Running a nonprofit enterprise is a complex endeavor with a lot of moving parts. Whether you run an after-school program for inner city youth, a medical clinic for the elderly or a shelter for abandoned animals, you are always working with the public to spread your message and generate funding to keep operations on track. Perhaps more importantly, there are many people in your community who are counting on you to succeed — one good reason to have in place a solid insurance program to help manage your risk.
Nonprofits are not dissimilar to many other businesses, but they are particularly vulnerable to certain types of claims. Here we review the type of issues you might encounter and the kind of coverage you may need.
General Liability Insurance
Like any other business, a nonprofit can be hit at any time with a claim that someone was injured on its premises or on its watch. If you run an afterschool basketball league, for example, a child might trip on the court and break an arm or a leg. Or at a shelter for abandoned animals, a frightened dog might bite a visitor or escape out the front door and bite a passerby. In either event, your nonprofit would have to pick up the cost of the injured person’s medical care.
General Liability insurance protects your nonprofit’s assets by paying the cost of these types of bodily injury and medical expenses claims. It will also cover claims related to property that is lost, stolen or damaged while in your care. Say, for example, a child brings his new bike to your afterschool sports program and it is stolen from the yard, or a dog you “rescue” runs out your front door and is killed by a car. In either case, your General Liability insurance would cover the loss. (Animals are considered property in the eyes of the law. )
Personal and Advertising Injury
As a nonprofit, you undoubtedly rely on advertising to spread your message and generate sufficient income to keep your business afloat. And any time you advertise, you run the risk of being accused of copyright infringement or misappropriation of another company’s “style.” Imagine, for example, that you ask a friend to design a logo for your nonprofit business, and instead of creating an original design, he steals the logo of another company in your town. You could be sued for copyright infringement, even though you had no knowledge of what your friend had done.
Fortunately, General Liability insurance covers these types of claims, as well as allegations of slander, libel or defamation against your firm. It will pay your defense costs in a lawsuit, as well as the amount of any monetary damages (up to the limits of your policy) awarded by the court.
Unlike General Liability insurance, which protects you in the event of a third party claim involving accidents and the like, professional liability insurance covers you for errors you commit in a professional capacity that cause another person harm. Say, for example, your nonprofit provides advice to the elderly about keeping their investments secure, and your advice turns out to be unsound. If someone you helped lost a great deal of money, they could sue you for damages, even if you had done your best to do a good job.
Also called Errors and Omissions coverage, Professional Liability coverage applies to a wide array of service providers and practitioners, including:
- Financial advisors
- Social workers and counselors
- Lawyers and paralegals
Your policy will generally pay defense costs, including attorney’s fees, and any monetary settlement or damages awarded by the court in the event you are sued. Generally written on what’s called a Claims-Made basis, Professional Liability insurance will typically cover only those claims that occur and are filed while the policy is in force. Should you ever decide to cancel your policy, you will need to purchase “Tail Coverage” which covers “prior acts,” or claims that occurred while your prior policy was in effect but were filed after the policy period ends.
Tip: If your nonprofit works with vulnerable populations, such as battered women, emotionally fragile children or survivors of sexual abuse, you may need greater protection than a simple professional liability policy provides. Speak to your Carmoon Group agent about adding additional coverage if you are in this high-risk group.
Directors and Officers Liability
Nonprofit organizations are subject to an incredible amount of scrutiny, both by state and federal regulators and the public at large. What’s more, directors and officers of nonprofits, unlike most business professionals, are expected to be above reproach. That’s one reason why nonprofit businesses purchase Director’s and Officer’s Liability insurance to protect their executive’s assets from lawsuits arising from alleged wrongdoing on their part.
Director’s and Officer’s Liability insurance covers a number of different types of claims, including
claims that a director or an officer:
- Misused the organization’s funds — even a single allegation of misappropriation of company funds can lead to a lengthy and costly lawsuit.
- Failed to perform official duties, such as the fiduciary duty to invest the company’s fund wisely and protect it from financial harm
- Engaged in unfair or illegal employment practices, such as wrongful termination, sexual harassment or discrimination based on age, gender, race or sexual orientation.
The insurance will pay attorney’s fees and other defense costs associated with legal action against a director or officer of the firm. According to one survey of 450 executives, the average claim of this type cost about $350,000 to defend.
D&O insurance is purchased by the company, but does not protect the business itself. Rather, nonprofits use it to attract talented professionals who might otherwise be putting their personal assets at risk by taking a position with the firm.
Tip: D&O insurance covers what are known as “wrongful acts.” It does not cover intentional criminal activity such as fraud or embezzlement.
Worker’s Compensation Insurance
If your nonprofit uses employees or volunteers in the course of doing business, Worker’s Compensation insurance protects them if they are injured on the job. Workplace injuries are all-too-common, and an injured employee may face a variety of expenses, including emergency medical care, hospitalization, long-term rehabilitation and even job retraining if he is unable to return to his previous role. What’s more, he is not going to be earning a paycheck if he is injured and can’t work.
In most states, you must have Worker’s Compensation insurance for your wage-earning employees. However, even if your staff is all-volunteer, it is a good idea to offer them protection as well. Think of it this way: Volunteers work for free to benefit your organization. Shouldn’t you offer them the same protections as employees you pay to come to work? And if that’s not incentive enough, consider this: If a volunteer is seriously injured while working for your nonprofit and is not covered by Worker’s Compensation, his only recourse may be to sue you.
Employment Liability Insurance
An added benefit of carrying Worker’s Compensation insurance for your volunteers and employees, Employment Liability insurance helps protect your nonprofit’s assets in the event you are sued for an on-the-job injury. Say, for example, you run an animal rescue organization, and one of your employees is badly mauled by a large dog who escaped from it’s cage while it was in your care. The employee alleges that the dog’s cage was defective. Therefore, the accident was caused by your negligence and his injuries are your fault. He sues you for $50,000 in lost wages and another $1 million for pain and suffering.
Employment Liability insurance will protect your nonprofit’s assets in the event of just this type of claim. Whether or not the case is decided in your favor, it will pay your attorney’s fees and court costs as well as any financial settlement or monetary damages awarded by the court.