A common misconception is that a theatre group's package policy (general liability and property insurance) will take care of all possible claims against the group.

This is simply not true. If a patron slips and falls because of your negligence, the claim could be handled under your general liability policy. If a valuable costume is stolen, your property insurance will probably cover the loss. If the Directors & Officers are sued after being accused of mismanaging funds, your package policy will offer absolutely no protection to the individual board member or to the group as a whole.

And yet, many Directors and Officers of non-profit theater organizations routinely ignore prudent business practices because they mistakenly believe that the legal risks are minimal or that their state immunity laws will protect them.

The fact is, Directors and Officers of non-profit theater groups have many of the same liabilities as do the board members of Fortune 500 corporations.

Non-profit organizations are supposed to be operated for the benefit of their members. These intended beneficiaries, together with employees, creditors, patrons, vendors, state regulators and others are all potential plaintiffs in lawsuits filed against Directors and Officers if their decisions turn out to be ill-advised or improperly carried out.

Almost any day today decision or action by anyone in your organization can trigger a lawsuit that threatens not only the finances of the organization but the personal assets of the Directors, Officers and volunteers as well.

The list of possible decisions or actions that could be legally
challenged is almost endless, but a few examples are:

· Exercising poor judgment in the conduct of the theater organizations affairs
· Misleading representation to the members
· Improper payments
· Acts in bad faith
· Mismanagement of funds
· Failure to collect assessments
· Wasting the theater groups assets
· Wrongful termination
· Discrimination
· Breach of loyalty
· Failure to maintain the property of the organization
· Failure to maintain the confidentiality of information
· Conflict of interest
· Failure to obtain competitive bids

It is not all bad news, however. There are several things you can do to protect yourself.

1.KNOW YOUR RESPONSIBILITIES

It is generally agreed that Directors and Officers have three essential duties.

*Directors and Officers must act with the same care that a "reasonably prudent
  person" in a similar position would use under similar circumstances.

*Directors and Officers must perform their duties in accordance with the
  applicable state laws and the terms of the organizations charter.

*Directors and Officers must avoid activities that would injure or take
  advantage of the organization; particularly using their positions within the
  organization for personal gain.

As you make the day today decisions that all Directors and Officers must make, think about those decisions within the context of these three duties. It is also a good idea for out-going Board Members to review these duties with new Board Members to insure continuity.

2.INDEMNITY

Your theater organizations charter should include provisions to indemnify (protect against loss) Directors & Officers, as well as all volunteers, to the fullest extent possible within the applicable laws of your state.

Get a lawyer in your theater group to review your charter. This should be done periodically since laws are constantly being changed or reinterpreted.

3. DIRECTORS AND OFFICERS INSURANCE

 As insurance companies develop Directors and Officers policies tailored to the specific needs of non-profit organizations, this once expensive coverage is increasingly available to more and more theater groups.

Before rushing out to purchase a D & O policy, however, consider the following:

· Does the policy protect staff, volunteers and committee members or does it only
  protect the Directors and Officers?

· Are the defense costs paid on behalf of (as needed) or are they reimbursed only
  after settlement? Also, are the defense costs paid "in addition to" the limit?

· How broad is the policy's definition of "wrongful acts"?

· Does the policy cover you even if you are sued by another person covered by the
  same policy?

· Is there coverage for the organization, itself? Without "Entity Coverage", claims
  brought against the organization (with or without individuals also being named)
  will not be covered.

· Is there prior acts coverage?

· What are the cancellation terms?

As with any decision, whether or not to purchase a D & O liability insurance policy should be determined only after careful investigation, thought and consideration.

Many think that D & O liability insurance is the most important coverage a community theater can buy. They argue that other insurance coverage protects the theater from financial loss. The D & O policy is the only one that protects the volunteers personally.

While this may be true, purchasing such a policy still involves the allocation of precious financial resources so it is always a good idea to investigate thoroughly before buying.

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NOTE: This article was published in 1996. In 1997, the US Congress enacted the Volunteer
Protection Act (VPA) which was supposed to offer volunteers in non-profit groups protection  from liability claims. While the law offers some protection, it is limited. For more information on VPA see VOLUNTEER PROTECTION!?  [OCT/97].
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