Directors and Officers Insurance
Key point 6-08.01. Directors and officers insurance provides coverage for various acts committed by board members in the course of their official duties. Such insurance may provide coverage for claims that are excluded under a church's general liability policy. It also may cover acts not protected by the federal and state limited immunity laws.
Should churches obtain "directors and officers" insurance coverage for the members of their board? Does the enactment of the Volunteer Protection Act (and corresponding state laws) make such insurance unnecessary? Not at all. The legal protection provided by these laws is not absolute. They do not apply if a board member receives any form of compensation (other than travel expense reimbursements), and they do not apply if a board member is accused of gross negligence. Directors and officers insurance will provide coverage for such exceptions. Just as importantly, the insurance company is responsible for providing legal representation in the event a director or officer is sued directly.
Case study. An Alabama court ruled that a church's "directors and officers" insurance policy covered a lawsuit brought against a pastor for improperly obtaining money from an elderly member. Graham v. Preferred Abstainers Insurance Company, 689 So.2d 188 (Ala. App. 1997). The daughter of an elderly church member was appointed guardian of her mother's property. The daughter sued the minister of her mother's church, claiming that he improperly obtained funds from her mother by means of conversion, fraud, and undue influence. The minister notified the church's "directors and officers" insurer of the lawsuit and asked the insurer to provide him with a legal defense. The insurer asked a court to determine whether or not the minister's actions were covered under the insurance policy. The court concluded that the insurer had a legal duty to provide the minister with a defense of the lawsuit. It noted that the church's insurance any lawsuit brought against them by reason of alleged dishonesty on their part unless a court determined that the officer or director acted with deliberate dishonesty. Since the minister had not yet been found guilty of "deliberate dishonesty," he was covered under the insurance policy. The court acknowledged that if the minister was found to have acted with deliberate dishonesty in the daughter's lawsuit, the insurer would have no duty to pay any portion of the judgment or verdict.