So you are considering serving on the board of a nonprofit organization. Are you aware of the implications if someone decides to file a lawsuit against you as a result of one of the decisions you make?
This will be one of the discussion points in a talk on nonprofit board governance issues by Daniel Graziano, an attorney with Szaferman Lakind on Grovers Mill Road.
Graziano’s presentation is part of a seminar aimed at executives, development professionals, and board members for nonprofit organizations on Wednesday, May 8, from 8 to 11 a.m. at Greenacres Country Club in Lawrenceville. Register online at www.uwgmc.org/plannedgiving or call 609-637-4903. Also speaking with will be Benjamin Branche, also of Szaferman Lakind, on tax law, and gift and estate planning for non-profits.
Graziano, who recently became a partner at Szaferman, has been practicing law in the areas of commercial and residential real estate, zoning, general business and corporate law, school law, estate administration, and nonprofit organizations for more than 35 years. Before joining Szaferman, he operated his own law firm in Hamilton Township.
Graziano himself is active in community organizations and is past chairman of the board of Robert Wood Johnson University Hospital at Hamilton. He was also chair of Princeton Day School and served as counsel to the school as well as Far Hills Country Day School, Chatham School, and the Wardlaw Hartidge School.
According to Graziano, people serving on nonprofit boards need to be cognizant of how the position might expose them and their assets to potential claims. “New Jersey provides some general protection for board members — absolving them from liability if they exercise sound business judgment in functioning on their board,” says Graziano. He points out, however, that if a question is raised about the issue of reasonable business judgment, a determination would likely be made by a judge or a jury.
“That means that you could be exposed to significant legal fees to successfully raise such a defense, even though you might ultimately be found not to be culpable,” Graziano says.
And those costs might have to be covered out of the board member’s own pocket. “Though the corporate organizational documents may provide that the company or agency will defend you at their cost, with many non-profit groups the availability of funds to provide such a defense may be problematic,” Graziano says.
He suggests that board members obtain directors and officers liability insurance to avoid significant personal costs in case of litigation against them. “It is the only effective way to protect you from both the legal expenses of defense as well as liability for claims for damages.”
Directors and officers liability insurance generally will pay for defense expenses, financial damages, or settlements. The policy does not cover wages, fines, taxes, penalties, or multiplied damages.
Graziano says that someone considering a seat on a nonprofit board should ask what type of coverage is in force at the organization. Meanwhile, someone who is already serving should be sure that any coverage in effect is evaluated professionally at least every four or five years.
“The reason is that the types of exposure and available coverage may change over time,” Graziano says. “Your current insurance broker may not be keeping up with your needs or product availability.”