Fiduciary and Donor Disputes: How Directors and Officers (D&O) Liability Insurance Handles Nonprofit Claims

Directors and officers (D&O) liability insurance is a core protection for nonprofits, NGOs and charities in the United States—especially when fiduciary disputes (benefit plan, pension or trust management) or donor disputes (allegations related to restricted gifts, stewardship, or misrepresentation) arise. This article explains how D&O responds to these common claim types, what is typically covered or excluded, how U.S. carriers price this risk (with city/state examples), and practical steps for nonprofit boards to improve coverage terms.

Why fiduciary and donor disputes matter for U.S. nonprofits

• Fiduciary disputes often allege breach of duty in managing retirement plans, endowments, or donor-restricted funds. These claims can trigger regulatory investigations (ERISA, state attorneys general) and high defense costs.
• Donor disputes commonly involve allegations of misuse of restricted gifts, failure to honor naming rights, or misrepresentations in fundraising. Even if meritless, these disputes create litigation exposure and reputational harm.

Regulatory scrutiny and litigation trends in the U.S. mean even volunteer boards face meaningful risk. For practical board-level guidance, see Why Nonprofits Need Directors and Officers (D&O) Liability Insurance: Protecting Volunteer Boards on a Budget.

How D&O insurance typically responds

D&O policies have several components—individual (Side A), entity (Side B), and indemnification/Entity (Side C) coverage. The way these parts respond to fiduciary and donor disputes often differs:

• Defense costs: D&O usually covers defense costs for claims alleging wrongful acts by directors/officers. Where a claim names the organization itself, defense may come from Side C or a separate entity liability policy.
• Indemnification gaps: If the nonprofit cannot indemnify a director (e.g., insolvent or barred by law), Side A coverage protects individuals personally.
• Fiduciary liability: Some D&O programs include or are paired with standalone fiduciary liability (ERISA) coverage to address employee benefit plan claims. Without this, ERISA claims may be excluded or limited.
• Donor disputes: Many donor-related claims allege breach of duty, misrepresentation, or conversion of funds—these fit within classic D&O wrongful act allegations, but insurers scrutinize whether the claim falls under a breach of fiduciary duty or a contractual dispute/exclusion.

For coverage nuances and common endorsements that help with donor/grant exposures, see Endorsements Every Nonprofit Board Should Consider in Directors and Officers (D&O) Liability Insurance.

Common exclusions and red flags in nonprofit D&O

• Contractual liability and breach of contract claims (unless alleged wrongful act overlaps with director wrongdoing).
• Criminal acts and intentional fraudulent conduct.
• ERISA claims may be excluded unless fiduciary liability coverage is purchased.
• Public policy or regulatory fines and penalties—often excluded or sub-limited.

Grant-related investigations or donor-funding misuse can draw both private civil suits and state/federal regulators. See Grant‑Related Investigations and Regulatory Scrutiny: D&O Coverage Considerations for NGOs for deeper regulatory implications.

Example claims and outcomes (illustrative)

• A volunteer treasurer is sued by a donor alleging misuse of a restricted $250,000 gift. Defense costs escalate to $45,000 before dismissal. Side A D&O coverage pays the defense because the nonprofit cannot indemnify the volunteer.
• A retired employee sues a small charity in Houston alleging mismanagement of a defined contribution plan under ERISA. Without fiduciary liability coverage, the charity faces substantial exposure; with fiduciary coverage, defense and settlement costs are covered (subject to limit and retention).

For more real-world lessons, consult Claims Examples from Nonprofits: Lessons on How Directors and Officers (D&O) Liability Insurance Responded.

U.S. pricing: carriers, sample premiums, and regional notes

Premiums vary by budget size, claims history, operations (healthcare, education, social services), and location. Small nonprofits typically see lower base premiums; larger organizations or those with grant/ERISA exposure pay more.

• Typical U.S. ranges (annual premium, approximate, for $1M limit):
  • Small nonprofit (annual budget <$500K): $1,000–$4,000
  • Mid-size nonprofit (budget $500K–$5M): $3,500–$18,000
  • Large nonprofit or high-risk programs: $20,000–$75,000+

These ranges align with industry guidance for small-entity D&O costs (see Insureon averages) and nonprofit risk commentary from industry groups. Source: Insureon D&O cost data and Insurance Information Institute overview. (See links below.)

Popular carriers offering nonprofit D&O in the U.S. include Chubb, CNA, The Hartford, Travelers, AIG, and Zurich — and brokers such as Marsh, Hub International, and AssuredPartners often place nonprofit programs. Market competition and local risk factors mean quotes vary by city/state.

Table — Sample carriers and starting premiums (U.S., $1M limit, small nonprofit — illustrative)

Regional examples:

• New York City: higher defense/claim costs mean premiums often sit at upper band for a given risk profile.
• Los Angeles / California: similar to NYC—higher defense market and regulatory scrutiny.
• Houston / Texas and Miami / Florida: costs moderate but depend on program exposure (e.g., healthcare operations or grant funding).

When sourcing quotes in New York, California, Texas or Florida, expect underwriters to probe donor restriction policies, investment committee processes, and whether fiduciary liability coverage is included.

Sources and further reading:

• Insurance Information Institute, What is D&O insurance? https://www.iii.org/article/what-directors-and-officers-liability-insurance
• Insureon, D&O insurance cost guide (small business averages): https://www.insureon.com/small-business-insurance/d-o-insurance/cost
• Nonprofit Risk Management Center, D&O/Fiduciary guidance: https://nonprofitrisk.org/

How to improve the odds of a favorable D&O placement

• Maintain written gift acceptance and donor-restriction policies; document spending and reporting for restricted funds.
• Purchase a fiduciary/ERISA endorsement if you sponsor employee benefit plans.
• Keep clear minutes for board decisions about investments, grants, and contested donor issues.
• Work with a broker experienced in nonprofit D&O to secure the right endorsements and limit structure. See How to Present Your Nonprofit Risk Profile to Secure Better Directors and Officers (D&O) Liability Insurance Terms.
• For small charities, consider program design to control costs—see Designing a Cost‑Effective Directors and Officers (D&O) Liability Insurance Program for Small Charities.

Practical checklist for fiduciary and donor dispute readiness

• Document donor restrictions and acknowledgments in writing.
• Maintain policies for conflict-of-interest, investment oversight, and gift acceptance.
• Confirm insurance covers both individual directors and the organization where appropriate (Side A/B/C clarity).
• Buy standalone fiduciary liability coverage if you sponsor qualified plans.
• Train volunteer boards on fiduciary duties and claim prevention. More governance actions and purchasing checklists are available in Checklist for Boards of Directors at NGOs: Managing Risk and Purchasing Directors and Officers (D&O) Liability Insurance.

Conclusion

Fiduciary and donor disputes are among the most sensitive and potentially expensive exposures for U.S. nonprofits. Properly structured Directors and Officers (D&O) liability insurance—paired with fiduciary liability where needed—gives volunteer boards defense and indemnity protection when allegations arise. For nonprofits in high-cost legal markets like New York or California, or those supervising employee benefit plans, securing the correct endorsements and documenting governance practices is essential to contain premium costs and secure meaningful coverage.

External resources:

• Insurance Information Institute: https://www.iii.org/article/what-directors-and-officers-liability-insurance
• Insureon D&O cost guidance: https://www.insureon.com/small-business-insurance/d-o-insurance/cost
• Nonprofit Risk Management Center: https://nonprofitrisk.org/