Museums and their trustees face a wide array of unique exposures stemming from three principal legal duties: obedience, loyalty, and diligence. While the non-profit museum community is typically very cautious and diligent around workplace and public policies, directors and officers at these institutions will always have some exposure to malpractice accusations – which they can transfer with an appropriate directors and officers (D&O) liability insurance policy.
Non-profit D&O exposure is hardly an alien concept. What is new, and somewhat challenging, for museum boards and trustees is the cultural fervor around the MeToo movement and the mass media attention towards allegations of harassment and discrimination in the corporate world. This has left non-profit organizations feeling “very anxious” about their exposures and what insurance they have to protect themselves, according to Richard Mercardo (pictured), vice president, commercial insurance, Huntington T. Block.
“Within the context of the MeToo movement and news reports about harassment by officers in corporate and non-profit organizations, museums are naturally very anxious about having coverage for those types of exposures – employment practices, mismanagement, harassment, discrimination, and so on - in their liability policies. All of that coverage is clearly stated in non-profit D&O policies,” Mercardo told Insurance Business.
“Our experience recently is that CFOs and CEOs have been reaching out to clarify whether or not they’re covered for these risks. To that, of course, we say ‘yes’. It’s all part of the non-profit D&O policy. With regards to upping their D&O policy limits or choosing different deductibles – that really varies. It really comes down to two things: cost and what the board members are demanding.”
Huntington T. Block is an operating unit of global brokerage giant, Aon. Founded in 1962, it’s the oldest and largest managing general underwriter of fine art insurance in the United States. To meet the insurance needs of the museum community in the US, Huntington T. Block has partnered with the American Alliance of Museums (AAM) to offer customized insurance programs, including a D&O Liability program with a defense costs sub-limit.
Defense costs are what really haunt directors’ and officers’ nightmares. The US plaintiff’s bar is taking companies to town, demanding larger and larger settlements from management liability lawsuits. For smaller non-profit organizations – perhaps a museum with an annual operating profit of $1 million or less – a huge legal settlement could mean a swift operational death.
“One of the programs we write with the AAM is D&O for smaller museums – those who usually buy a limit of $1 million to $2 million, with a deductible of around $1,000 to $2,500,” Mercardo commented. “The smaller museums are often disadvantaged because they don’t have the purchasing power of the larger museums and they don’t have the lawyers and outside expertise to rely upon.
“With our AMM D&O liability program, small museums can get what we call ‘defense outside the limit’. That means that even if the insurance company has to spend $1 million in defense costs, that expenditure will not deplete the museum’s D&O liability policy limit. They’re also reliant on the program to get access to some panel counsel and outside legal advice. Depending on their policy limit, they might have deductibles of $1,000 to $2,500, which isn’t bad for what they get in the event of a lawsuit.”