GNH Community

nonprofits,local leaders & Grt.New Haven business sharing information

Nonprofit Board Duty of Care & D&O Insurance

Talk about a life lesson in fulfilling one's duty of care AND addressing personal risks, the NC New Schools board is a case example that couldn't be better. Simple lessons: one of the first questions a nonprofit board member should ask: do you have Directors & Officer's Insurance? Another question each year: has our D&O Insurance been paid?

Of course, the board should have been asking a lot more questions to understand first, how the organization was doing that it was heading for bankruptcy and then, as bankruptcy was at the door, understanding "what next". And, as the News Observer article notes, the folks where served as board members should have known better.

High-profile New Schools’ board, officers unprotected after insurance policy goes unpaid

After NC New Schools files for bankruptcy, directors learn their insurance lapsed

Expert says extremely rare for nonprofits to lack directors and officers policy

CEO and other officers more exposed than board of directors

The officers of NC New Schools, including CEO Tony Habit, are more exposed to liability under state law than the board of directors, and an insurance policy that would have protected them against lawsuits or legal claims was allowed to lapse. Chris Seward cseward@newsobserver.com

BY JOSEPH NEFF

jneff@newsobserver.com

After the nonprofit NC New Schools suddenly collapsed in April, its high-profile board of directors learned that the unpleasant news went beyond a bankruptcy filing.

The board’s insurance policy had lapsed, leaving the directors unprotected against lawsuits or legal claims.
It is extremely unusual for nonprofits to lack directors and officers insurance, commonly known as D&O insurance, according to UNC law professor Thomas Hazen, an expert on nonprofits.

“My basic advice is never serve on a board that doesn’t have insurance,” Hazen said. “Not even a neighborhood association.”
The organization’s top officers were also left unprotected.

NC New Schools made North Carolina the nation’s leader in early colleges, which provide college-level classes for high school students. The organization won $11 million in grants from Bill and Melinda Gates, more than $35 million in federal grants and more from North Carolina’s biggest businesses.

In April, New Schools abruptly shut down, giving its 80 employees less than 24 hours notice that their jobs had evaporated. It filed for bankruptcy, showing debts of $1.5 million more than its assets.

Bankruptcy trustee J.P. Cournoyer said the $1 million D&O policy lapsed sometime in 2015.

The board of directors includes a group of heavy hitters. The chairman was Jeffrey Corbett, a senior Duke Energy executive. Others include former BlueCross BlueShield executive Bob Greczyn, former Wake County manager and state senator Richard Stevens, two senior executives at the pharmaceutical giant GSK and others.

Corbett did not return calls about the lack of insurance.

“It’s not what I expected,” said board member Burley Mitchell, a former chief justice of the state Supreme Court. “I guess there were a lot of things I didn’t know.”

Mitchell, who said he had little interaction with NC New Schools over the past three years, said state law protects nonprofit board members more than those who sit on the boards of for-profit corporations.

Hazen agreed, saying state law grants nonprofit board members almost complete immunity from liability. But directors would be liable for legal fees, which are typically covered by insurance.

The court-appointed bankruptcy trustee will investigate NC New Schools’ finances and can seek to recover funds disbursed by the organization.

The News & Observer has reported how chief executive officer Tony Habit knew at least as early as June 2015 that New Schools could face a $2.1 million deficit. In the months before the collapse, emails showed that Habit told his staff to delay the disbursement of federal funds in violation of federal regulations.

When the N&O asked Habit about the lapsed insurance policy, he replied by email, “It was not my decision.” He said another employee allowed it to lapse.

Habit then sent an email saying he had replied by mistake and asked the newspaper to delete his original email.

Hazen, the law professor, said it seemed strange that the insurance policy was allowed to lapse as financial difficulties loomed. Officers, such as Habit and his senior staff, are more exposed to liability under state law than the board of directors.

“The insurance is primarily there to protect him,” Hazen said.

Joseph Neff: 919-829-4516 , @josephcneff

Read more here: http://www.newsobserver.com/news/local/education/article85962707.ht...

Views: 68

Comment

You need to be a member of GNH Community to add comments!

Join GNH Community

Welcome (Bienvenido, Benvenuto, Powitanie, Bonjour! Willkomme,歡迎, ברוךהבא أهلا وسهلا, Bonvenon) to GNH Community. Traducción de esta página

Imagine. Inform. Invest. Inspire.

Working together to build a stronger community - now and forever

 

 

Neighborhoods: What is Working

Open Street Project

Local Initiatives Support Corporation

Foreclosure Risk is Growing, With No Relief in Sight

Homeowners and small landlords are under mounting pressure, as lost income related to COVID-19 leaves them with month after month of unpaid debt and limited ability to catch up. The loss of wealth could impact the next generation and beyond, especially in communities of color, warns LISC’s Denise Scott. “Just as COVID-19 is having a disproportionate impact on the health of Black and Brown families, so too is it exacerbating our racial wealth gap, which already saps so much from our national potential.”

Unlocking Corporate Treasuries for Racial Equity: A Podcast with LISC's George Ashton

George Ashton III, who oversees LISC's Strategic Investments department, joined a recent episode of the podcast Money + Meaning to discuss LISC's Black Economic Development Fund. The conversation delved into the growth of CDFIs and their role in economic development and how more corporations can direct their capital towards systems change that promotes racial equity.

How CDFIs and the UN Can Align the Measure of their Common Goals

By adopting a set of universal benchmarks established by the United Nations—the UN Sustainable Development Goals or SDGs—Community Development Financial Institutions can streamline the way they measure and demonstrate the investments they've been making for decades to help create equity and wellbeing for people and places in the United States. A blog by LISC's Anna Smukowski and the OFN's Andrea Longton explains how and why.

© 2020   Created by Lee Cruz.   Powered by

Badges  |  Report an Issue  |  Terms of Service