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Nonprofits' Essential Handbook on Insurance There are more than a million nonprofit organizations in the United States today. These nonprofits include human and social service providers, foundations, associations, civic leagues and cooperatives and similar organizations--and the number is growing. According to the most recent edition of the Encyclopedia of Associations, for example, there are more than 23,000 national associations in the United States alone. The tens of thousands of local and state associations are not included in that count. Nonprofit organizations come in many forms, engage in a broad array of functions and are just as diverse in their missions. They include churches and temples, youth organizations, shelters and residential facilities, fraternities, sororities and lodges, community theaters and special-interests clubs, farmers' cooperatives, trusts, business associations, trade organizations and social service civic leagues. It would be difficult to find an individual who is not a part of, or who does not benefit from, the efforts of the nonprofit community. Nonprofit organizations, in other words, are not merely a corporate classification, they are national treasures on which Americans depend for aid, comfort and support, for entertainment and recreation, for personal and professional growth and as a means by which citizens can communicate with elected and other government officials. The Nonprofit Risk Management Center and the Independent
Insurance Agents of America invite you to learn about insurance
and the role it plays in an effective risk management plan. This
publication is intended to make the insurance purchasing process
easier and more efficient. Your organization should be able to
design a better program with less time and effort--time and effort
that can be redirected to your charitable, educational or community-serving
mission. Table of ContentsWhat is the Purpose of Insurance?
Types of Insurance to Consider
Filing A Claim and Claims Management What is the Purpose of Insurance?Insurance" is a topic most nonprofit executives and staff dread. Adequate insurance coverage may require several policies, all of which involve separate applications and a lot of information. Some nonprofits view the entire buying process as a waste of valuable time and resources or simply believe insurance is not necessary --"we're all friends here, right?" The office manager or bookkeeper assigned the responsibility for purchasing insurance may give the process low priority, assuming that "our insurance agent handles all insurance matters." But time invested in understanding your insurance needs and securing appropriate coverage reflects sound management and a commitment to protect and conserve scarce resources. Insurance is Only Part of a Good Risk Management Program Risk management recognizes and responds to dangers that interfere with nonprofit services and operations. Effective "risk management" begins with the identification of threats to a nonprofit's continuing operations. Second, it controls loss--preventing loss and reducing the severity should a loss occur. It prevents injury and unauthorized "borrowing" from petty cash; it protects valuable computer equipment and proprietary data with security passwords and surge protectors; and it takes appropriate action to ensure compliance with the law. Third, because no amount of prudence can eliminate every possible danger, it offers tools for financing loss. It ensures readily available financial reserves for any claims that might arise. Because few nonprofits have sufficient assets to finance every loss, insurance is an important risk management tool for nonprofits. Essentially, risk management enables a nonprofit
to eliminate or control risk and finances claims that do arise.
To do so, risk management typically entails five basic steps:
(1) acknowledgment; (2) identification; (3) evaluation; (4) decision
and implementation; and (5) supervision and revision. Encourage the staff to actively look for, and report,
dangerous conditions or impermissible conduct. Survey clients
for ways to improve safety and effectiveness. Obtain information
concerning claims or problem areas from governmental agencies,
insurers, or similar nonprofits. Ask the professionals retained
by the nonprofit (e.g., insurance agent, lawyer, and accountant)
for assistance. Conduct an annual risk audit to discover hidden
dangers in the nonprofit's operations. Thus, the nonprofit should evaluate each risk,
estimate the likelihood of occurrence and potential severity
of any loss, and prioritize the risks to be controlled. To be
useful, the evaluation must extend beyond the financial costs
of an incident. Consider the likely level of public outrage,
the disruption of services, and the effect on staff morale. The
nonprofit's insurance agent can help it analyze and evaluate
its risks. Avoidance. Nonprofits cannot be all things to all people. A well-defined mission statement makes it easier for staff to evaluate risks _ which risks are integral to the mission and which risks needlessly jeopardize resources _ and to prioritize the use of scarce resources. Focus increases the efficiency and effectiveness of operations and enhances the nonprofit's control over (and avoidance of unnecessary) operational risks. If a risk is not integral to your mission or if an activity cannot be performed safely or adequately insured, the nonprofit generally should avoid the risk. For instance, it may not be essential to:
Modification.
Transfer. Someone else may accept a risk on the nonprofit's behalf --such as:
Retention. Risk not otherwise addressed is retained. Retention
by default is a common, though rarely advisable practice. As
a deliberate risk management choice, retention makes sense for
small losses that will not unduly disrupt operations or affect
the nonprofit's financial base, or when it is combined with other
tools. For example, the nonprofit may want to implement a loss
prevention program (modification) and buy an insurance policy
(transfer) with a large deductible (retention). Insurance protects against catastrophic losses, stabilizes cash flow, preserves earnings and resources, and provides settlement money so that small claims do not turn out to be big ones. Insurance also gives your staff (both employees and volunteers) the peace of mind that they will be taken care of in the event a claim does arise. Insurance may be required to comply with lease provisions, licensure requirements, or government/foundation grant requirements. It may be required to perform a specific activity (e.g., driving a car) or to offer a specific service (e.g., medical services). But insurance cannot prevent claims in the first instance; it will only finance the loss. While the purchase of insurance may be an essential component to the nonprofit's risk management plan, it should only be a part of a larger plan. Nonprofits should supplement the purchase of insurance with other risk management strategies. Non-insurance risk management tools can enhance the nonprofit's insurance program. By preventing the claim in the first place, nonprofit operations are not disrupted by police investigations or attorney interviews, and donors and volunteers will continue to believe that scarce resources are put to good use. Prevention and loss reduction should result in insurance premium discounts for claims experience and minimize any losses that occur. Buying InsuranceInsurance is an important financial safety net, and the nonprofit can facilitate the buying process by selecting an effective insurance advisor. A skilled insurance agent will explain coverage options and help the nonprofit meet renewal deadlines. Although the insurance agent is an important resource and a knowledgeable advisor, he or she cannot make many of the insurance decisions for your organization--an informed consumer is still required. The nonprofit is better able to understand and control operational risks, to weigh program and financial priorities, and to design an insurance program that is well-suited to meet the nonprofit's needs. It must pay attention to the details, and understand that "off-the-shelf" insurance coverages are not always appropriate. Select an Effective Insurance Agent Every nonprofit organization needs a trusted insurance advisor--an insurance agent or broker (the legal definition is irrelevant to most insurance consumers so the insurance advisor will be referred to as an "insurance agent" in this booklet). Insurance companies typically do not sell policies directly to organizations. Instead, insurance companies use insurance professionals to market and explain insurance products. As a result, every nonprofit needs an insurance agent. Typically, nonprofits only select one agent. For instance, if the nonprofit selects three agents, under the assumption that the competition will result in better rates or terms, it is likely that a handful of insurers will get the nonprofit's submission more than once. The insurance company underwriter is then likely to compare submissions, scrutinizing and questioning any differences between them, and give identical quotes to all three agents. If the policy is purchased, only one agent can handle the account. Each nonprofit must define what qualities will make someone a "good" insurance agent. A local agent may be desired because he or she is available for hands-on risk management and claims assistance. A national agent that specializes in a particular risk or industry may be necessary to reach a unique industry program or specific insurance market. At a minimum, a skilled insurance agent will be:
Concentrate Efforts In Beginning Stages of the Buying Process The purchasing process is more effective if the nonprofit views it as more than completing a form and writing a check. The nonprofit should concentrate its efforts up-front--doing everything right and doing everything once. In consultation with its insurance agent, the nonprofit should:
However, it is not advisable to regularly "shop around" for an insurance agent. Your agent should be a trusted advisor, and the nonprofit should try to establish a good working relationship with him or her. Recognize and Address Unique Characteristics Nonprofits must understand that they are not "standard industry" risks and that standard industry coverage forms may provide insufficient coverage. For instance: Volunteers. Because most small businesses (e.g., restaurants, dry cleaners) do not use "volunteers," standard industry policy forms only cover "employees." For organizations dependent upon volunteer staff, this creates a significant gap in coverage. Depending upon the type of policy, insurers may redefine the term "employee" to include "volunteer" staff. Chapters and Affiliated Entities. Insurance policies do not automatically cover related entities, even if such entities are an integral part of the nonprofit's mission (e.g., subsidiaries, local chapters, and affiliated foundations). If the insurance policy is intended to cover any related entities, the nonprofit must ensure that each one is included by name in the policy. Multiple, and Possibly Shifting, Locations. Unlike many businesses, the nonprofit's "office" may be the home or business of the current treasurer, and its meeting location may be at number of places (e.g., client's home, hotel, or restaurant). Because some insurance coverage is tied to specific locations, the nonprofit should ensure that all operations at all locations are included in the insurance contract. Special Events. Many nonprofits sponsor special events from time-to-time (e.g., a casino fundraiser one year and a walk-a-thon the next). The nonprofit must work with its agent to ensure that each event or activity is covered by the insurance program. Also, nonprofits tend to collaborate with other organizations, and they should make sure that buying insurance doesn't fall through the cracks ("I thought you were going to buy the insurance!!"). Importance of Public Goodwill and Reputation. As organizations dependent upon donated time, labor and gifts, nonprofits have a special sensitivity to public perception. Thus, the nonprofit may take drastic measures to avoid scandal, and this sensitivity may have insurance ramifications. For instance, a nonprofit may want to quietly fire an employee for theft, but the fidelity bond insurer may require a report to the police and a full investigation. If confidentiality is important, it is important to scrutinize insurer policies and/or policy conditions. It is important that nonprofit organizations work with their insurance agents to ensure adequate coverage, rather than accepting "off-the-shelf" policies. As an informed insurance buyer, and with the help of an effective insurance agent, the nonprofit will secure appropriate coverage and conserve its financial resources. Types of Insurance to ConsiderInformed insurance purchasers need to understand what type of insurance coverage is available and, with the help of the insurance agent, buy appropriate insurance coverage. This chapter summarizes basic insurance coverage typically considered by nonprofits, and rounds out the nonprofit's basic "insurance education." Coverage summaries in this chapter are grouped under three topics: (1) "Coverage for Lawsuits Against the Nonprofit and Its Staff" (both employees and volunteers) that involves compensating outsiders ("third parties") for damage or injury; (2) "Coverage for Nonprofit Staff" that involves compensating staff members (both employees and volunteers) for damage or injury; and (3) "Coverage for the Nonprofit's Property" that involves compensating the nonprofit for damage to property that it owns or controls. Each of the three topics lists specific types of available insurance coverage, and each coverage discussion is divided into three sections: * Perils: Potential Problems. A "peril" is a source of possible loss or a potential claim under the insurance policy. This first section lists potential problems that the insurance coverage is expected to address. Depending upon the topic, perils may be someone filing a lawsuit against the nonprofit, a fire that destroys the nonprofit's principal office, or employee theft of funds. * People Protected. Not everyone is protected by the same insurance policy _ a good insurance program is a mosaic of several policies. This second section highlights who is protected by the specific insurance policy being summarized. Each insurance policy is very specific concerning who is an "insured" under the coverage. * Points to Ponder. Not all "off-the-shelf" policies are well-suited for nonprofit exposures, and there may be special considerations when buying a particular type of insurance policy. The final section outlines specific issues that must be discussed with the organization's insurance agent. The nonprofit's discussion of these issues with its agent is also likely to improve the nonprofit's "insurance education" and to strengthen the organization's insurance program. While insurance provides a good safety net, nonprofits should keep in mind that every exposure may not be fully insurable. For instance, the nonprofit:
Once again, it is important to stress the value of non-insurance risk management strategies to supplement the purchase of insurance. Because this booklet is designed to educate nonprofits rather than recommend specific types of insurance, the nonprofit's insurance agent can help it evaluate the types of insurance that are appropriate for its specific activities. Coverage for Lawsuits Against The Nonprofit and its Staff Members of the general public can file a lawsuit against a nonprofit, asking a court to hold the organization "liable" for damage or injury that it allegedly caused. "Liability" coverage typically involves "negligence." Under the law, an individual may be "negligent" if a reasonable person would not have acted the same way. The allegedly injured party can then sue the person responsible for the injury as well as the organization responsible for carelessly selecting and supervising its staff--for not adopting screening and other policies to ensure that each staff member is well-suited for his or her job. Additionally, the nonprofit is accountable for those persons acting on its behalf--regardless of whether these "agents" are paid or volunteer. Under the doctrine of respondent superior, the nonprofit (the "master") is held vicariously liable for staff (its "servants" or "agents") acting on its behalf within the scope of their duties. The filing of a lawsuit begins a long, expensive process. The person or organization responsible for an alleged injury must hire an attorney, file an "answer" to the complaint, and make certain documents available for inspection and knowledgeable staff available for interviews (known as "depositions") before a court reporter. These "defense costs" are incurred regardless of whether the defendant is ultimately found to be responsible for the injury and, sometimes, amount to hundreds of thousands of dollars. While all states offer some form of statutory protection from liability suits, nonprofit assets can still be at risk. State statutes cannot bar a lawsuit under federal law (e.g., unlawful discrimination), and typically permit lawsuits for "willful" wrongdoing or "gross" negligence (as defined by a jury after an expensive trial!). Liability insurance can fill in the gaps of any available statutory immunity. Most, but not all "liability" insurance policies provide coverage for both the nonprofit and its agents. For instance, "liability" coverage may compensate a client who is injured slipping on a puddle on the floor, and it will protect both the person who was responsible for cleaning the floor and the nonprofit organization. COMMERCIAL GENERAL LIABILITY ("CGL") INSURANCE Perils: Potential Problems CGL policies cover lawsuits filed by clients and the general public ( "outsiders" who are not protected as "insureds" under the CGL policy) alleging bodily and personal injury as well as damage to property. For instance, a CGL policy might cover:
CGL policies generally provide a defense, regardless of whether the claim is true, and pay any judgment or settlement up to the policy limit. People Protected CGL policies protect the nonprofit and its employees. But standard policies do not include volunteers (although they do cover the organization for its liability for claims arising from its volunteers' activities). This represents a significant gap in coverage for organizations with volunteer board members and staff. While volunteers are not sued very often, percentages offer little consolation to those facing a lawsuit. Even with volunteer immunity statutes, volunteers accused of wrongdoing must hire an attorney and defend against the claim. Without resources to sustain a defense, they may have little choice but to settle a claim, even if they are blameless. Volunteers may already have coverage in place. Personal homeowners, renters, or umbrella insurance policies may provide coverage for volunteer activities, and the volunteer's or the nonprofit's insurance agent can explain the scope and limitations of possible coverage. Alternatively, the nonprofit's insurance agent may be able to secure coverage for volunteers in the CGL policy. Many times, CGL insurance rates factor in coverage for all "agents," and the nonprofit is not given the full coverage for its premium dollar without including volunteer staff in such coverage. It may also be easier to handle claims because the organization and the "agent" have similar interests and the insurer can coordinate the defenses with one attorney. Separate coverage through a "Volunteer Liability Insurance" policy is also available. It covers only the volunteers--not the nonprofit organization or its employees--and, if another insurance policy applies to the situation, it pays costs over and above any other coverage. Points to Ponder In consultation with its insurance agent, the nonprofit should consider the: Scope of Coverage/Exclusions. Although the CGL policy offers broad coverage, it cannot address every possible liability exposure, for every insured. Does the policy cover all staff members and operations? Does the nonprofit sell products that may need to be recalled or regularly sell alcohol at fundraisers? Does it operate from several different locations or conduct business overseas? If so, does the policy protect against liability arising from every location? If key loss exposures are excluded, can the nonprofit add coverage or are these exposures more appropriately covered by a specialized insurance policy? Affiliates/Collaborative Partners. Does the nonprofit have separately incorporated affiliates (e.g., foundation or alumni association) or frequently collaborate with independent entities? Is it able to "piggy-back" on its partners' insurance or must it rely on its own insurance policies? Is there an adequate insurance safety net for the joint activity? Coverage Trigger. What invokes coverage: (1) an occurrence of an accident or event; or (2) a claim filed seeking compensation? Because someone may sue the nonprofit decades later (e.g., recent discovery of long-term gas leak, an injured child waiting until his 18th birthday to sue), effective record-keeping may be necessary with the first type of form, an "occurrence" form. Also, with an occurrence form, the triggered policy may be decades-old and contain fewer exclusions _ liability exposures that the insurer never thought to exclude. The second type, a "claims-made" form, is limited to claims filed during the policy period, and it is important to understand any retroactive date and extended reporting provisions. Type of Defense Coverage. Are defense costs (e.g., attorneys' fees) included within the limit of liability under the policy, or are they in addition to the policy limits? Under a "Defense Within Limits" policy, defense costs can exhaust policy limits and it is important to make allowances when determining an appropriate limit of liability under the policy. DIRECTORS & OFFICERS ("D & O") LIABILITY INSURANCE Perils: Potential Problems D & O policies complement CGL coverage--although the two policies alone do not necessarily provide "complete" protection against everything that can go wrong. D & O coverage protects against liability claims not seeking compensation for bodily injury and property damage. Most D & O policies do not list specific types of covered claims. Instead, they cover "wrongful acts," a term that typically includes coverage for actual or alleged errors, misleading statements, and neglect or breach of duty. Coverage is then narrowed by a list of limitations and exclusions. Any exclusion must be examined to determine the full extent of its impact. A common exclusion with potentially unrecognized adverse consequences is generally called the "insured versus insured" exclusion. Initially designed to eliminate coverage for struggles over organizational control, which can be intractable, this exclusion may eliminate coverage for employment-related suits. For instance, if the nonprofit's executive director is insured under the policy, his or her wrongful termination claim against the board members would be excluded by the "insured versus insured" exclusion. If so excluded, coverage might be available in a separate Employment Practices Liability Policy. Although the insurance industry does not have a "standard" form," a D & O policy might include coverage for:
In summary, a D & O insurance policy typically covers claims arising from governance and management. People Protected The definition of "insured" under a "D & O" policy depends upon the specific policy _ there is no "standard industry form." Some policies only protect individual directors and officers; other policies extend coverage to the nonprofit entity and its employees and volunteers. Thus, it is important to carefully review a specimen policy with the organization's insurance agent prior to purchase. Volunteer board members may already have coverage in place. Corporate D & O policies, issued to for-profit corporations, sometimes provide "outside directorship coverage" for volunteer board activities with charitable organizations. The nonprofit's insurance agent can explain the scope and limitations of possible coverage. Points to Ponder In consultation with its insurance agent, the nonprofit should consider: Scope of Coverage. Who is "insured" under the policy--the directors, officers, committee members, organization itself, and/or any affiliates or subsidiaries? Are essential loss exposures excluded from coverage? If key risks are excluded from coverage, can coverage be added or are these exposures more appropriately covered by a specialized insurance policy? Prior Acts Coverage. Must the "wrongful act" and the claim be made in the same policy period? On a "claims-made form," the common type for D & O, the answer is typically "yes" unless the nonprofit obtains retroactive or "prior acts" coverage. Insurer's "Duty to Defend." Is the nonprofit entitled to a defense when the claim is filed or must it finance the litigation, resolve the claim, and seek reimbursement from the insurer? Can the nonprofit select its own defense counsel or must it defer to the insurer's choice? Are defense costs (e.g., attorneys' fees) included within the limit of liability under the policy, or are they in addition to the policy limits? The organization's cash flow and the existence (or lack thereof) of other available financing options may be important considerations when evaluating different policy proposals. AUTOMOBILE INSURANCE Perils: Potential Problems Most states require vehicle owners to buy insurance. Because nonprofits can be held liable for accidents caused by non-owned vehicles, automobile insurance should not be limited to vehicle ownership. Standard business automobile policies ("CAP") are flexible enough to cover any vehicle exposure _ regardless of whether the nonprofit, a staff member, or an independent rental company owns the vehicle. For instance, CAP coverage might include:
Like the CGL, the CAP obligates the insurer to hire (and pay for) a lawyer and to defend the organization when a claim covered by the policy is alleged, regardless of the merits of the claim. It also pays any judgment or settlement up to the policy limit. Unlike CGL and D & O policies, the CAP may also include property coverage for the vehicle itself. People Protected The people protected by the CAP vary depending upon how the coverage is structured. "Nonowned" coverage will cover the nonprofit itself for liability claims, and it may provide "excess" protection to the nonprofit staff by endorsement--additional coverage after the limits of a personal automobile policy has been exhausted. It typically does not compensate the owner for any physical damage to the vehicle itself, unless the vehicle was a rental car. A separate Excess Automobile Liability Insurance policy is available for volunteers--covering claims arising from a volunteer's use of any automobile (whether rented, personally owned, or owned by the organization). It may extend coverage to the commute to and from the volunteer activities (known as "portal-to-portal" coverage) and contribute additional limits to satisfy any award against the volunteer. "Owned" coverage protects the nonprofit as the owner of the vehicle for any liability claims, and it may extend liability coverage to any person driving the vehicle with the nonprofit's permission. Clients and passengers are likely to be compensated for medical payments, but injured employees are not. Points to Ponder In consultation with its insurance agent, the nonprofit should consider the: Scope of Coverage. What vehicles are covered--cars, buses, golf carts, riding lawn mowers, trailers or bulldozers? Does liability coverage extend to assisting passengers in and out of the vehicle, handling hazardous waste, or theft of products before delivery? Is it possible and desirable to purchase optional coverages--supplemental medical payments, towing, roadside assistance, glass breakage, removable equipment (e.g., tape decks, CD players, cb radio, radar detectors)? Limits. Because automobile accidents happen with increasing frequency, and such accidents can be quite severe, does the nonprofit have adequate insurance limits for the exposure or should it consider purchase of an umbrella Requirements/Limitations/Exclusions. Does the nonprofit's policy comply with the law (e.g., uninsured motorist coverage or minimum limits of liability)? Is the insurance coverage subject to any driver (e.g., excluded persons or exclusions for "conditional" or "provisional" licenses) or use limitations (e.g., no driving outside the United States or charging fees to carry people or cargo)? If key loss exposures (e.g., garage operations) are excluded, is there a specialized insurance policy available? PROFESSIONAL LIABILITY Perils: Potential Problems CGLs generally exclude claims arising from the rendering or the failure to render professional services, and most professional exposures are more appropriately covered by a separate policy. Malpractice insurance (sometimes called "professional liability" or "error & omissions coverage") might be available for:
While there is no standard form across all professions, such policies typically cover both defense costs and judgments/settlements up to a policy limit. People Protected While there is no "standard industry form," professional liability policies generally protect the individual practitioner and any professional assistants under the practitioner's supervision and control as well as the organization. Some policies may also extend coverage to a funding source or sponsor (e.g., hospital). However, these people and organizations are typically only covered for the rendering of professional services rather than general business activities. Also, staff not directly under the practitioner's control, nor independent professionals working under a contract, may not be covered. Points to Ponder In consultation with its insurance agent, the nonprofit should consider the: Scope of Professional Duties. How does the insurer define the practitioner's duty--only licensed professionals or all assistants and support staff? Are referrals to other professionals or specialists covered? Are governmental proceedings deemed to be "lawsuits" for purposes of coverage? Is the practitioner protected for giving incidental general advice to clients (e.g., nurse giving social security advice to patients)? Prior Acts Coverage. Must the "wrongful act" and the claim be made in the same policy period? Are practitioners covered for "wrongful acts" committed at his or her previous position? Once again, it is important to understand any retroactive or "prior acts" provisions. Policy Conditions/Limitations. If the insurer wants to settle for economic reasons but the professional wants to go to trial in order to protect his or her reputation, who is entitled to make such decisions under the policy provisions? If key loss exposures (e.g., coverage for former employees) are excluded, is there another way to insure the risk? UMBRELLA AND EXCESS INSURANCE Perils: Potential Problems Sometimes a nonprofit organization needs higher policy limits than those offered by standard insurance policies. "Umbrella" or "excess" insurance provides additional limits after the underlying coverage has been exhausted. The insurer lists, or "schedules," the underlying policies (e.g., typically CGL, CAP, and Employers' Liability) and relies upon the nonprofit to maintain all such policies during the umbrella policy period. People Protected Umbrella and excess insurers typically protect the people covered in the underlying policy. So if a CGL with a $500,000 limit is exhausted from covering a nonprofit and its volunteers, the umbrella or excess would step in and protect the same people--up to a specified policy limit (e.g., $1 million). Points to Ponder In consultation with its insurance agent, the nonprofit should consider the: "Drop Down" Coverage. Does the umbrella coverage "drop down" to the primary level to fill in gaps in the underlying policies or to cover infrequent exposures that do not warrant the purchase of separate coverage? If so, are there policy conditions to preserve this coverage? Underlying Insurance Requirement. What is the effect of failing to maintain the scheduled list of underlying policies? What happens if an underlying limit is exhausted prior to the umbrella's or excess' policy period? Exclusions/Limitations. Does the umbrella or excess policy continue coverage from the underlying policy(ies), or does it impose any special exclusions, restrictions, or limitations? OTHER LIABILITY INSURANCE COVERAGE Employment Practices Liability Coverage ("EPL"). Insurers may exclude claims arising out of employment practices (e.g., hiring, firing and supervising its employees) from their CGL and D & O policies. While policy wording determines the extent of coverage, EPL generally covers the organization, its directors, officers, and employees. Employee Benefits. Employers who administer employee benefit plans have a number of legal duties; such as informing employees of benefits and making prudent investment decisions with benefit plan funds. The nonprofit can buy an "employee benefits liability endorsement" for its CGL policy that will cover failure to complete and/or send in appropriate paperwork to secure benefits for its employees. Alternatively, it can purchase a separate fiduciary liability policy for this exposure, and coverage may extend to any legal "fiduciaries," as well as directors, officers, and employees of the sponsoring organization. Environmental Liability Coverage. CGL policies typically exclude bodily injury and property damage caused by pollution, and a separate environmental policy may be available for release (accidental or otherwise) of smoke, soot, acids, waste materials, toxic chemicals, and other contaminants that spoil the land, atmosphere or water. Aviation or Watercraft Coverage. CGL policies typically exclude bodily injury and property damage caused by large watercraft (over 26 feet) and airplanes. For these modes of transportation, separate coverage exists that is more closely tailored to the risk. International Coverage. United States-based policies may not provide adequate coverage outside the U.S. and its territories. Special international packages are available for international locations and/or incidental travel in foreign countries. Coverage for Injury to the Nonprofit's Staff WORKERS' COMPENSATION & EMPLOYERS' LIABILITY Not only can staff members be sued for liability, they can be injured during service. All states require some form or insurance to cover employee injuries that occur "on the clock." To give volunteers peace of mind, your nonprofit may want to protect its volunteers for job-related injury too. Perils: Potential Problems Although coverage varies from state to state, most states have adopted a "no-fault" workers' compensation system. As a result of an accident occurring "on the job," workers' compensation coverage might cover:
While "workers' compensation" benefits are said to be the sole means of compensation for employee injury, there are loopholes in the system. Employers may still face lawsuits from the employee's spouse or other family members seeking recovery for economic losses sustained as a result of the injury; from other organizations involved in the accident who may be entitled to reimbursement from the employer; or from the employee based upon his or her separate status as a consumer. Employer's Liability insurance coverage, generally sold in combination with the workers' compensation policy, is available to protect against such lawsuits. People Protected Most states require insurance protection for any paid employee--full time or part time; permanent or temporary. Some states permit nonprofit employers to redefine "employee" to include volunteers, and the Employer's Liability Insurance may also protect a nonprofit organization from lawsuits brought by injured volunteers. Points to Ponder In consultation with its insurance agent, the nonprofit should consider the: Scope of Coverage. If volunteer staff members are not insured for injuries sustained within the scope of their service, will the nonprofit experience difficulty in recruiting and maintaining volunteer support? Is it advantageous to purchase coverage to avoid lengthy litigation and bad publicity if a volunteer is injured? Can an injured volunteer receive reimbursement for lost wages with another employer? Loss Control Services. Does the insurer offer health and safety consulting services to prevent claims in the first place? Are such services included in the premium amount or added as a separate fee? ACCIDENT AND INJURY ("Accident") COVERAGE Perils: Potential Claims If injured volunteers are not covered by the workers' compensation/employer's liability policy, and if they are not covered by the CGL because they are an "insured" under the CGL policy, a separate Volunteer Accident policy may be available. Accident coverage might include:
However, such accident policies will be "excess" over any other available medical insurance (e.g., the volunteer's personal medical insurance policy or the medical payments portion of an automobile policy). The amount of coverage is set by the policy limit (limits vary widely, from $1,000 per volunteer in one policy to $25,000 or more in another) and there usually is no deductible. People Protected Volunteers injured while serving the nonprofit can be insured, and sometimes the accident policy can cover "participants" who are injured during operations. Points to Ponder In consultation with its insurance agent, the nonprofit should consider the: Purchasing Decision. Should the nonprofit provide insurance coverage for the unpaid personnel acting on its behalf? Do volunteers have their own health insurance or similar coverage? As an organization dependent upon donated time, labor, and resources, what affect will an uncompensated injury have on recruiting and keeping volunteers? On staff morale and public opinion? Scope of Coverage. Are all volunteers automatically covered, or must the nonprofit provide a list of names to the insurance company? What is the most cost effective method of protecting volunteers--should the organization use its resources to cover all volunteers, or only those who contribute substantial time, undergo specialized training, or are not covered by another insurance policy? Coverage for the Nonprofit's Property GENERAL PROPERTY COVERAGE Liability and staff injury are only part of the nonprofit's risk exposure. The nonprofit must also protect and conserve its property and assets. "Property" insurance can compensate the nonprofit for damage to its building or interest in a valuable lease; it can pay to reconstruct valuable papers and records that have been destroyed; it can ensure a continued income stream that has been disrupted as a result of property destruction; and it can reimburse the nonprofit for loss caused by employee theft. Perils: Potential Problems Nonprofits must evaluate two issues when assessing potential property claims: (1) the type of "property" that may be damaged; and (2) what might cause damage to occur. Most nonprofit organizations purchase one or more policies to protect the following types of "property":
In addition to the property itself, property insurance is also likely to pay for incidental expenses--fire department charges, expenses incurred to save the property from damage and debris removal. Second, the property must be damaged by certain causes of loss. Most policies cover every type of cause, except those specifically excluded in the policy (e.g., nuclear war), but some policies only cover damage caused by specific causes (e.g., fire, lightning, wind, water, objects falling from the sky). Many policies do not cover significant catastrophes that affect a wide geographical area (e.g., floods or earthquakes) in the general property package. People Protected Property insurance protects only those people who have an interest in the continued use of the property and who will experience a financial loss in the event of damage to, or destruction of, the property; such as an owner, tenant, or mortgage company. Points to Ponder In consultation with its insurance agent, the nonprofit should consider the: Scope of Coverage. Will the property still be covered when it is away from the nonprofit's central office (e.g., an exhibit shipped across the country to a conference)? Is water damage caused by faulty plumbing or accidental discharge of a sprinkler system covered? If the nonprofit owns an older building, will the insurance pay any extra costs of rebuilding the structure up to new building codes? Can the nonprofit be paid for damage caused by an off-premises power failure? Coinsurance/Recovery. What is the impact for understating the property's value on any recovery if the property is destroyed? Upon complete destruction, will the insurance company pay the nonprofit to go out and buy a replacement? Can the nonprofit save money by purchasing a functional, but less expensive, substitute for the property? What is the property's value if it is only partially destroyed or merely drops in value? How does a nonprofit put a value on irreplaceable items (e.g., works of art, antiques, rare artifacts)? Conditions/Exclusions. CRIME COVERAGE Perils: Potential Problems With crime coverage, the nonprofit is reimbursed, up to a specified dollar limit, for one or more of the following incidents:
Protection from employee theft may be written as a separate policy, called a "fidelity bond," or the nonprofit can purchase a variety of crime coverages in a package property policy (discussed above). People Protected Typically, the nonprofit organization is the "insured" under a crime policy, but the extent of coverage may depend upon the status of the perpetrator. Under a fidelity bond, the thief or embezzler must be an "employee." As defined in standard policies, the term "employee" does not include board members or other volunteers unless a "nonprofit form" or "volunteer endorsement" is purchased. With kidnap coverage, the perpetrator must be a nonemployee. Points to Ponder In consultation with its insurance agent, the nonprofit should consider the: Scope of Coverage. What type of crime does the nonprofit need to protect against? Does it want protection from its entire staff or only staff members in sensitive positions? If an employee conspires with someone else, will the nonprofit still have coverage? Will it cover someone who may have been dishonest in the past? Does it need protection both on and off its premises? Are inventory shortfalls sufficient evidence of theft? Can noninsurance risk management tools eliminate or substantially reduce the risk? Policy Period/Limits. How will the crime policy cover an incident that has happened over several years or that occurred under a previous policy? What happens if the nonprofit discovers embezzlement by more than one employee? Restrictions/Limitations. Does crime coverage provide protection anywhere
in the world? Is it necessary to notify the police of criminal
acts? ADDITIONAL PROPERTY INSURANCE THAT MAY BE AVAILABLE Equipment Insurance. Nonprofits can buy a separate policy, sometimes called "boiler & machinery" or "equipment breakdown" coverage, to protect against damage caused by the sudden and accidental breakdown of mechanical, electrical or refrigeration systems. Such coverage pays for the property damage, any consequential damage (e.g., spoiled food from a broken refrigerator), and any amount for which the nonprofit is held liable. Geographic Catastrophes. Because many property policies do not cover significant catastrophes that affect a wide geographical area, a few insurers and/or the government may offer specific policies for these exposures. Persons and entities with an insurable interest in the property are insured. Valuable/Movable Equipment. General property policies may exclude, or severely limit the coverage for, expensive and/or highly movable property (e.g., jewels, musical instruments, computer or camera equipment), a specialized "inland marine" coverage may be available. Weather Insurance. This insurance reimburses the nonprofit for an agreed amount if a fundraiser, convention, or other event is canceled because of weather. The nonprofit can use the insurance to cover lost ticket sales, any cost of hired exhibitors or contractors, and/or the increased expenses relating to the weather (e.g., snow removal or sandbagging). Filing a Claim and Claims ManagementEven the best risk management cannot prevent every accident or crisis. What you do following an accident or claim can limit the damage, minimize negative publicity, and prevent a lawsuit. The nonprofit should establish accident procedures and an appropriate training program. It is important that everyone (e.g., board members, employees, volunteers, clients) knows what to do. Avoid having flustered people inadvertently throwing gasoline on a fire by ensuring that everyone understands, and can follow, the organization's claim procedure. What the nonprofit does following an incident or claim can affect its insurance recovery. Prepare to take necessary steps to protect the nonprofit's legal and insurance interests, including but not limited to the following:
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