by Doug Bechtel
The Actors Theater of Orcas Island
About the Author
Doug has been CEO of non profit cooperative corporations
for 25 years and has served on dozens of non profit boards.
He is currently President of The Actors Theater of Orcas Island,
which was founded in 1999. He is also a founder and current
Secretary of The Orcas Island Community Foundation, and has
recently served on the following non profit boards: The Orcas
Island Medical Center Association, The Orcas Island Sportsmans
Club, the Kiwanis Club and the Chamber of Commerce. Active
in the theater since 1996, Doug has been producer, director,
actor, techie and anything anyone would let him do.
There is probably not a community theater too small to need
Directors and Officers Liability Insurance. If you do not have
it, you need to look at purchasing it; if you do have it, you
need to read the policy. It is likely there have been coverage
changes in the last couple of years.
Lets start at the beginning: What is D & O Insurance? D & O
Insurance provides funds to defend and indemnify the Directors
or Trustees of your theater in the event they are personally
sued as a result of their service on your board. Most state statutes
do a pretty good job of insulating volunteer directors of non-profit
organizations from the consequences of their actions (as long
as they were made in good faith). That is not to say that you,
as a director of your community theater, cannot be sued.
Historically, the courts have been reluctant to substitute
their judgement for the decision of a board member as long as
the board member reached his or her decision in a reasonable
manner. Directors are expected to use the same amount of diligence
they would use making a similar decision in their personal life.
As a classic example, would you buy a house to live in without
looking at it, relying instead on the recommendation of your
spouse or the real estate agent? As a director of your theater,
did you vote to buy a new building without visiting it, relying
instead on the recommendation of the Executive Director or a
board committee? This is called due diligence. The courts will
also look very closely at any decision you make where you have
a financial interest in the outcome (like you own the building
your theater is buying). The courts may also look at how you,
as a director, ensure that your theater is operating properly.
For example, if you have a sexual harassment policy, how does
the board insure that the policy is being followed and the employees
are being protected from sexual harassment?
Let me give a couple of examples where Directors of a non-profit
corporation were sued (none of these were theaters). 1) A non-profit
board was sued for not having enough liability insurance. 2)
A non-profit board was sued for board election irregularities.
3) A non-profit board was sued to block the purchase of an office
building. 4) A non-profit board was sued because the board did
not insure that existing board policies were being followed.
While I do not know the outcome of these lawsuits, one of the
primary benefits of having D & O insurance is to pay the
cost of attorneys to defend the director. If you are sued because
you are a director of your theater, the cost of the litigation
- even if you are ultimately proven innocent - can be significant.
In the event that you, in your job as director, are found in
the wrong, the policy may pay any financial penalty assessed.
As you consider D&O insurance, you need to look at how
to protect the director after he/she is off the board for actions
taken while on the board. Some policies may cover this directly.
I worked for a non-profit (not a theater) that signed a contract
with each trustee when they joined the board that guaranteed
to cover the expenses of litigation for lawsuits whether they
were still on the board or not.
One final comment: D & O Insurance does not cover all lawsuits.
Different policies have different exclusions so there is no hard
and fast rule on coverage. Things that may not be covered: Wrongful
termination, pollution, decisions contrary to law and intentional
misconduct. I have recently heard of policies that do not provide
insurance for events where alcohol is served.
Another final comment: D & O Insurance varies in price
based on coverage and the perceived risk by the insurer. I know
non-profit organizations which pay several hundred dollars a
year for coverage and other organizations that pay $5,000 to
$10,000 a year.
A caveat: I am not an attorney or insurance specialist, just
a community theater afficionado. You need to talk to someone
with more knowledge if have questions or need more information.