Insuring Nonprofits

We work with a lot of nonprofit organizations here and there are frequent questions about the types of coverage needed and few simple answers.  Nationally, most claims involving nonprofit organizations are accidents and injuries related to automobiles or slips, trips and falls at nonprofit locations and special events. While these represent the great majority of claims in numbers – up to 90% – they account for only about 65 percent of dollars paid in claims.  It is allegations of professional errors and omissions, improper employment practices, wrongful termination, abuse and harassment that are difficult to resolve and expensive to defend that account for the 35% remaining claims dollars paid.  In addition, the specifics of each organization’s mission and their operational activities will create different types of risk.  For example, if the organization owns vehicles that are driven by volunteers, they need to address liability both for the nonprofit and for the volunteer; if they perform any professional services they may need to consider errors and omissions coverage.  

Nonprofit managers need to take a fairly sophisticated look at their risks to do the best job of organizing their insurance portfolio.  The State of Washington provides some limited protection for volunteers in nonprofits under a “good Samaritan” law RCW 4.24.670 and this law should be taken into consideration because there are provisions impacting the amount of liability insurance to carry based on annual budget.  Washington insurance for worker’s compensation is also managed through the Department of Labor and Industries and is a given in this state unless the nonprofit is large enough to consider self-insuring.

Nonprofit managers should consider their need for the following types of policies:

A Commercial general liability (CGL) policy to address risk of accidents claims involving bodily injury or property damage. Slips, trips and falls are the most common claims covered by CGL policies.

Directors’ and Officers’ Liability insurance (D&O) to address risks arising from management decisions.  This can cover management decisions by volunteer (e.g. Board of Directors) and staff leaders of a nonprofit. Wrongful employment practices – discrimination in hiring or firing – and harassment of one form or another are common claim filed under a D&O policy.  In the case of Boards, there may be some limited protection offered under a homeowner’s personal policy, and more if the individual has a personal “umbrella” policy.  A risk manager – and board members – should consider the options here carefully.

If the nonprofit owns a property or rents and has significant equipment, property insurance coverage is important.  Claims under these policies cover repair or replacement of essential property, such as office repair and replacement of equipment used in programs.

Any nonprofit that owns its own automobiles or has volunteers who use their own vehicles in service of the organization should take the time to consult with their insurance agent or broker.  Commercial auto, automobile liability and non-owned auto insurance address different aspects of the use of owned, rented and borrowed vehicles.  In addition, an insurer may impose specific requirements to continue some types of coverage; non-owned vehicles coverage, for example may require submission of driver information on a regular basis.

There are other coverage’s that can be obtained for specialized circumstances, such as policies that address risks of fraud or embezzlement which may be important to an organization that handles a lot of cash and data security coverage that addresses the loss of data or equipment that is not generally covered in regular property insurance policies.  A nonprofit that is funded through sales of goods or services may need to consider business interruption insurance to cover expenses such as renting temporary office space and equipment if some event makes it impossible to carry on the normal business of the nonprofit.

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