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Insurance for Nonprofits

Operating a Nonprofit in many regards is similar to any for-profit business, as you must a have clear vision or mission, provide a service of value or which is in demand, hire the right people or volunteers, and operate with a focus of being successful, by whatever definition you wish to define success for your nonprofit. Like any business Nonprofits should have process and protective measures in place to not only create a sustainable organization, but also to safeguard the organization, its board members, the employees, volunteers, and their donor base.

Nonprofits often work with the public, which means your organization is likely exposed to a variety of risks. Obtaining the right insurance for your Insurance is one way to protect your Nonprofit organization from financial loss. It is a way of transferring risk away from your organization. Although it does not remove the risk, it limits the financial impact of any insurable risk to the cost of your insurance premium and any deductibles or coinsurance.

When we are talking about risk, we are talking about the potential for a loss to take place. Those insurable losses may include injuries (to your staff, volunteers, the clients you serve, or to the public) damage to your property or the property of others theft/fraud monetary damages caused to others that you may be wholly or partially responsible for.

Below are the most common insurance types nonprofit organizations may wish to consider, and often are required to obtain permits, leases, financing, and or to attract board members and volunteers. There are many more insurance options, but they are often more niche or specific to certain types of nonprofit organizations.

General Liability

Damage to others (third parties)

General liability is a core insurance to protects against lawsuits from third parties including accidents involving visitors, clients, or delivery people.

Your organization, your volunteers, your employees and your directors and officers should all be included
as insureds under this policy.

Reasons to Consider

  • Foundational coverage for most nonprofits.
  • Many insurance companies will not provide other coverages as standalone insurance without also have general liability in place.
  • If you hold a fundraiser or other special event, you might need this coverage to book a venue or fulfill a client contract.

Coverage In Action

  • A nonprofit runs a thrift store and mopped-up a spill, but neglected to put the mop away, and a shopper fell over the mop and hurt themselves.
  • A volunteer or employee is involved in a work-related project and damaged the property of the property owner who sued your organization to recover damages.
  • An injury that results in a volunteer’s or employees’ negligence. E.g. Dog bite at a pet rescue adoption event, due to volunteer not paying attention.

Common Coverage Limits

  • $1 million per occurrence and up to $3 million in aggregate.

Does Not cover:

Any damage for anything your nonprofit owns, or any injuries to your employees. You should contact your agent to ensure these types of injuries or damages are covered elsewhere.

Directors and Officers Insurance D&O

Protect Your Decision Makers

D&O protects board members and officers against legal expenses if they are sued for a decision, made on behalf of the organization resulting in a financial loss.

An effective D&O policy should provide broad coverage and include employment related actions, including discrimination, harassment, wrongful termination, and failure to hire. It should pay defense costs as they are incurred.

Reasons to Consider

  • Any nonprofit with a board of directors or advisory, including nonprofits with no employees.
  • Nonprofits who wish to protect highly desired board members and officers.
  • D&O help attracts top talent who might otherwise decline if they believe their personal assets were at risk.

Coverage In Action

  • Accusations of mismanaged funds. If board members are accused of making poor financial decision or misusing the nonprofit’s funds, they could be sued. Even if a lawsuit is without merit, attorney’s fees and court costs could significantly drain the nonprofits finances.
  • Failure to meet regulatory standards. If your nonprofit organization fails to meet regulatory standards, your board of directors may be targeted or blamed. D&O insurance can help pay for the cost of hiring an attorney and other legal expenses that result from a lack of compliance with industry standards or regulations.
  • Failure to perform official duties. Directors and officers have influence and limited control of the nonprofit, as such they are considered fiduciaries and when something goes wrong, the may take the responsibility. If a board member is sued for failing to perform fiduciary duties or fulfill legal requirements, D&O protection can help pay for the legal cost of hiring a legal representation and other expenses.

Common Coverage Limits

  • $1 million per occurrence and up to $2 million in aggregate.
  • Umbrella limits up to $10 million.

Nonprofit Professional Liability

Cover Professional Services:

Social Service Professionals often require a liability policy in addition to a general liability policy. Professional liability covers liability for damages arising from errors and omissions in the providing of professional services, including claims and lawsuits associated social services. This would include activities such as teaching, counseling, consulting, and related activities Psychiatrists and other physicians must have their own professional insurance.

Reasons to Consider

Nonprofits who provide social services and have staff that include: nurses, educational professionals, veterinary professionals, adoption service employees, aides, assisted living providers, childcare workers, counselors, daycare providers, instructors, mentors, nurse assistants, psycho-therapists, psychologists, resident home care providers and supervisors, social workers, therapists and tutors.

Coverage In Action

  • Medicine Dosage Error: A nurse providing improper medicine dosage.
  • Injured child: Teacher or faculty of a nonprofit school inadvertently hurts a child while restraining a disabled or difficult student.

Common Coverage Limits

  • Various limits, typically up to $3 million in aggregate.
  • Umbrella limits typically up to $10 million.
  • Separate limits from the General Liability coverage.

Worker’s Compensation

Protect Your Employees:

Workers’ compensation insurance is required in almost every state for businesses that have employees. It can cover medical costs and lost wages for work-related injuries.

Reasons to Consider

  • Any business, including a not-for-profit organization, that has employees.

Coverage In Action

  • A dog bite at an animal shelter of an employee.
  • An employee of a community center slip-and-falls on the job.

Common Coverage Limits

Workers’ compensation covers most work-related injuries by paying for medical bills and wages.

Each state has its own mandates: To look up your states mandates, please go to:

https://www.dol.gov/owcp/dfec/regs/compliance/wc.htm

Commercial Auto Insurance

Injury and Property Protection:

The primary purpose is to provide financial protection against physical damage and/or bodily injury resulting from traffic collisions and against liability that could also arise.

Reasons to Consider

  • Any nonprofit organization that owns, leases or rents vehicles.
  • Has employees who drive company owned, leased, or rented vehicles.
  • If employees or volunteers use their own personal vehicles for company business.

Coverage In Action

  • A nonprofit vehicle made an unsafe lane change into a passing vehicle, causing an accident, injuring the driver and passenger.
  • Nonprofit employee driving his own vehicle on agency business was involved in an at-fault, catastrophic collision.

Common Coverage Limits

Minimum required commercial auto liability coverage varies by state, and typically is the same for both personal and commercial auto liability policies. Many companies opt for more than state-minimum coverage. Why? Because if an injured party sues for a larger amount than the minimal policy covers, it could seriously threaten their nonprofit.

Generally, at least $100,000 commercial auto liability coverage per vehicle, with a minimum of $500,000 up to a maximum of $1 million.

Additional coverage can be provided through an umbrella policy.

Additional insurance coverage Nonprofits may consider include:

  • Employee Benefits Liability
  • Improper Sexual Conduct and Physical Abuse Liability
  • Umbrella Liability
  • Employee/Volunteer Dishonesty

If you are interested in obtaining insurance for your nonprofit, we encourage you to speak to our affiliated company, BryteBridge Insurance Solutions LLC (BBIS). BBIS provides insurance exclusively to nonprofits and small business

BryteBridge Insurance Solutions LLC (BBIS) started in 2020 as a complimentary service to CharityNet USA due to the demand from our nonprofit clients.

CharityNet USA is a division of BryteBridge Consulting LLC. BryteBridge Consulting LLC and BryteBridge Insurance Solutions LLC are separate, but affiliated companies, owned by BryteBridge, Inc.

Frequently asked Questions

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?