July 3, 2018
Remember high school geometry? We learned that three points define a flat surface or a plane. A table or stool with three legs will not wobble, even if the floor or the length of the legs are not even, whereas a four legged chair or table will wobble in the same situation. Tripods are universally viewed as necessary to any photographer who wants to stabilize their camera. In the insurance world, there are three legs of insurance that every nonprofit needs – whether they have employees or not. These three legs will support your nonprofit and keep you from wobbling and toppling due to unplanned expenses caused by a lawsuit or claim of wrongdoing. Purchasing insurance can protect your nonprofit’s mission and keep you in the business of doing good in the world . Nonprofits need insurance to protect their organizations and their mission. Once you hire your first employee, you must add a fourth type of insurance to your portfolio.
Directors & Officers Liability Insurance
Directors & Officers Liability Insurance (D&O) is often called Management Liability Insurance because it protects the organization and individual board members for wrongful acts in the management or operation of the organization. Board members and officers can be held personally liable, and a D&O policy is the best way to protect them. It is hard to attract talent to your board if you are not willing to protect their personal assets. It is recommended that you include coverage for Employment Practices Liability (EPL) on your D&O policy to protect against employment type actions – even volunteers have been known to claim discrimination or wrongful termination. Nonprofits are more likely than for-profits to have a D&O claim filed against them. Common claims against nonprofits include misuse of donor-restricted funds, improper conduct of volunteers or employees, discrimination, wrongful termination, failure to accommodate, and sexual harassment.
General Liability Insurance
General Liability Insurance is to protect you from bodily injury and property damage claims caused by your operations and/or your premises. Sometimes new nonprofits bypass this coverage in favor of special event policies when they are having events. It can actually be less expensive and provide broader protection to get an annual General Liability policy that covers all your operations, including events, rather than one or more short term policies. Volunteers are automatically included as insureds under the standard General Liability form used by most carriers. General Liability is often required by funders, landlords, and other contracts. Common claims on General Liability include slip & fall, negligent supervision, participant/client injury, and reputational harm.
Hired/Non-Owned Auto coverage can sometimes be added to the General Liability Insurance, or be a separate line of coverage on a package policy. Non-Owned auto covers the liability caused by the operation of the autos owned by your volunteers and employees when they are used in your organization’s business. It pays after the personal auto policy carried by your volunteers and employees. Hired Auto covers autos that you lease, hire, rent or borrow (other than those owned by your employees and volunteers). Again, it is excess over any other policy such as that of the rental agency. There are a few endorsements that you need to include: Employees as Insureds, Employee Hired Auto, and Volunteers as Employees. Auto accidents are one of the leading causes of claims against nonprofits, and even if the organization does not own any autos, you can still be held responsible if your volunteers or employees are driving on your behalf at the time of the accident. A recent court case in California found that an employer can be liable for an accident that occurs during the employee’s commute if the vehicle was required for work on the day of the accident or the employer gained some benefit from the vehicle being at work.
Once you have hired your first employee, you will also need Workers’ Compensation. Workers’ Compensation is mandated by law and is not optional. There are many other types of insurance that your nonprofit may need based on your operations and programs, but the three above should not be considered optional. All nonprofits need these three legs to stand on and to keep from wobbling!