Insurance Matters: Used Up and Left Out

My latest column for CU Management:

Your credit union undoubtedly buys directors’ and officers’ insurance to cover your board members. There is a fly in the ointment, though. What you have for insurance may not be enough. If it is enough, it may not be the right kind. If it is the right kind, it might get all used up.

First, we have to talk about indemnification, which is the act or process of securing against loss. The idea that D&O protects directors and officers is actually a bit off. Your credit union bylaws state that if a director is sued, the credit union will indemnify the board member. Your directors’ and officers’ insurance reimburses the credit union for that indemnification.

In most cases, it is really the assets of the credit union that protect a board member. The D&O policy (up to the limit of coverage) keeps the credit union from being out the cost of the lawsuit. In most cases, the D&O policy really protects the credit union.

Except when it doesn’t.

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