Claims against directors or officers typically fall outside of professional indemnity insurance policies.

CPA Australia members who may be appointed as a director or officer of a not-for-profit (NFP) or voluntary organisation may need to purchase insurance which is tailored for such appointments.

What is directors' and officers' insurance?

This insurance allows members to undertake activities outside of their companies without placing themselves or their assets at personal risk of a claim being made against them.

Directors' and officers' appointments tend to be conducted outside of normal practice engagements so professional indemnity insurance is unlikely to provide any cover. A directors' and officers' policy will, however, provide some protection for you, and your assets, against a breach of the duty you owe to others in respect of that appointment.

Key facts:

  • professional indemnity insurance is not designed to cover the exposure for any breach, act, error or omission for which you might be held liable with respect to holding an outside directorship position for non-profit organisations such as clubs, schools, and churches
  • directors and officers have a responsibility to governing bodies such as the Australian Securities and Investments Commission and other regulatory bodies, stakeholders, shareholders, compliance organisations, members, competitors and others
  • when undertaking such directorship positions as a director or officer, you, and your personal assets, may be at risk.

What is an NFP organisation?

To be an NFP, an orgainsation must be:

  • set up for a specific purpose or objective, such as serving the interests of their members or the public
  • an incorporated entity under various Australian state association incorporation acts or as a public company
  • limited by guarantee under the Corporations Act 2001 (Cth).

Insurance solutions

If available, you should purchase insurance which is tailored for non-profit and voluntary appointments in order to protect your personal assets and position.

Usually this type of cover is limited to covering the person insured and named on the policy for outside directorships of non-profit and/or voluntary organisations only, and does not pick up any directorships where work is done through the member’s practice. A broader, more comprehensive coverage is required for this.

This kind of cover does not generally extend to other members of the board, only to the person named in the schedule of cover.

Directors’ and officers’ insurance typically provides cover for defence costs incurred with respect to attendance at official investigations or inquiries concerning the affairs of the corporation, when ordered or commissioned to attend by any official body or institution.

Defence costs in relation to occupational health and safety breaches of law, for which the person named on the certificate may be responsible, may also be covered.

Full cover directors' and officers' insurance

Establish whether the organisation has purchased its own directors' and officers' insurance to protect all directors and officers, including you.

Transfer your risk with some limited cover

Personal directors' and officers' insurance is not readily available from the insurance markets. It is, therefore, always in your best interest to encourage the organisation to arrange the cover.

Related resources

Contact

CPA Australia
publicpractice@cpaaustralia.com.au

Fenton Green & co.
cpa@fentongreen.com.au

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