Showing posts with label Insurance. Show all posts
Showing posts with label Insurance. Show all posts

Monday, April 27, 2015

Risk Mangement: Directors of Nonprofits

Court of Appeals to Directors of Nonprofits: “Nonprofit” Does Not Mean “No Risk for You”

WRITTEN BY BRUCE A. ERICSON, JERALD A. JACOBS, AND MARLEY DEGNER
CREATED ON WEDNESDAY, 22 APRIL 2015 12:29



The U.S. Court of Appeals for the Third Circuit recently upheld a $2.25 million jury verdict against the directors of a nonprofit nursing home, holding them personally liable for breach of their duty of care. Their sin? Failing to remove the nursing home’s administrator and CFO “once the results of their mismanagement became apparent.” While the court overturned a punitive damages verdict against five directors (the jury had found nine other directors liable for compensatory damages but not punitive damages), it upheld punitive damage awards of $1 million against the CFO and $750,000 against the Administrator. The decision, while unusual, illustrates that serving on a nonprofit board is not risk-free even if as in this case, the directors do not breach their duty of loyalty or engage in any self-dealing. [In re Lemington Home for the Aged, 777 F.3d 620 (3d Cir. 2015).]

The Lemington Home Case

Founded in 1883, the Lemington Home for the Aged was the oldest nonprofit unaffiliated nursing home in the United States dedicated to the care of African Americans. For decades, the Home had been “beset with financial troubles” and by the early 2000s it was being cited by the Pennsylvania Department of Health for deficiencies at a rate almost three times greater than the average.

In 2004, the Home’s Administrator [Mel Lee] Causey started working part-time while continuing to draw a full salary. That same year, two patients died under suspicious circumstances; an investigation by the Department of Health found that Causey lacked the qualifications, knowledge and ability to perform her job. An earlier independent review also recommended that Causey be replaced. Although the Board obtained a grant of over $175,000 to hire a new Administrator, the funds were used for other purposes and Causey stayed on.

The Home’s patient recordkeeping and billing were in a state of disarray. The Home was cited repeatedly for failing to keep proper clinical records. CFO Shealey stopped keeping a general ledger, instead simply recording cash transactions on an Excel spreadsheet. When a consultant conducting an assessment of the Home for a major creditor requested records, Shealey responded by locking himself in his office, forcing the consultant to “camp outside.” Shealey also failed to collect at least $500,000 from Medicare because he stopped sending invoices.

In January 2005, the Board voted to close the Home, but concealed that fact for three months before filing for bankruptcy. In those three months, the Home stopped accepting new patients, making it less attractive to potential buyers. While in bankruptcy, the Board failed to disclose in its monthly operating reports that the Home had received a $1.4 million payment, which could also have increased its chances of finding a buyer. The court held that these facts supported the jury’s verdict that the defendants had “deepened” the corporation’s insolvency, which the court said was actionable under Pennsylvania law. [777 F.3d at 630.]

The court of appeals upheld the jury’s compensatory damages verdict against the directors despite the Home’s bylaw provision protecting the directors from claims for simple negligence and requiring proof of selfdealing, willful misconduct or recklessness. [Lemington, No. 10-800, 2013 WL 2158543, at *6 (W.D. Penn. May 17, 2013).] Both the court of appeals and the district court held that the evidence supported a finding that the directors breached their duty of care by recklessly (1) continuing to employ the Administrator despite actual knowledge of mismanagement and despite knowing that she was working only part-time in violation of state law; and (2) continuing to employ the CFO despite actual knowledge of mismanagement, including his failure to maintain financial records. [777 F.3d at 628-30; 2013 WL 2158543, at *7; In re Lemington Home for the Aged, 659 F. 3d 282, 286-87 (3d Cir. 2011).] Despite these holdings, the court of appeals reversed the award of punitive damages against the five directors, holding that there was insufficient evidence that they possessed the requisite state of mind and no evidence of self-dealing. [777 F.3d at 634-35.]

The Result in Lemington Home: Unusual But Not Unique


Lemington Home is not the only case in which a court has held that directors of a nonprofit breached their fiduciary duties. Other cases—some new and some old—show how directors of nonprofits sometimes find themselves in the crosshairs, especially after an institution fails.

Perhaps the best-known case is Stern v. Lucy Webb Hayes Nat’l Training School for Deaconesses & Missionaries, 381 F. Supp. 1003 (D.D.C. 1974), where the district court held that the directors breached their fiduciary duties of care and loyalty by failing to supervise the nonprofit’s finances and by approving transactions that involved self-dealing. The court found that the board’s finance and investment committees had not met for over a decade, and the directors had left management of the nonprofit to two officers who worked largely without supervision. Nevertheless, the court declined to award money damages against the directors, opting instead to impose certain reforms on the board.

Starting in 2007, seven years of litigation (and millions of dollars in legal fees) ensued between two nonprofits interested in the creation of a memorial to Armenians who died during the First World War and two of their directors; the nonprofits lost their claims against the directors and ended up having to indemnify them. The district court denied summary judgment on the issue of whether the directors had breached their fiduciary duties but then concluded after a bench trial that the directors’ decisions and the process by which they made them were reasonable and, even if the directors had breached their duty, the corporation could not show that it suffered injury as a result. Armenian Genocide Museum and Memorial, Inc. v. The Cafesjian Family Foundation, Inc., 691 F. Supp. 2d 132 (D.D.C. 2010); Armenian Assembly of America, Inc., et al., v. Cafesjian, 772 F. Supp. 2d 20 (D.D.C. 2011), aff’d, 758 F.3d 265, 275 (D.C. Cir. 2014).

In 2010, the National Credit Union Administration sued the unpaid volunteer directors of Western Corporate Federal Credit Union seeking $6.8 billion in damages on account of the directors’ alleged failure to supervise the credit union’s investment decisions. The credit union had invested heavily in diversified portfolios of securitized mortgage-backed securities; when the credit crisis hit, the NCUA took over the credit union (much the way the FDIC takes over failed banks) and sued the former directors and officers. The district court granted the directors’ motion to dismiss, holding that the directors were protected by the business judgment rule. Nat’l Credit Union Admin, v. Siravo, et al., No. 10-1597, 2011 WL 8332969, *3 (C.D. Cal. July 7, 2011). (Two of the authors of this feature represented all directors and one officer in this litigation.) The officers did not fare as well; the court held that the business judgment rule did not protect them, and at least some officers ended up paying some money to the NCUA and suffering other sanctions.

These cases are unusual, which goes a long ways toward explaining the unusual rulings. Generally, absent fraud, bad faith, a conflict of interest, a wholesale abdication of responsibility, or decisions that are clearly unreasonable based on facts known at the time, the business judgment rule will protect directors of nonprofits from personal liability for a breach of the duty of care. But vindication can take years of litigation and lots of money.


What Are the Lessons of Lemington Home?

You can be sued. To be sure, directors of for-profit corporations are sued far more often than directors of nonprofits, but directors of nonprofits can be sued, nonetheless. 

If you are sued, the litigation can go on for years and be very expensive—even if ultimately you are vindicated. 

Because litigation—even unmeritorious litigation—can be expensive, directors should not serve without the protection of adequate directors’ and officers’ insurance (D&O insurance).

Directors of nonprofits, despite usually being volunteers, can face personal liability for breach of their fiduciary duties and will be held to much the same standard of care as directors of for-profit corporations.

Some states have enacted statutes dealing specifically with nonprofit directors’ duty of care. Pennsylvania has such a statute: 15 Pa. Cons. Stat. Ann. § 5712 (2011). [See Lemington, 659 F.3d at 290. Likewise, California has such a statute: Cal. Corp. Code § 7231.] But it is far from clear that these statutes offer directors of nonprofits any more protection than they offer directors of for-profit corporations; the differences are subtle, at best.

The business judgment rule offers directors some protection, but it is not an all-purpose shield against claims based on dereliction of duty, let alone disloyalty or self-dealing. To gain the protection of the business judgment rule, a director must be assiduous and informed before making decisions. Specifically: 

The board must supervise: it must ensure that the organization’s management are qualified to perform their duties and are actually performing those duties. The failure of the directors in Lemington Home to do this led to their being jointly and severally liable for $2.25 million in damages [777 F.3d at 626, 628.] 

The board must seek and follow independent expert advice where appropriate: the directors in Lemington Home failed to follow the recommendations of independent advisors to replace the Administrator, even after being awarded funds to do so. They also ignored the advice of their bankruptcy counsel. [Lemington, 2013 WL 2158543, at *7.]

Special care must be taken if the nonprofit veers toward insolvency:

Before filing for bankruptcy, consider conducting a viability study. In vacating the award of summary judgment for defendants, the Third Circuit in Lemington Home noted that the Board declined to pursue a viability study before filing for bankruptcy and suggested that this called into question the adequacy of their pre-bankruptcy investigation. Lemington, 659 F.3d at 286, 292. Beware the “deepening insolvency” theory. Although not recognized in every jurisdiction, the theory holds directors and officers accountable to creditors if their post-insolvency management increases the losses that creditors suffer.

This article was originally published as a “Client Alert” on PillsburyLaw.com on March 27, 2015. It is reproduced with permission.

Sunday, October 27, 2013

Comprehensive Information on D&O Liability for Small Nonprofits




2013

Providing Small Nonprofits with BIG Insurance and Employee Benefits 
     
There are several programs which can protect your organization, are easy to implement, and may even save your organization money.

As a member of NYCON, organizations are eligible to obtain the endorsed Directors' & Officers' (D&O) Insurance.
 To become a member of NYCON click here.

For over 45 years NYCON has sponsored great insurance programs for itself and its members.  The Directors' & Officers' Liability Insurance offers LIMITS OF LIABILITY at $1 Million or $2 Million.  The endorsed program underwriter is The Chubb Group of Insurance Companies.
  
Annual Premium Rates for NYCON Members Starting At: 

$675 for $1 Million Limit of Liability* 

$1,075 for $2 Million Limit of Liability* 

 *Pending total number of employees

  
The features of the NYCON endorsed D&O policy include*:

  • Separate limits for both D&O and EPL coverage
  • Loss only deductible
  • Coverage outside Directorship - This extension affords coverage for an Insured Person serving in the capacity of a director of an Outside Entity.
  • Coverage for claims allegin Wrongful Act; including Employment Practices and Personl Injury not covered under General Liability and Professional Liability insurance policies
  • Coverage for all Directors, Officers and employees; including staff, volunteers and committee members
  • Entity Coverage - Claims may be made against the organization itself
  • Any expenses incurred to defend you are paid for in addition to the limits stated in your policy


Additional Benefit:

Access to a toll-free Employment Practices Hotline.  Participants can call in and speak with a qualified employment practices professional from a nationally recognized law firm.

Rates for NYCON Members Starting At:


$675 for $1 Million Limit of Liability* 

$1,075 for $2 Million Limit of Liability* 

  

Eligibility Highlights**:  
  • Under $5,000,000 annual revenue
  • Total 500 employees/volunteers or fewer
  • Positive fund balance and operating income
  • Must be an eligible class of business
  • No prior and/or pending claims
  • Operational for at least 12 months
**Must be a New York organization incorporated as a nonprofit with a 501(c) tax status, a member of NYCON and located in NY.



~Note: D&O insurance, which indemnifies an organization and its officers for alleged wrongful acts resulting from the "management and governance of the organization", should not be confused with General Liability insurance, which protects the nonprofit against liability for property damage, bodily injury, and/or personal injury that it allegedly caused.
CSPlus Logo

For more information, please contact one of our Licensed Account Representatives at (877) 501-4277 or nycon@councilservicesplus.com 

NYCON
Council Services Plus is the Insurance Brokerage Subsidiary of the New York Council of Nonprofits, and provides its members with insurance and employee benefits.

Thursday, October 10, 2013

Comprehensive Information on D&O Liability for Small Nonprofits


2013

Providing Small Nonprofits with BIG Insurance and Employee Benefits 
     
There are several programs which can protect your organization, are easy to implement, and may even save your organization money.

As a member of NYCON, organizations are eligible to obtain the endorsed Directors' & Officers' (D&O) Insurance.
 To become a member of NYCON click here.

For over 45 years NYCON has sponsored great insurance programs for itself and its members.  The Directors' & Officers' Liability Insurance offers LIMITS OF LIABILITY at $1 Million or $2 Million.  The endorsed program underwriter is The Chubb Group of Insurance Companies.
  
Annual Premium Rates for NYCON Members Starting At: 

$675 for $1 Million Limit of Liability* 

$1,075 for $2 Million Limit of Liability* 

 *Pending total number of employees

  
The features of the NYCON endorsed D&O policy include*:

  • Separate limits for both D&O and EPL coverage
  • Loss only deductible
  • Coverage outside Directorship - This extension affords coverage for an Insured Person serving in the capacity of a director of an Outside Entity.
  • Coverage for claims allegin Wrongful Act; including Employment Practices and Personl Injury not covered under General Liability and Professional Liability insurance policies
  • Coverage for all Directors, Officers and employees; including staff, volunteers and committee members
  • Entity Coverage - Claims may be made against the organization itself
  • Any expenses incurred to defend you are paid for in addition to the limits stated in your policy


Additional Benefit:

Access to a toll-free Employment Practices Hotline.  Participants can call in and speak with a qualified employment practices professional from a nationally recognized law firm.

Rates for NYCON Members Starting At:


$675 for $1 Million Limit of Liability* 

$1,075 for $2 Million Limit of Liability* 

  

Eligibility Highlights**:  
  • Under $5,000,000 annual revenue
  • Total 500 employees/volunteers or fewer
  • Positive fund balance and operating income
  • Must be an eligible class of business
  • No prior and/or pending claims
  • Operational for at least 12 months
**Must be a New York organization incorporated as a nonprofit with a 501(c) tax status, a member of NYCON and located in NY.



~Note: D&O insurance, which indemnifies an organization and its officers for alleged wrongful acts resulting from the "management and governance of the organization", should not be confused with General Liability insurance, which protects the nonprofit against liability for property damage, bodily injury, and/or personal injury that it allegedly caused.
CSPlus Logo

For more information, please contact one of our Licensed Account Representatives at (877) 501-4277 or nycon@councilservicesplus.com 

NYCON
Council Services Plus is the Insurance Brokerage Subsidiary of the New York Council of Nonprofits, and provides its members with insurance and employee benefits.

Sunday, May 5, 2013

New Webinars to Start Summer Off Right from NYCON

April Showers Bring May Flowers and lots of NEW Webinars!
New Webinars All Month Long!
  

Know Thy Self: Assessing Organizational Readiness When Taking on the World of Restructuring [Lunch & Learn Webinar]
Presented by Doug Sauer, CEO, 
New York Council of Nonprofits, Inc.

Tuesday May 7th, 2013    11:00am to 12:30pm   
   
Affiliation discussions are a discovery process - uncovering and clarifying motivations, interests, organizational facts and circumstances, strengths and weaknesses. It is a process where potential partners learn about each other and yes, learn about themselves as well. Successful affiliation talks depend largely on each party being prepared, as transparency starts internally first. The more clarity your board and staff leadership can get as to the organization's true operational, fiscal, and "mission" health, the better positioned the organization will be in type of restructuring or collaboration. This webinar, led by our seasoned restructuring expert, Doug Sauer CEO, will guide attendees as to the questions that you should first ask yourselves and then extend to your potential partner. 


Flexible Spending Account Program Through NYCON
New York Council of Nonprofits, Inc.
Tuesday May 9th, 2013    11:00am to 12:00pm   
   
Did you know that an 
FSA (Flexible Spending Account) is a great way for you can help your employees
 save money on day care and health care services as well as over-the-counter items for themselves and their family
members. When you put an FSA in place at your organization, your employees can contribute money deducted from their salary, before taxes are withheld and use this money to pay for eligible expenses. This also means that your nonprofit pays less in payroll
  taxes along with the wonderful benefit to your employees.
Join us on May 9th to hear more about how this benefits your nonprofit, including all the plan details, the process of enrollment, plan features - including debit card, and more about NYCON's services as administration



NYCON Membership Benefits Orientation [Webinar]
Good for Prospective, New & Returning Members! May 17th or June 14th - Your Choice
In our "Get to Know Us" Sessions, NYCON staff will tell you a lot more about our membership benefits - and answer all the questions you have regarding our process, costs and what you get for FREE.  We will be talking about these benefits.
  • Nonprofit Training, Education and Professional Assistance 
  • Cost Savings Solutions for Nonprofits
  • The Nonprofit Voice in New York State   


Life Insurance Program Through NYCON
Presented by Eric Laughlin, Licensed Representative, Council Services Plus
The New York Council of Nonprofits, Inc.
Tuesday May 23rd, 2013    11:00am to 12:00pm   
   
NYCON is pleased to bring an affordable, accessible Life Insurance option to the employees of our Member organizations through MetLife. MetLife is the leader in Group Life Insurance and is in a unique position to help provide the right plan for you as employers - not just today, but over time - to meet the changing needs of businesses and your employeesMany employees purchase life insurance through their workplace, it's a critical part of a company's benefits package - helping employees achieve financial security for their families. You can help employees feel that security by adding Life insurance to their suite of benefits.Join us on May 23rd to hear more about how this benefits your nonprofit, including all the plan details, the process of enrollment, cost and more.


Social Media Myth Busting: If You Build It, Will They Come? [Lunch & Learn Webinar]
Presented by Andrew Marietta, Regional Manager, Central NY Office, NYCON and Valerie Venezia, Vice President, Membership & Marketing, NYCON
June 14th, 2013 11:00am to 12:30pm 

Sometimes it seems like there's a new hot social media tool launched every day of the week. Figuring out what these tools do, how our nonprofit should use them, and frankly, if you need to use these tools can boggle anyone's mind. As busy nonprofit staff and board members we need to know what specific tool do we use for our specific goals? How do we measure success? This webinar will help cut through the clutter of social media mayhem and help you simplify, refocus, and target social media tools based on organizational needs and a focused message (and maybe even some actual metrics!)  

Saturday, April 6, 2013

News from NYCON

Just Like the Tournament, the Camp Finance Discount is Almost Over!
Register Before April 7th to Save... 
Are you still feeling the March Madness? The Camp Finance Team at NYCON still is... and we want to make sure the people who are "mad" about Camp Finance can save on their early registration.

From now through the end of the  "Final Four" (April 7th) you can get a $50 discount on paid Full Conference registration for Camp Finance.

Just click here and enter discount code"MarchMadness" to get $50 off of your paid Full Conference registration (Sorry, no discount applies to Day Trip Registration Rates.)  

 
Looking forward to seeing you on the mountain!
 Please note: This discount offer applies to Credit Card Online or Pay By Phone Orders Only. If you prefer to have our Staff take your payment and registration via phone please contact Amber Vanderwarker at 1 (800) 515-5012 ext. 126.
 
 
We've Got ANI!
 Welcome our Newest Conference Sponsor

ANI is an insurance company governed by nonprofits themselves. 
ANI is a 501(c)(3) tax-exempt nonprofit that is governed by other 501(c)(3) tax-exempt nonprofits. They aren't just a "program" of an insurance company that specializes in nonprofits. Insuring nonprofits is their entire mission.


Explore Employee Benefits that You Can Afford!
Spotlight on our Affordable Dental Program for Employees, Volunteers & Board Members
April 11th, 2013 10am

We know that the Employe Benefits "Market" can becomplicated.  Our job is to help make that world more simple, and affordable for nonprofits. To help you understand each type of benefit, it's coverage features and it's costs we are rolling out a series of short 30-minute webinar spotlights on our administered programs: Health Insurance,Flexible Spending Accounts and our Vision Program - which is new for 2013!

Up next...


4/11/2013 

Stay tuned for Flexible Spending Account & 
Life Insurance Webinars...


DoGoodBuyUs! [Corporate Member Spotlight]
Thursday, April 11, 2013 from 2:00 PM to 2:30 PM (EDT)
Online - Call And Login Information Will Be Sent To You 24-48 Hours In Advance Of This Workshop
At DoGoodBuyUs (http://www.dogoodbuy.us) they believe    consumerism can change the world so, they created the largest marketplace of charity made products.  With each purchase, 50%+ proceedsare dedicated to fighting poverty, hunger, disease, environmental degradation and other life-threatening ills around the globe! As nonprofits around the country look for ways to bolster their fundraising, 100's have turned to DoGoodBuyUs as a way to bridge the gap between causes and the consumer market.

DoGoodBuyUs works with nonprofits around the world, helping them sell the products they (and now we) have created.
DoGoodBuyUs is the newest Corproate Member* of NYCON.

On this spotlight webinar you will learn:
 
  • Why products have become a successful part of many nonprofits revenue generation strategy
  • How to get started, what the process is like, services offered and more..
  • The long term benefits
Join us on April 11th at 2pm for a quick 30 minute overview on just how DoGoodBuyUs can Do Good by your nonprofit & community. *Please note that this company is NOT a NYCON Endorsed Corporate Partner.


Presented by Cynthia Adams, Founder, Grantstaion.com
Friday, April 12, 2013 from 10:00 AM to 11:15 AM (EDT)
Call And Login Information Will Be Sent To You 24-48 Hours In Advance Of This Workshop
This webinar will take participants through the process of establishing a grants calendar for the next 12 to 18 months. Fast-paced, and filled with action steps, Cynthia Adams will discuss how to design and adopt a Grant Decision Matrix before beginning the process of building a specific grants strategy for each project. All participants will also receive a set of worksheets that they can use to create their own approach to building grants calendars and grants strategies for their organizations. This webinar is for beginning, intermediate and advanced grantwriters. 


NYCON Membership Benefits Orientation [Webinar]
Good for Prospective, New & Returning Members!
April 18th, May 17th or June 14th - Your Choice
In our "Get to Know Us" Sessions, NYCON staff will tell you a lot more about our membership benefits - and answer all the questions you have regarding our process, costs and what you get for FREE.  We will be talking about these benefits.
  • Nonprofit Training, Education and Professional Assistance NYCON empowers our members with the best practices, policies, and procedures as well as information on ever-changing regulations, funding, accountability and more.
     
  • Cost Savings Solutions for Nonprofits
NYCON leverages the purchasing power of thousands of nonprofits to bring you economies of scale on everything from Office Supplies to Fundraising Software.
 
  • The Nonprofit Voice in New York State NYCON represents our members on the local, state and national level, giving voice to small and medium sized nonprofits everywhere. 
     
    Register Now


Presented by Susan Weinrich, VP of Organizational Develoment Services, NYCON
Friday, April 19, 2013 from 10:00 AM to 12:00 PM (EDT)
Call And Login Information Will Be Sent Via Email

Developing a strategic plan is an important component of organizational success; developing strategic thinkingthroughout the organization, however, is what enables an organization to make timely and effective decisions before, during, and after the establishment of a strategic plan. This session will provide guidance and offer suggestions on how you can leverage the impact of your strategic plan (if you have one) and build a culture where Board and staff leadership look forward rather than backward and seize opportunities rather than manage crisis. Learn how to improve your organizational decision making and move forward with shared purpose, commitment, and vision.