The need to carry insurance varies widely and depends on many factors about your nonprofit. It is important to work with a qualified insurance professional to review your unique exposures, and determine what types of insurance you need to carry, as well as which might be a good idea to carry.
- General Liability, Property, and Directors & Officers Insurance – There are no laws that require nonprofits to carry general liability, property or directors and officer’s coverage. However, funding sources and others that contract with a nonprofit routinely require insurance as a condition of engaging in an agreement. Additionally, if a nonprofit does not carry appropriate insurance coverage, it must have the financial resources to self-insure in the event a large lawsuit or financial loss occurs.
- Workers’ compensation is commonly required by law to protect employees from injury, illness or death while on the job—but that requirement varies state to state—so you will need to check the laws in your state to see if that applies to your nonprofit.
- Auto insurance is also required by law for any owned vehicles, but coverages differ greatly depending on which state. Auto insurance may also be necessary if employees or volunteers are driving their vehicles to perform duties on behalf of the nonprofit.
- Nonprofit Retirement plans may be required to carry an ERISA bond to protect the employee’s retirement funds. If your organization has a retirement plan, you may be required to carry an ERISA bond as well.
It is up to each nonprofit organization to determine what coverage is necessary, however, an insurance Agent that specializes in nonprofits can help with this decision.
- Board members: It is not uncommon for prospective board members to request that a Directors and Officers policy be purchased before they will participate as a board member.
- Events: Some venues request that the nonprofit provide them with a certificate of insurance to use their space for an event.
- Vendors and funding sources: Typically, they require a minimum of general liability insurance before entering into an agreement.
- Prior experience with claims: Often nonprofits believes that they will not be sued because of their good work. Unfortunately, that is simply not the case. Nonprofit executives who have been the target of a claim or a lawsuit understand the value of having an insurance policy to depend on and often will not serve on a board without proper protection.
It is up to each nonprofit organization to determine what coverage is necessary, however, an insurance agent can help with this decision. General and/or professional liability is considered foundational coverage for most nonprofits. Many insurance companies will not provide other coverages as standalone insurance without also have general and professional liability in place. For example, if you only wish to obtain directors and officers coverage, many insurance companies will not issue without your organization first having its core or foundational insurance coverages in place, specifically general and professional liability. If you hold a fundraiser or other special event, you might need general liability coverage to book a venue or fulfill a client contract.
Nonprofits Directors and Officers are legally responsible for the day-to-day decision-making of their organization. Corporate responsibility applies to Nonprofits just as it does to For Profit companies. Whether publicly traded, privately held, or nonprofit, Directors and Officers can be held personally liable for any breach of duty. D&O insurance can help to protect board members and officers and safeguard against the exposures to their personal assets.
It may only take one suit to shut down your nonprofit. Many of today’s nonprofit organizations are small community based and focused organizations and do not have the financial means necessary to fight in the court of law, should lawsuit transpire, regardless of its merit. Today, defense costs alone can have material financial impacts to even the most financially stable organization.
A board member’s personal assets may be at stake in a claim: Retirement savings, investments, a home – even one held in a spouse’s name – could be at risk. Having D&O coverage helps attract quality board members, but also retains them as they can feel confident, they are not at risk by participating and supporting your nonprofit organization.
Have you ever had to fire someone? Organizations are now more likely to be sued for discrimination, harassment, or wrongful termination than to suffer a general liability or property loss. In addition, Directors and Officers must always act as a fiduciary for their organization, avoid conflicts of interest, and exercise care in decision-making. Any perceived breach of these duties can result in a suit that will at the very least incur defense costs. Remember, allegations even without merit are likely to cost your nonprofit to respond to them.
Employees, members, volunteers, and donors. These are just a few of the parties who may sue your Nonprofit. Even if a director or officer has not done anything wrong, lawsuits must still be answered, and defense can have material impacts to the organization. Most nonprofits do not have the budget to defend a claim closed through litigation. Does your Nonprofit have the financial means to defend itself and indemnify its leadership without being properly insured?
