Business Insurance - Insuring the Nonprofit
Volunteerism has always been a hallmark of American society. Across the country, nonprofit and not-for-profit groups work with volunteers in providing services, organized sports, mentorship programs and just about every type of help one can imagine.
Because nonprofits work so closely with volunteers and the public, nonprofits face special risks. Just like a for-profit business, nonprofits can be insured to manage those risks.
Nonprofit volunteers are also protected from liability under state and federal laws such as the Federal Volunteer Protection Act, 42. U.S.C. § 14501, and so premiums for insurance should be lower to reflect those protections. The following is a summary and description of what types of insurance a nonprofit should consider in its business insurance plan.
The general liability policy will provide both defense and indemnity in case of a judgment against the organization. If your nonprofit works with a particularly fragile or claims oriented population, then the defense aspects of the policy are particularly necessary.
The legal costs to defend against frivolous claims can destroy a nonprofit. With this coverage, the insurer will retain counsel to defend against claims.
Liability insurance is typically required in commercial leases by the lessor. It is typically required by venues and organizers of events. So, if your organization will be renting a pavilion, using a ball field, renting office space, or doing any number of other activities, then this insurance is absolutely necessary.
The organization should have commercial auto insurance if it owns vehicles or transports people. Volunteers, board members, employees and others should never rely upon their individual personal auto insurance. Personal auto insurance typically does not cover damage caused when one is driving for the organization. Personal insurance will not cover people transported for hire. And the term "for hire" does not necessarily mean for payment. It means the personal auto policy is designed to cover the driver and incidental passengers. It does not cover people transported for the organization's purposes (for example, seniors being taken to a senior center).
Generally, the coverage protects buildings and property from damage or loss. This includes buildings and property leased by the nonprofit and may be required by the lessor. However, what some organizations fail to recognize is that computers, files, records and other property can be insured under such coverage. The point is that the organization does not need a physical location to be able to obtain coverage. The term property can entail baseball equipment, computers, medical devices, etcetera. Confirm with your insurance professional precisely what is covered under the property policy.
In my opinion and experience, this is necessary insurance. If you have employees, then you must have this coverage. If you do not have employees, the coverage is too cheap to pass on the extra protection. For example, the Nonprofit Insurance Alliance of California provides a flat rate premium of $600 for $1 million in D&O coverage to those organizations without employees.
Nonprofit boards and managers are facing an ever increasing liability from employee lawsuits. These lawsuits can involve sexual harassment claims, discrimination, and wrongful termination claims. The claims are expensive to resolve. Nonprofits are especially at risk because nonprofits often hire non-traditional employees who are older or fall into protected categories such as those with disabilities. When terminating the employment of such employees there is substantial risk of a lawsuit.
Another consideration for nonprofits is that uninsured board positions will be unappealing to professionals considered as potential board members. This can limit the nonprofit in attracting quality talent to its board.
For these reasons directors and officers insurance should be an integral part of the nonprofit's business insurance plan.
Because nonprofits work so closely with volunteers and the public, nonprofits face special risks. Just like a for-profit business, nonprofits can be insured to manage those risks.
Nonprofit volunteers are also protected from liability under state and federal laws such as the Federal Volunteer Protection Act, 42. U.S.C. § 14501, and so premiums for insurance should be lower to reflect those protections. The following is a summary and description of what types of insurance a nonprofit should consider in its business insurance plan.
Commercial General Liability
Commercial general liability insurance is insurance that protects the organization from claims where the organization is alleged to have caused damage to a person or thing. It is "must have" coverage for the organization. The only variable is how much coverage to obtain. The standard rule of thumb is $1 million in coverage. This is considered to be the amount of coverage that is sufficient for 90% of the nonprofits and 95% of claims those organizations will face.The general liability policy will provide both defense and indemnity in case of a judgment against the organization. If your nonprofit works with a particularly fragile or claims oriented population, then the defense aspects of the policy are particularly necessary.
The legal costs to defend against frivolous claims can destroy a nonprofit. With this coverage, the insurer will retain counsel to defend against claims.
Liability insurance is typically required in commercial leases by the lessor. It is typically required by venues and organizers of events. So, if your organization will be renting a pavilion, using a ball field, renting office space, or doing any number of other activities, then this insurance is absolutely necessary.
Auto Insurance
Volunteers frequently use their own cars on nonprofit business or the organization may rent vehicles. Non-owned/hired auto insurance is usually a part of or an endorsement to the liability policy. This means the organization has coverage for claims made against the organization as a result of an accident involving a vehicle the organization does not own (the volunteer's car) or rents.The organization should have commercial auto insurance if it owns vehicles or transports people. Volunteers, board members, employees and others should never rely upon their individual personal auto insurance. Personal auto insurance typically does not cover damage caused when one is driving for the organization. Personal insurance will not cover people transported for hire. And the term "for hire" does not necessarily mean for payment. It means the personal auto policy is designed to cover the driver and incidental passengers. It does not cover people transported for the organization's purposes (for example, seniors being taken to a senior center).
Property Insurance
Property insurance is coverage that protects the property owned by the organization. This kind of coverage differs from insurer to insurer and it is important to speak with an insurance professional who understands the nonprofit.Generally, the coverage protects buildings and property from damage or loss. This includes buildings and property leased by the nonprofit and may be required by the lessor. However, what some organizations fail to recognize is that computers, files, records and other property can be insured under such coverage. The point is that the organization does not need a physical location to be able to obtain coverage. The term property can entail baseball equipment, computers, medical devices, etcetera. Confirm with your insurance professional precisely what is covered under the property policy.
Directors and Officers Insurance
Directors and officers insurance is designed to protect the nonprofit's management team against claims that the board took improper action. It is this insurance coverage that most nonprofits struggle with when considering business insurance. Most nonprofit directors and officers believe they are immune from lawsuits either because they believe the clientele or employees will not sue or because there is some belief that they are immune from lawsuits. This insurance can also be expensive. The premium is often based on the number of employees in the organization and can be prohibitively expensive. These considerations lead some nonprofits to disregard this coverage.In my opinion and experience, this is necessary insurance. If you have employees, then you must have this coverage. If you do not have employees, the coverage is too cheap to pass on the extra protection. For example, the Nonprofit Insurance Alliance of California provides a flat rate premium of $600 for $1 million in D&O coverage to those organizations without employees.
Nonprofit boards and managers are facing an ever increasing liability from employee lawsuits. These lawsuits can involve sexual harassment claims, discrimination, and wrongful termination claims. The claims are expensive to resolve. Nonprofits are especially at risk because nonprofits often hire non-traditional employees who are older or fall into protected categories such as those with disabilities. When terminating the employment of such employees there is substantial risk of a lawsuit.
Another consideration for nonprofits is that uninsured board positions will be unappealing to professionals considered as potential board members. This can limit the nonprofit in attracting quality talent to its board.
For these reasons directors and officers insurance should be an integral part of the nonprofit's business insurance plan.
Other Coverages
The nonprofit should consult with an insurance professional and discuss the nonprofit's operations in detail. Other coverages can include employee/volunteer theft or embezzlement coverage, workers' compensation, professional liability insurance, health insurance and a number of other types of insurance that may or may not be necessary for your organization.
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