Directors & Officers Liability (D&O) Insurance

Sports and recreation organizations face common lawsuit exposures that require Directors & Officers Liability insurance

Sports Insurance policyOne of the most common misconceptions is that a Directors & Officers Liability policy covers directors and officers against all types of lawsuits. The fact is Directors & Officers Liability insurance protects the insured organization, its directors, officers, employees, and volunteers against lawsuits based on claims of financial mismanagement, discrimination, violation of rights of others under state, federal, and constitutional law, and failure to follow rules or bylaws when making an administrative decision.

These types of lawsuits are not covered under a General Liability policy, which only responds to lawsuits alleging bodily, property, advertising, or personal injury Likewise, a Directors & Officers Liability policy specifically excludes coverage for the types of lawsuits  covered by a General Liability policy.

Claims Made Coverage Form Challenges

Directors & Officers Liability is written on a “claims made” form instead of an “occurrence” form. Under the claims made form, coverage problems can arise in the event that the policy is cancelled, non-renewed, or transferred to a new carrier. The insurance agent must provide guidance on how to handle these situations, including advice on retro dates, pending or prior dates, and extended reporting periods.

Non-profit vs. for profit organizations

Directors & Officers Liability policies for non-profit sports organizations are relatively inexpensive and typically include broad coverage terms. Minimum premiums may start out at $300 for smaller local organizations and $1500 for larger associations or sanctioning bodies. Of course, pricing will increase with higher revenues, weak financial statements, high-risk nature of operations, if members are to be included under a group program, or if there is a past history of losses. On the other hand, the premiums for profit sports organizations tend to be more expensive with less favorable coverage terms.

Favorable D&O coverage provisions:
  • The insurance carrier must “Pay On Behalf Of” instead of “Indemnify”.
  • Broad definition of “Wrongful Act” as “any” error, misstatement, misleading statement, act, omission, neglect, breach of duty, etc. instead of “negligent” error, misstatement….
  • Defense is included outside of the limits of coverage
  • Broad definition of insured persons to include the entity and its directors, officers, trustees, managers, employees, volunteers, committee persons, etc.
  • Addition of coverage for “personal injury wrongful act” and “publishers wrongful act”.
  • Loss prevention and consultation services.
Common D&O policy exclusions:
  • Deliberately fraudulent act or willful violation of statute or regulation
  • The gaining of any in fact profit or advantage to which the insured person was not legally entitled
  • Any wrongful acts that occurred prior to any “retro date” or “pending or prior date”
  • Prior claims subject to any notice given in any application for coverage
  • Violation of certain securities laws such as Securities Act of 1933
  • Bodily injury or property damage (should be covered under General Liability)
  • Release of pollutants
  • ERISA violations (should be covered under Fiduciary Liability)
  • Employment related wrongful acts (should be covered under Employment Practices Liability)
  • Punitive or treble damages exclusions
  • Insured vs. Insured exclusions are common to provide a disincentive for internal lawsuits between insured persons. Some insurance carriers will eliminate or modify this exclusion.
  • Breach of contract (should try to negotiate removal of exclusion or defense only)
  • Liability assumed under contract
  • Claims arising from serving on board of any outside entities
  • Non-monetary damages such as injunctive relief
Problem D&O exclusions for sports organizations to avoid:
  • Breach Of Contract:: If this exclusion is on the policy, attempt to remove it or amend it so that it does not apply to legal defense for breach of contract. Some lawsuits filed against sports organizations for failure to follow their own rules or bylaws are framed as breach of contract with members.
  • Antitrust Or Restraint Of Trade: This type of litigation occurs in the sports context when a sports organization implements rules that inhibit participation in other sports organizations.
  • Certification, Accreditation, and Peer Review: Many sports organization have training programs where coaches, umpires, or instructors are certified or accredited. Even if this exclusion is not on the policy, a strong argument could be made for a Professional Liability policy to cover this exposure.
  • Non-Monetary Relief or Injunctive Relief Claims: If this exclusion is on the policy, an attempt should be made to amend it so that coverage applies for legal defense. Many lawsuits arise in the sports context when a player is disqualified from participation in a tournament and such player files an action with a judge for injunctive relief to have the tournament postponed until a determination can be made.

Directors & Officers Liability Insurance can include coverage for Employment Practices Liability (EPLI) or EPLI can purchased as a separate component coverage depending on how the policy form is written. EPLI will be discussed in a subsequent blog.

Sadler Sports & Recreation Insurance provides an existing D&O program for local community based sports and recreation organizations for as little as $300 and we can customize a policy for sanctioning/governing associations which will of course be more expensive.

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