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D&O for Charitable and Non-Profit Organizations

Published: Feb 23, 2015

See Client Communications articles Volunteering for Non-Profit Organizations and Charitable Organization Immunity.

Serving as a board member, officer or volunteer for a non-profit or charitable organization is as American as apple pie. With that service, however, there are a few risks.

Individual directors, officers and volunteers may be liable for bodily injury, personal injury or property damage caused to third parties while performing duties for the organization, or for their vicarious liability in directing employees or others should an accident occur during the course of their activities. For more information on these exposures and how they might be handled by homeowners and personal auto policies, see the homeowners technical report Volunteer Service and the PAP technical report Volunteer Services with Personal Autos.

Directors and officers of non-profit and charitable organizations, either individually or collectively, are also exposed to claims that they harmed the organization or someone else in the course of managing the organization's financial affairs and establishing policies. For example, a member of or a contributor to the organization may allege financial loss as a result of a director's or officer's breach of the duty of care or loyalty to the organization. These types of exposures are handled by directors and officers liability policies.

Texas law provides for immunity and indemnity limitations for volunteers working for charitable and non-profit organizations. It is clear, however, that these laws do not eliminate the need for appropriate D&O liability insurance with adequate limits for the individuals who perform services for these organizations.


The Texas Legislature passed special legislation to provide limited immunity to charitable organizations in an attempt to reduce the liability exposure and insurance costs of these organizations. In addition, the law applies to the directors and officers that manage the organizations, and the employees and volunteers that work for them, in order to encourage volunteer services and maximize the resources devoted to delivering these services. (Reference: The Charitable Immunity and Liability Act of 1987, Chapter 84 of the Texas Civil Practice and Remedies Code)

Another law affects the liability of an officer of a nonprofit corporation other than a charitable organization. (Reference: The Texas Non-Profit Corporation Act, Chapter 22 of the Business Organizations Code)

The information below provides a brief overview of these laws as they relate specifically to exposures covered by D&O policies. For more information on these laws and non-D&O exposures, see the CGL technical report Charitable and Non-Profit Immunity.

Scope of the Charitable Immunity and Liability Act of 1987

The Charitable Immunity and Liability Act applies to charitable organizations, defined as (a) any organization listed as an exempt organization in section 501(c)(3) or 501 (c)(4) of the federal income tax statute, if it is a nonprofit corporation, foundation, community chest, or fund organized and operated exclusively for charitable, religious, prevention of cruelty to children or animals, youth sports and youth recreational, neighborhood crime prevention or patrol, fire protection or prevention, emergency medical or hazardous material response services, or educational purposes (including accredited private primary or secondary schools).

In addition, the law applies to any other bona fide organizations of the same types as shown above, organized and operated exclusively for promotion of social welfare by being primarily engaged in promoting the common good and general welfare of the people and the community, provided such organization (1) is organized and operated exclusively for one or more of the above purposes; (2) does not engage in activities which in themselves are not in furtherance of the above purposes; (3) does not directly or indirectly participate in any political campaign on behalf of our in opposition to any candidate for public office; (4) dedicates its assets to achieving the stated purpose of the organization; (5) does not allow any part of its net assets on dissolution or the organization to benefit any group, shareholder or individual; and (6) normally receives more than one-third of its support in any year from private or public gifts, grants, contributions of membership fees.

The law also applies to homeowners associations and volunteer centers.

When serving as an officer, director, trustee or volunteer of a charitable organization, an individual is immune from civil liability if acting in good faith and in the course and scope of his duties.

Scope of the Texas Nonprofit Corporation Act

The protections provided by the Texas Nonprofit Corporation Act apply to nonprofit corporations other than charitable organizations.

The law provides that an officer is not liable to the corporation or any other person for an action taken or an omission by the officer, while the officer is acting in his or her official capacity. This immunity does not apply if the officer's conduct was exercised (1) in bad faith, (2) without ordinary care, or (3) in a manner not in the best interest of the corporation based on the officer's reasonable belief.

Watch Out for Loopholes

These laws sound great in theory, but in the real world, there are many loopholes and exceptions. Agents should be very careful when responding to questions regarding the need for D&O insurance by charitable and nonprofit organizations. The limitations and immunities of this law have not been tested in court and a law is always subject to being overturned by the Texas Supreme Court.

In addition, the charitable organization law does not apply to the duties or liabilities of a board member or an officer to the organization or its members. Nor does the law prohibit plaintiffs from filing suit; these suits still must be defended, and usually at great expense.

The immunities do not apply to an act that is intentional, willfully or wantonly negligent, or done with conscious indifference or reckless disregard for the safety of others. Unfortunately, these points of law will be decided by the jury with help from the plaintiff's attorney.

The answer to nonprofit and charitable organizations' questions regarding their need for D&O liability insurance and what limits they need is, "Yes, you still need all the liability coverage you can get, as much as you can afford." No one should recommend that a charitable or nonprofit organization change its insurance buying habits because of these laws. Too many problems limit the laws' desired effects on the liability of the organizations and their directors, officers, employees and volunteers.