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Trustees ponder the question of trust.

Robert L. Dilenschneider, founder and chairman of New York-based The Dilenschneider Group Inc. counsels high-ranking executives at companies around the world. He is hearing a growing concern among trustees of nonprofit groups about how well- or ill-protected their own personal financial assets would be in case any charges of wrongdoing were leveled against officers and trustees of the organization.

As a result of increased accountability for trustees, Dilenschneider sees the development of a relatively new phenomenon emerging among directors and trustees, especially among nonprofits: so-called "personal" liability policies. These products are designed by insurers as a form of a personal liability flak jacket for trustees that goes beyond what an institution already may have in place for trustees as a whole.

"This new accountability is changing the way people sit on these boards, and it should," says Christiane Fischer, CEO of AXA Art Insurance Corp., New York. "Trustees must reconsider why they are on these boards. As well as providing trustees with additional insurance comfort, these individual policies should strengthen the financial structure of museums and the communities they serve."

Steven Pincus, senior vice president and leader of the fine arts practice at Marsh, says that the traditional "pooled," or collective approach to indemnify trustees--in which a set amount of insurance is made available to provide for the defense of charges against one or all of the trustees--is still the industry norm. But, he agrees, that structure is being challenged.

"They've learned from their experience in the corporate world that provisions of the Sarbanes-Oxley regulations and other laws created in just the past few years also may well come to apply to trustees of nonprofit organizations," says Charlie Lyons, senior vice president at "Marsh. "Certainly more and more trustees are going to want personal lines of insurance, but the board member is going to request that the institution pay for it. And how can one or two trustees get supplemental insurance while others don't receive it? Where it really gets tricky is if a line of personal lines of insurance is used to attract somebody to serve as a director. What are the other trustees going to say if they don't have that supplemental, individual insurance?"

Elda F. Martocci, St Paul Travelers' vice president and product manager of nonprofit directors and officers liability, points out the roots of an epidemic of personal lawsuits against nonprofit organizations really took hold in the early- to mid-'90s, with the lawsuits springing from the Equal Employment Opportunity Act.

Most industry leaders agree that Chubb was the pioneer in offering so-called "individual" or "personal" insurance policies for directors and trustees, introducing its Personal Director's Liability line about a year and a half ago. The product was structured so that directors and trustees would have a means to "go above and beyond their companies' directors and officers liability insurance," says Robert C. Cox, COO of Chubb Specialty Insurance.

One of policy's most attractive features seems to be that the policy can "follow," or "travel with" a director or a trustee from one board to another, obviating the need for a separate, personal policy for each board on which that person serves. In addition, other major features include a last-line-of-defense that comes into play if and when an organization's traditional D&O policies have been rendered ineffective or void.
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Publication:Risk & Insurance
Date:Nov 1, 2004
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