Short answer: Volunteer directors and executive officers of a California nonprofit public benefit corporation aren't personally liable to third parties for good-faith negligent acts within their duties, but only if the damages are covered by a liability policy (general liability or D&O) or the board made all reasonable good-faith efforts to get available insurance (Corporations Code §5239). That's why D&O coverage matters even for small, all-volunteer boards.
The four conditions in §5239(a)
| # | Condition |
|---|---|
| 1 | The act or omission was within the scope of the director's or officer's duties |
| 2 | It was performed in good faith |
| 3 | It was not reckless, wanton, intentional or grossly negligent |
| 4 | Damages are covered by a liability policy issued to the corporation (general liability or D&O) or to the individual, or, if not covered, the board and the person made all reasonable good-faith efforts to obtain available insurance |
Source: Corporations Code §5239.
Small-budget rule
For 501(c)(3) public benefit corporations with an annual budget under $25,000, the "reasonable efforts" condition is met by making at least one inquiry a year for a general liability policy of at least $500,000 in coverage, if it wasn't available for less than 5% of the prior year's budget (§5239(h)).
What §5239 does not do
- It doesn't protect paid directors or officers. Per diem, mileage and expense reimbursement don't make someone paid (§5239(b)).
- It doesn't limit the corporation's own liability (§5239(d)).
- It doesn't cover self-dealing and certain other claims under §§5233 and 5237, or actions by the Attorney General (§5239(e)).
- It addresses third-party claims for money damages. D&O policies may also respond to other claims, such as employment-related claims, depending on the policy.
Board checklist
- Confirm whether your policy includes D&O, and whether it covers employment practices.
- Keep a yearly record of insurance quotes or inquiries.
- Review your bylaws' indemnification provisions with counsel.
Related: nonprofit insurance guide and D&O insurance for startups.
Frequently asked questions
Are volunteer nonprofit board members personally liable in California?
Not for good-faith negligence within their duties, if the conditions in Corporations Code §5239 are met, including liability insurance coverage or reasonable efforts to obtain it.
Does California require nonprofits to buy D&O insurance?
No statute requires it directly, but volunteer director immunity under §5239 depends on insurance coverage or documented good-faith efforts to get it.
What about very small nonprofits?
501(c)(3)s with budgets under $25,000 meet the requirement with one yearly inquiry for a $500,000 general liability policy, if it wasn't available for less than 5% of the prior year's budget.
Does §5239 protect the organization itself?
No. Section 5239(d) says it does not limit the corporation's liability.
Alishahi Insurance · 439 N Canon Dr, Penthouse, Beverly Hills, CA 90210 · (877) 711-4545 · CA License #4348151. General information only. Not legal, tax or financial advice, and not a coverage determination. Coverage depends on policy language and underwriting, and rules vary by state.
Related guide: Insurance for California nonprofits, step by step