Insurance – 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 of 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. In a litigious society like ours, lawsuits are now commonplace. 1 in 25 nonprofits will have a lawsuit claim made against them in any given year, and the average claim costs approximately $35,000 to resolve. Whether your nonprofit is large or small, the financial implications of lawsuits can be truly devastating.
We work with nonprofit clients of all shapes and sizes, and our advice is always to do everything you can to get protected.
Directors’ & Officers’ Liability Policy
The most important insurance policy for nonprofits is the Directors’ & Officers’ Liability Policy (“D & O”). A good D & O policy will protect your nonprofit organization from claims involving errors, omissions, negligence, breach of fiduciary duty, and other wrongful acts done by your Board of Directors, Officers, employees, and, sometimes, volunteers. Most D & O policy claims are employment related; more than 95% of claims are related to wrongful termination, harassment, or discrimination. So, it’s important to ask the commercial insurance provider whether employment-related claims are included with the standard D & O coverage, whether it’s a rider to the D & O coverage, or whether it’s a separate policy. This extra piece of coverage is absolutely worth it if you have employees. D & O insurance also ordinarily covers your nonprofit organization against claims such as failure to provide services, mismanagement of assets, or accidents caused by negligence or intentional omission. Here’s an example of how you could find yourself in need of D & O, with the employment-related coverage: Your Board approves an employee handbook containing personnel policies (intentional act), and later on the organization terminates an employee using those policies. The terminated employee disputes whether the organization followed its policies, or, despite the policies, believes he/she was wrongfully terminated. The terminated employee sues the organization. That’s where D & O insurance can be your best friend. At the end of the day, despite the cost, D & O is something every nonprofit should have. You’ll never know when you’ll need it.
Depending on the needs and type of work of your organization, you should consider other insurance policies to protect you:
A. General Liability: Most nonprofits purchase general liability insurance to cover accidents, property claims related to their offices and programs, and for potential claims at fundraisers, events, etc.
B. 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 programming. You should be clear about who is bearing liability for the accident and repairs to the automobile if an accident occurs when the individual is “in the scope” – is it your organization, or is it the employee/volunteer?
C. Other Specialized Insurance: Some nonprofits might benefit from specific types of insurance given their type of work, such as social services professional coverage (which covers claims in regards to your programs, counseling services, support groups, etc.), or policies specifically focused on possible claims if you work with vulnerable clients.
It’s best you work with an experienced commercial insurance broker that can let you know all your options. Your mission and your community 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.