INSURANCE – WHAT IS IT, AND DOES MY NONPROFIT NEED IT?

Governing a nonprofit is stressful enough without letting your mind wander into the “what ifs” that could affect your nonprofit organization. But…

What if one of our Board Members violates his or her fiduciary duties?

What if an employee acts in a way that deeply hurts our organization?

What if one of our volunteers gets hurt onsite?

Things happen all the time that could put the future of your nonprofit at risk. While nonprofit work is often driven by passion and dedication, it's equally important to mitigate risks that could potentially jeopardize your operations. One crucial aspect of risk management is securing appropriate insurance coverage tailored to the unique needs of your organization. Whether your nonprofit is large or small, the financial implications of lawsuits can be truly devastating.  While insurance cannot offer absolute protection, it serves as a crucial safeguard against many risks. We work with nonprofit clients of all shapes and sizes, and our advice is to prioritize obtaining appropriate insurance protection.

Let's delve into the types of insurance that nonprofits might consider purchasing to ensure comprehensive protection.  All nonprofits should carry Directors & Officers Liability Insurance and General Liability Insurance.  Additionally, there are other types of coverage worth considering to further safeguard your organization.

Directors’ & Officers’ Liability Policy

According to Travelers Insurance, nearly 2 out of 3 nonprofits reported a Directors & Officers Liability (“D & O”) insurance claim within the past 10 years. These lawsuits can be brought by donors, vendors, competitors, employees, government regulators and others, and they are not limited to suing the nonprofit organization. As a member of the board, you could also be sued personally, and be responsible for the cost of hiring your own attorney to defend yourself.

For this reason, we believe the most important insurance policy for nonprofits is likely

D & O.  Nonprofit board members and executives make critical decisions that shape the organization's trajectory. D & O insurance shields these individuals from personal liability in the event of lawsuits alleging mismanagement, financial misstatements, or breaches of fiduciary duty. Having D & O insurance in place can attract top talent to your board and provide reassurance to stakeholders.

General Liability Insurance

General liability insurance is also foundational coverage that provides protection against third-party claims of bodily injury, property damage, or personal injury arising from your nonprofit's activities. Whether it's a visitor slipping and falling at your office or accidental damage to a rented event space, general liability insurance offers vital financial protection against unforeseen liabilities.

Other Policies

Depending on the needs and nature of the work of your organization, there are other insurance policies that may protect your nonprofit:

1.  Premises Liability Insurance.  If your nonprofit owns or leases property, you should purchase premises liability insurance. This type of property insurance covers damage or loss to buildings, equipment, furnishings, and other tangible assets due to perils such as fire, vandalism, or theft. Nonprofits should carefully assess their property needs to ensure adequate coverage for replacement or repair costs.

2.  Workers' Compensation Insurance.  Workers' compensation insurance is typically required by law for any business that has employees, which includes nonprofits. This coverage provides benefits to employees who suffer work-related injuries or illnesses, including medical expenses and lost wages. Workers' compensation insurance not only protects employees but also shields your organization from potential lawsuits related to workplace injuries.

3.  Employment Practices Liability Insurance.  Employment practices liability insurance is a specialized form of liability insurance designed to protect organizations from claims related to employment practices. These claims can arise from current employees, former employees, or even job applicants, and they typically involve allegations of wrongful acts such as discrimination, harassment, wrongful termination, retaliation, or violation of employment laws.  Employment Practices Liability Insurance provides coverage for legal defense costs, settlements, and judgments associated with such claims. This coverage helps organizations mitigate financial risks associated with employment-related lawsuits, which can be costly and damaging to reputation.

4. Auto. It may be wise to talk with your commercial insurance broker about automobile insurance if your employees or volunteers are operating vehicles as part of your organization’s programs. It should be clear who is bearing liability for an accident and repairs to the automobile if the event occurs when the individual is “in the scope” of his or her duties.

5. Other Specialized Insurance. Some nonprofits might benefit from specific types of insurance given their type of work, such as errors and omissions coverage (coverage for nonprofits that provide professional services) or policies specifically focused on possible claims if you work with vulnerable clients.

It's crucial to partner with a seasoned commercial insurance broker who can assess your unique needs and present all available options.  Your mission and your community stakeholders are too valuable to be harmed by claims that could disrupt your work, or worse yet, cause you to shut down. If you need a referral to a good commercial insurance broker, please contact us.