Directors and officers (D&O) liability insurance protects the people who run an organization against claims about how they ran it. Both for-profit and nonprofit boards face this exposure.

For-profit companies: a central exposure is the shareholder derivative action, a suit a shareholder brings in the right of the corporation, claiming the directors' decisions harmed the company. California Corporations Code §800(b) sets the conditions a shareholder must meet to bring one. The corporation is the injured party.

Nonprofits: a California nonprofit public benefit corporation can face a suit for breach of charitable trust. Under Corporations Code §5142(a), it may be brought by the corporation (or a member in its name), an officer, a director, a person with a reversionary, contractual or property interest in the assets, and the Attorney General or a person granted relator status. A member of the public with none of these roles is not on the list.

Volunteer directors: under Corporations Code §5239(a), a volunteer director of a nonprofit public benefit corporation has no personal liability to third parties for negligent acts that are within the scope of duties, in good faith, not reckless or grossly negligent, and covered by liability insurance. Mileage reimbursement does not affect volunteer status (§5239(b)), and the corporation itself stays liable (§5239(d)). Because the protection is tied to insurance, nonprofits have a direct reason to carry coverage.

Who is insured: D&O insured persons are the people who serve as directors and officers, past and present. Policies commonly extend to their estates when a claim concerns acts done in that role. Coverage follows the acts done while serving. An outside audit firm is not an insured person; it needs its own professional liability coverage.