI Solutions. Our team can assess your trade association’s insurance needs and tailor a package to ensure your organization’s risks are covered. Contact CI Solutions today for directors and officers insurance.