If you serve on the board of a captive, risk retention group, self-insurance pool or trust, you can be held personally liable for the group’s decisions. Claim denials, funding and reserving choices, investments and employment decisions can all lead to lawsuits naming individual trustees.
Trustees’ liability coverage (typically combining directors and officers, errors and omissions, and employment practices coverage) exists to protect you. But these policies are often renewed year after year with little review, and the details that matter most only surface when a claim is filed.
Before your next renewal, ask these five questions.
1. Who exactly is covered?
The definition of “insured” decides who the policy protects. Don’t assume everyone involved with the group is on the list. Check whether coverage extends to:
- Current and former trustees, directors and officers
- Employees, including employed administrators
- Committee members, especially volunteers
- The sponsoring association and its board, if there is one
- Affiliated entities that handle claims administration, loss control or program management
Some of these may be optional or require a separate application. If someone who makes decisions for the group isn’t named, they may be on their own.
2. What’s excluded?
Exclusions are where coverage quietly disappears. A few worth reading closely:
- Insured vs. insured. Many policies exclude suits between insureds. In a member-owned group, that can matter if members or former trustees sue the board.
- Regulatory actions. Investigations by state insurance departments or other regulators may be limited or excluded.
- Fraud and dishonesty. Look for language that keeps defense costs flowing until wrongdoing is actually proven, not just alleged.
- Prior and pending litigation. Know what the policy treats as a known issue before coverage started.
The question isn’t whether exclusions exist. It’s whether they fit the real risks your board faces.
3. Are the limits sized for today?
A limit that made sense when the group formed may not fit its current size, membership or claims history. Ask:
- Are limits shared? If D&O, E&O and employment practices coverage draw from one aggregate limit, one large claim can leave little for the next.
- Do defense costs reduce the limit? Legal fees in a long dispute can use up much of the limit before any settlement.
- How many people share it? Every trustee, employee and affiliated entity may be drawing from the same pool of coverage.
If the group has grown, added members or taken on new lines of coverage, the limits deserve a fresh look.
4. How are claims handled?
How a policy responds to a claim can matter as much as what it covers.
- Defense. Does the insurer defend you directly, or reimburse costs after the fact? Reimbursement means the group may need to fund the defense up front.
- Choice of counsel. Can the board select its own attorneys, or must it use the insurer’s panel?
- Consent to settle. If the board refuses a settlement the insurer recommends, some policies limit what the insurer will pay afterward.
- Reporting deadlines. Most of these policies are claims-made. A late notice can mean a denied claim, so everyone on the board should know what to report and when.
5. What happens when things change?
Because claims-made policies respond to claims filed while the policy is active, changes can create gaps.
- When you leave the board. A claim about a decision you made can arrive years later. Confirm former trustees stay covered.
- When the group changes carriers. Check that the retroactive date carries over so past decisions remain covered.
- When the group merges, dissolves or goes into run-off. Ask what extended reporting (“tail”) coverage is available, for how long and at what cost.
These are the moments when trustees are most exposed, and the easiest to overlook.
Why an independent review matters
The people who place your coverage are often paid a commission on it. That doesn’t mean the advice is wrong, but it does mean someone with no stake in the outcome should look at it too.
The ALS Group is an independent, fee-based risk management consulting firm. We don’t sell insurance and we don’t take commissions, so our only interest is whether your coverage protects you. For more than 30 years, we’ve helped organizations and their boards understand what their policies actually cover before a claim puts it to the test.
Renewal coming up? Talk to us about a risk management assessment and get a second set of eyes on your trustees’ liability coverage.
