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Indemnification without insurance seems superfluous, but how about insurance without the bylaw indemnification clause?

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Indemnification without insurance seems superfluous, but how about insurance without the bylaw indemnification clause?

In one of your answers you state: "One of the key questions to ask before agreeing to serve on a nonprofit board is whether the organization has an indemnification policy properly spelled out in the bylaws, and whether it has insurance to back it up."

I have been asked to join a board that carries officer and director liability insurance but nowhere in its bylaws (or elsewhere) is it written that the organization will indeed indemnify this same group. Indemnification without insurance seems superfluous, but how about insurance without the bylaw indemnification clause?

If I had to choose between the two, I would take insurance, but you really need both.  While insurance will likely cover you in the event of a claim, if the organization loses -- or does not renew -- its insurance, you may be unprotected.  State nonprofit corporation laws normally permit a broad range of indemnification, but they are usually very limited in the protection that they require an organization to provide.  An organization without insurance could decide not to provide the protection if it did not have insurance to cover it.

You also have to be aware that directors and officers insurance is not sufficient to provide the range of protection that you need.  D & O insurance normally excludes claims for bodily injury, the most prevalent type of claim against organizations.  You need general liability insurance for that.  Work with a broker who understands the risks of your organization to get the protection you really need.

Monday, April 11, 2011

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