Introduction
Nonprofit groups work hard to make the world better. They help people, support communities, protect nature, and much more. But running a nonprofit means making big decisions. Sometimes, these decisions can lead to problems. A leader might be blamed for spending money the wrong way, making a poor choice, or treating someone unfairly. When that happens, both the nonprofit and its leaders can be sued.
This is why Directors and Officers (D&O) insurance for nonprofits is so important. D&O insurance helps protect leaders and the nonprofit if someone files a lawsuit. In this guide, we’ll explain what D&O insurance covers, what it doesn’t, and why your nonprofit should have it.
Key Takeaways
✅ D&O insurance protects nonprofit leaders and the organization
It helps pay for legal costs if someone sues over decisions made by directors, officers, or board members.
✅ Nonprofit leaders can be sued even if they meant well
Nonprofit status does not prevent lawsuits. Without insurance, a leader’s personal assets could be at risk.
✅ D&O insurance covers many types of claims
This includes claims about misused funds, poor decisions, employment issues, and government investigations.
✅ Some things are not covered
Crimes, acts done on purpose to harm, and property damage are not covered by D&O insurance.
✅ Legal costs can be very high
Even a groundless lawsuit can cost tens of thousands of dollars, taking money away from programs.
✅ Choosing the right policy matters
A strong policy covers both the group and its leaders, pays legal costs separately from settlement funds, and may include employment-related claims.
✅ D&O insurance is part of a full protection plan
It works with general liability, employment practices, cyber, and fiduciary insurance to keep the nonprofit safe.
✅ Having D&O insurance helps nonprofits stay focused on their mission
It provides peace of mind so leaders can serve without worrying about legal risks.
What Is D&O Insurance for Nonprofits?
D&O insurance protects the people in charge of a nonprofit—such as directors, officers, board members, and sometimes volunteers. If these leaders are accused of making a mistake, D&O insurance helps pay for legal costs and related expenses.
Some people think nonprofit leaders can’t be sued because the group doesn’t make a profit. But that isn’t true. Even if a leader tries their best, someone might still file a lawsuit. Without insurance, a leader’s personal savings, home, or other property could be at risk. D&O insurance helps protect against that.
What Does D&O Insurance for Nonprofits Cover?
D&O insurance helps with many types of claims. Let’s look at some of the most common.
Claims About Mismanagement
Nonprofit leaders make decisions about money, staff, and programs. If someone believes those decisions were bad, they might sue. D&O insurance helps cover:
-
Claims that money was spent the wrong way
-
Claims that donations or grants were misused
-
Claims that poor choices harmed the nonprofit
Example:
A company donates money to build a playground. Later, it claims the money was used for office costs instead. It sues the board. D&O insurance helps pay to defend the nonprofit.
Claims About Employment Issues
Nonprofits can face lawsuits from employees, volunteers, or job applicants. These claims might say:
-
Someone was treated unfairly because of race, gender, age, or disability
-
Someone was harassed or bullied
-
Someone was fired unfairly
Some D&O policies include coverage for these claims. Others may work together with employment practices insurance.
Claims About Breaking Duties
Nonprofit leaders must:
If a leader is accused of breaking these duties, D&O insurance helps. For example:
Claims from Government Agencies
Nonprofits must follow many rules and laws. If a government agency says the nonprofit did something wrong, D&O insurance can help cover legal costs. This might include:
Claims About Poor Decisions
Sometimes decisions don’t go as planned. A leader might be sued over choices that others believe hurt the nonprofit. For example:
What D&O Insurance Does Not Cover
D&O insurance doesn’t cover everything. It usually does not cover:
-
Crimes or acts done on purpose to hurt someone
-
Injuries or property damage (this is covered by other insurance)
-
Personal gain from illegal or unethical actions
-
Simple contract disputes unless tied to bad management
Why Nonprofits Are at Risk
Even small nonprofits can face lawsuits. Some reasons why:
-
Many nonprofits have small budgets and no legal team
-
Leaders may be volunteers without formal training
-
Donors, members, and government groups expect strong oversight
Even if the nonprofit did nothing wrong, a lawsuit can cost a lot to fight.
Realistic Examples
-
A former employee sues, saying they were fired unfairly.
-
A donor sues, claiming their money was not used as promised.
-
A government office investigates how the group raised or spent funds.
All of these situations can lead to high legal costs.
What Nonprofits Should Look For in D&O Insurance
When choosing D&O insurance, nonprofits should look for:
-
Claims-made coverage: The policy covers claims made during the time it is active.
-
Separate legal cost limits: The policy pays for legal costs without using up settlement money.
-
Coverage for the nonprofit itself: Some policies protect both the group and its leaders.
-
Employment claims coverage: This is helpful because many claims come from staff or volunteers.
-
Advance payment of legal costs: The insurer pays lawyers directly as costs arise.
Common D&O Claim Scenarios (Hypothetical)
-
A food bank’s board is sued by a donor over misuse of funds. The cost of defense is $85,000.
-
A small education nonprofit spends $100,000 on lawyers during a state investigation about a grant. No wrongdoing is found, but the legal costs are high.
-
A housing nonprofit settles with a former manager who says they were fired for raising safety concerns. The case costs $75,000 to resolve.
Mistakes to Avoid When Buying D&O Insurance
Some nonprofits don’t get the right coverage. Here are common mistakes:
-
Choosing a policy with low limits that can’t cover legal costs
-
Forgetting to include employment-related claims
-
Missing coverage for past decisions
-
Buying a policy where legal costs reduce what’s left to pay claims
The Cost of D&O Claims
Lawsuits can cause serious financial problems for nonprofits:
-
Defense costs can easily reach $50,000 to $100,000 or more
-
Settlements can take money away from programs
-
Lawsuits can damage the nonprofit’s reputation and donor trust
Example:
A youth center is sued over a contract issue. The cost of defense delays an after-school program because funds are used for legal bills.
How D&O Insurance Fits With Other Insurance
D&O insurance is part of a complete insurance plan. A good plan may also include:
-
General liability insurance for injuries or property damage
-
Employment practices insurance for staff-related claims
-
Cyber insurance for data breaches
-
Fiduciary insurance for claims about benefit plans
Working with an experienced insurance agent can help nonprofits get the right mix of protection.
Conclusion
Nonprofit leaders work hard to help others. But they also face risks that could harm them and their organizations. A lawsuit—even one without merit—can cost a nonprofit time, money, and trust.
D&O insurance for nonprofits helps protect both the leaders and the group. It helps pay legal costs, settlements, and other expenses so the group can keep focusing on its mission.
👉 Make sure your nonprofit is protected. Visit kelstarinsurance.com/contact or call 307-316-8240 to speak with Kelstar Insurance about D&O coverage today.
Frequently Asked Questions (FAQs)
What is D&O insurance for nonprofits?
D&O insurance helps protect nonprofit leaders—like directors, officers, and board members—if someone sues them for decisions they made while doing their job. It can also help protect the nonprofit itself.
Why would a nonprofit need D&O insurance?
Even though nonprofits do good work, they can still be sued. Someone might claim that a leader made a bad decision, spent money the wrong way, or treated someone unfairly. D&O insurance helps cover the costs of fighting these claims.
Does D&O insurance protect volunteers?
Yes, many D&O insurance policies for nonprofits also protect volunteers who are acting in leadership roles or making decisions for the group.
What kinds of claims does D&O insurance cover?
D&O insurance can cover:
-
Claims about spending money the wrong way
-
Claims about poor decisions that hurt the nonprofit
-
Claims from employees or volunteers about unfair treatment
-
Claims from government groups about not following rules
What is not covered by D&O insurance?
D&O insurance does not cover:
-
Crimes or acts done on purpose to harm someone
-
Injuries or property damage (these are covered by other insurance)
-
Personal gain from illegal or unethical actions
-
Simple contract disputes not tied to bad management
How much can a D&O claim cost?
Even a small claim can cost a lot. Legal fees can add up to $50,000 or more. Some claims cost over $100,000, even if no one did anything wrong.
How is D&O insurance different from general liability insurance?
General liability insurance covers things like injuries or property damage. D&O insurance covers claims about decisions made by leaders or the board.
How can I get D&O insurance for my nonprofit?
You can contact an insurance agency that understands nonprofit risks. 👉 Visit kelstarinsurance.com/contact or call 307-316-8240 to talk with Kelstar Insurance about your options.
This article has been a collaboration between Kelstar Insurance and OpenAI’s ChatGPT. Created on July 29, 2025, it combines AI-generated draft material with Kelstar Insurance's expert revision and oversight, ensuring accuracy and relevance while addressing any AI limitations.