Insurance Considerations for Nonprofit Organizations

As a nonprofit leader, you work to advance a charitable, educational, cultural, religious or social welfare mission in your community. Your organization might be a charity, social service agency, food bank, civic or fraternal association, advocacy group, foundation or arts institution. You may serve a specific population (e.g., children, seniors or individuals with disabilities) or the general public. Your funding likely comes from a mix of membership dues, program fees, grants, private donations and fundraising events. Your team may include paid staff (e.g., executive directors, program managers and volunteer coordinators) along with volunteers, all under the oversight of a board of directors.

On any given day, your operations may involve delivering programs and services to clients; recruiting and supervising volunteers; applying for grants and soliciting donations; hosting fundraising events (e.g., galas, auctions and walks); and reporting to your board. Each of these activities carries risk. You face many of the same exposures as other businesses, as well as risks tied to fundraising events, board governance and work with vulnerable populations. Because many nonprofits operate on limited budgets, a single uninsured loss could disrupt your programs and the people who rely on them. Securing proper insurance can help protect your organization, your staff and volunteers, and the community you serve. Keep reading for an outline of common exposures you may face and the insurance coverages worth considering.

Common Exposures

 Here’s a breakdown of key exposures your nonprofit organization may face:

General liability: If any third parties (e.g., clients, donors, members, vendors or passersby) experience injuries or property damage on your premises or as a result of your operations, you could be held liable for the related losses. If you rent your space to outside groups, operate a thrift store or sell food at fundraisers, your liability concerns may increase.

Special events: Your fundraising events may draw large crowds and take place at rented venues or outdoor locations. Crowds, temporary structures, athletic activities and alcohol can all contribute to accidents. If an attendee gets hurt, a venue gets damaged or an intoxicated guest harms others, your organization could be held responsible. Many venues also require you to show proof of insurance. Inclement weather, vendor problems or other unexpected circumstances could also force you to cancel or postpone an event, leaving you with nonrefundable expenses and lost revenue.

Sexual abuse and molestation: Your organization may serve children, seniors, individuals with disabilities and other vulnerable populations, and your staff and volunteers often work closely with clients, sometimes one on one. If a client alleges abuse or molestation, you could face costly lawsuits claiming negligent hiring, screening, training or supervision. These claims may surface years after an incident, as a growing number of states have extended or revived statutes of limitations. Standard general liability policies often exclude or limit coverage for these incidents.

Directors and officers (D&O) liability: Your board members and officers make governance decisions, such as approving budgets, setting policies, and hiring and overseeing your executive director. In doing so, they have a duty to act in good faith, avoid conflicts of interest and uphold your organization’s mission. If these leaders mismanage funds, act in their own interest or violate the law, donors, employees and regulators could file claims against your organization and individual board members personally. Because your board members are often unpaid volunteers, concerns about personal liability can also make it harder to recruit qualified leaders.

Professional liability: While D&O exposures relate to leadership and governance decisions, professional liability exposures relate to the services you deliver to clients. If your organization offers counseling, case management, education, job training, legal aid or referral services, you have a responsibility to deliver those services competently. If your staff or volunteers give incorrect advice, fail to deliver promised services or make other professional mistakes that harm clients, your organization could be held liable.

Employment practices liability (EPL): As an employer, you’re responsible for providing a workplace free of discrimination, harassment and retaliation. Participating in or permitting discrimination and harassment, failing to investigate workplace complaints, or taking adverse employment actions (e.g., discipline, lack of promotion or unlawful termination) against staff could result in costly legal action. Volunteers may also bring harassment or discrimination claims.

Property: You may own or lease offices, community centers, shelters, warehouses, thrift stores or museums. These spaces likely hold furniture, computers, program supplies, donated goods, inventory and important records, and some may house valuable artwork or historical collections. Fires, inclement weather, theft and vandalism could damage or destroy this property, leaving you with significant recovery expenses. You may also have to suspend programs, cancel events or close temporarily, affecting the clients who depend on your services.

Auto: If your organization owns vehicles, such as vans for transporting clients or trucks for picking up donated goods, you have commercial auto exposures. If your staff and volunteers use personal or rental vehicles for errands, client transportation and meal deliveries, you take on hired and nonowned auto (HNOA) exposures. In both cases, a single accident could lead to substantial vehicle repair costs and bodily injury claims, particularly if a driver’s personal auto policy limits fall short.

Occupational safety: Common injuries among nonprofit staff and volunteers include musculoskeletal disorders from repetitive tasks or lifting heavy materials; slips and falls; digital eye strain from frequent computer use; assaults by aggressive clients; and bodily trauma from vehicle accidents.

Crime: Your organization likely handles cash, checks and electronic payments from donations, membership dues, ticket sales and auction proceeds. This can make you a target for outside theft and fraud, as well as embezzlement and expense fraud by insiders. A small staff, limited separation of financial duties and volunteers who handle money can all increase these risks. Criminals may also impersonate vendors or leaders to trick your staff into sending funds to fraudulent accounts. Beyond the financial losses, these incidents could damage donor trust.

Cyber: You likely rely on digital systems and software to process online donations, manage donor and member databases, store client records (including sensitive health and financial information). This technology could make your organization vulnerable to data breaches, ransomware incidents and phishing scams, particularly if you have limited IT resources. Following such events, you could face service disruptions and costs related to notifying impacted individuals, recovering lost or damaged data and systems, and handling legal and reputational fallout.

Coverage Considerations

To help address these exposures and stay protected amid potential losses, consider the following forms of coverage for your nonprofit organization:

• General liability insurance: This coverage protects your organization if clients, donors, visitors or other third parties claim you caused them bodily injury or property damage. It helps pay for legal defense, settlements and medical costs.
• Special event coverage: This coverage can help pay for liability claims, property damage and, in some cases, cancellation expenses tied to your fundraising events. If you serve alcohol at your events, host liquor liability coverage can provide added protection.
• Sexual abuse and molestation coverage: Available as a standalone policy or an endorsement, this coverage helps pay legal defense costs and damages if your organization faces claims alleging abuse or molestation by staff or volunteers, or negligent hiring, screening or supervision.
• D&O liability insurance: This coverage can help pay legal defense costs, settlements and judgments if your board members or officers are accused of wrongful acts in their leadership roles, such as mismanaging funds or breaching their duties. It can protect both your organization and the personal assets of individual board members.
• Professional liability coverage: Also called errors and omissions insurance, this coverage helps pay the resulting expenses if a client claims your staff or volunteers provided negligent services or made other professional mistakes. It applies to the services your organization delivers, while D&O coverage applies to leadership and governance decisions.
• EPL insurance: This coverage protects your organization when current, former or prospective employees accuse you of discrimination, harassment, wrongful termination, failure to promote or other unlawful employment practices. It helps pay for legal defense, settlements and judgments.
• Commercial property coverage: This coverage helps pay to repair or replace your buildings, furniture, equipment, inventory and records if they are damaged, stolen or destroyed by a covered event. Business interruption coverage can often be added to help cover your operating costs during a temporary closure.
• Commercial auto and HNOA coverage: Commercial auto insurance can help reimburse costs stemming from accidents involving vehicles your organization owns. If your staff or volunteers use rental or personal vehicles for organization purposes, HNOA coverage can assist with the resulting expenses. This coverage typically applies after the driver’s own personal auto coverage.
• Workers’ compensation insurance: This coverage helps pay for medical treatment, rehabilitation and a portion of lost wages if your staff get injured or become ill on the job, and it’s required in most states. Many policies can be extended to include volunteers, and volunteer accident insurance can provide another option.
• Commercial crime coverage: Also known as fidelity insurance, this coverage can help reimburse your organization for losses caused by theft, embezzlement, fraud and other crimes committed by staff, volunteers or outside parties.
• Cyber liability insurance: This coverage can assist with expenses your organization and affected individuals may face after a data breach, ransomware attack or other cyber incident, such as notifying impacted donors and clients, restoring data and systems, and handling related legal costs.
• Umbrella and excess liability coverage: If your claim costs exceed the limits of your primary liability policies (e.g., general liability and commercial auto insurance), this coverage can increase those limits. In some cases, umbrella policies can also help broaden underlying policy coverage.

For additional risk management guidance and insurance solutions, contact us today.

Article Published By: Zywave, Inc.