When a non-profit organization approaches dissolution, the question of which insurance policy responds to allegations of governance failure becomes critically important for brokers advising these clients and for counsel assessing coverage availability. The distinction between directors and officers liability coverage and errors and omissions coverage represents more than a technical classification exercise; it determines whether individuals who served the organization face personal exposure, whether the organization itself has access to defence resources during wind-up proceedings, and whether creditors with valid claims will find any insurance proceeds available to satisfy judgments. Understanding this distinction requires careful attention to the nature of the alleged wrongdoing, the capacity in which the wrongdoer acted, and the specific policy language that governs each coverage form.
Directors and officers liability insurance, commonly referred to as D&O coverage, exists to protect individuals who serve in governance and management capacities from personal liability arising from their decisions in those roles. The coverage responds when someone alleges that a director or officer breached a fiduciary duty, made a negligent decision affecting the organization, failed to exercise appropriate oversight, or otherwise committed a wrongful act in their capacity as a director or officer. The policy typically provides three distinct insuring agreements, though the specific structure varies by insurer and policy form. Side A coverage protects individual directors and officers when the organization cannot or will not indemnify them. Side B coverage reimburses the organization when it has indemnified directors and officers for covered claims. Side C coverage, often called entity coverage, protects the organization itself for certain claims, though in the non-profit context this coverage element is less standardized than in publicly traded company policies.