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I've been asked to serve on the board. Should I be concerned that it doesn't have D&O insurance?

Your Legal Questions Answered

I've been asked to serve on the board. Should I be concerned that it doesn't have D&O insurance?

I have been asked to serve on the board of a local Chamber of Commerce. Should I be concerned that it does not have directors’ and officers’ insurance?

Yes. Although directors are seldom found personally liable in litigation, they are infrequently, but sometimes sued individually and face serious legal bills. In most cases they settle the claims. (See Ready Reference Page: Directors Often Fear Risks of Personal Liability.”) Be sure you are adequately insured, both for general liability and D & O claims. If you aren’t, the corporation may not have the resources to indemnify you and pay the bills. Also be sure the D & O policy covers employment disputes, which produce the largest single type of claims under D & O policies.

Saturday, December 3, 2011

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Comments

I was recently asked to be VP of a relatively young art organization. We have no real money but are slowly building. There is an indemnity clause in the bylaws for officers supposedly protecting us from personal liability. Now here's the weird part: I found out that the founder had some kind of land deal, trying to get a permanent place for the art organization she was starting, that went south and she lost $40,000. That was a few years ago. I don't have any details but it was at least 2 years prior to the organization receiving its 501(c)(3) and having bylaws put in place that say a board, and not the founder, run the organization. Can she come back and try to make us pay her for something she did before any of us were involved? --Maggie Jackson

An indemnification provision in the bylaws protects someone who is made a defendant in a proceeding by virtue or his or her service to the organization.  If your founder lost money several years ago, unless someone is suing her for additional claims, it does not sound as though she would be protected now by an indemnification clause,  Her direct suit against the organization may be barred by the statute of limitations.  Even if she did have a claim against the organization, it does not appear that she would have a claim against any of the new officers or directors personally.  --Don Kramer

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