According to the Nonprofit Risk Management Center the Board Members of Non- Profits are not liable for the debts of the nonprofit organizations if the entity has been created as a corporation. However, the board members have a legal responsibility to exercise due diligence and due care in the performance of the organization.
Therefore, if you are a Board Member make sure that all of the actions taken and the decisions made meet the rules and regulations of the entity. Particularly, is very important to review very carefully the financial statements, the budgets and the contributions to projects or to third party organizations.
Recently, a friend of mine who is a member of a Board of Directors for a Non-Profit Organization told me that a furious member filed a legal suit against the Board of Directors because they approved a sponsorship to a third party. The complaint stated that the amount given exceeded the Board authority and would need the approval of a majority of members.
In fact, a recent survey conducted by the Risk and Insurance Management Society found that around 36% of the entities who purchased Directors and Officers insurance have filed claims in the last ten years. Most importantly, 63% of the claims have been filed by Non-Profits while 33% by Public Entities and 27% for private organizations.
Therefore, if you are a Board Member of a Non-Profit Organization, I strongly recommend to read very carefully the rules and regulations before to vote. Also, it is useful to request a second opinion about the insurance policy to make sure it has the limits and coverage needed in order to diminish potential liabilities.