Despite the name, nonprofits can buy business owner policies to cover many risks.
One liability lawsuit against a nonprofit can force it out of business, no matter how worthy its mission or works. The following article provides a very brief overview of some topics to discuss with your insurance agent.
Like for-profit organizations, nonprofits face the most common types of liability risks: personal injury lawsuits, contract disputes, and employment disputes. A general liability policy will protect your organization from many types of liability claims, but not all. If someone with your organization causes harm to another person while doing the organization’s work, the policy will protect you in case of lawsuit or claim. They pay costs you become legally obligated to pay another person or entity, such as damages or settlements, along with related legal fees.
A business owner’s policy will also provide liability coverage. Despite the name, nonprofits can buy these package policies. They combine into one policy insurance for general liability, property insurance and business interruption. Business interruption can pay a nonprofit’s ongoing expenses for up to 12 months if a covered event forces a closure.
Bodily injury occurs when someone other than an employee is injured on your premises or is injured by an employee or volunteer while he/she is doing the work of your organization. Nonprofits dealing with vulnerable populations, such as children, elderly or disabled individuals, have higher chances of bodily injury and personal injury claims than other organizations. They should take special steps to screen and train employees and volunteers and to protect the people they serve.
Personal injury
A claim of personal injury involves non-bodily injury of an individual, such as humiliation, loss of reputation or misappropriation of a person’s image. Complying with any applicable state or federal nondiscrimination laws and the latest professional standards for your field can help you avoid many potentially risky situations. To avoid claims of misappropriation of image, be sure to obtain photo and video releases before using a person’s image in any advertising or promotional material, including social media.
Contract disputes
Any nonprofit should have procedures in place for signing contracts. First, be sure that staff and board members know who has authority to enter into a contractual agreement on behalf of the organization. Second, develop protocols for having contracts reviewed when necessary. Contracts involving employment, over a certain dollar amount or that involve any sensitive or potentially risky situations should require the review of more than one staff or board member, plus your insurance agent and/or attorney.
To avoid any personal obligation, directors and officers should verify that any contract they sign on behalf of the corporation clearly indicates that they are signing in their official capacity.
Employment disputes: Employment disputes can be some of the most costly and disruptive liability claims for any organization, whether for-profit or nonprofit. Employment disputes can include claims such as harassment or discrimination on the basis of age, race, gender and pregnancy or family status. Some states further protect individuals against discrimination on the basis of sexual orientation.
Unlike the other liability risks mentioned above, your general liability or business owner’s policy will NOT cover employment-related claims. For these, you’ll need a separate employment practices liability (EPL) policy.
Volunteers
When volunteers cause harm to other people in the course of their official duties, the law will likely consider them agents of the organization…making the organization liable. It therefore pays to give your volunteers adequate screening and training for the type of work they’ll be doing.
What happens if a volunteer is injured while working? Unless you specifically cover volunteers as employees, your workers’ compensation insurance won’t apply. Unlike employees, a volunteer can sue your organization for injuries, so you might want to consider covering your volunteers with workers’ compensation. Letting them know they have this coverage could help you avoid litigation and improve morale among volunteers, who know the organization will take care of them.
Errors and omissions/professional liability
Most general liability policies exclude coverage for professional liability, or injury caused in the rendering of professional services. If your organization provides professional services, such as health or mental health services, you might have no coverage if someone in your organization causes harm to a client. Errors and omissions or professional liability insurance will fill this gap.
Directors and officers
Liability claims against directors and officers might be one of the most overlooked risk exposures for smaller nonprofits. In some cases, third parties who are harmed by the nonprofit’s activities will sue its directors and officers in addition to the organization itself. Employees can also sue directors and officers for discrimination and other “employment practice” wrongs.
Although many states have immunity laws to protect volunteers, they vary by state and might not always apply. For these cases, you’ll want directors and officers liability (D&O) insurance. If your organization lacks specialized insurance coverage, your directors and officers could be held personally liable.
D&O policies are nonstandard, but most have two parts. Part A applies if someone brings legal action against individual directors and officers for alleged wrongful acts committed in the course of their duties. This coverage will pay benefits directly to the directors and officers for settlements or damages and related legal costs. Part B reimburses the organization itself when it indemnifies (covers) the directors and officers. Some policies also cover the organization itself (Part C).
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