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Insurance Options for Nonprofit Organizations

Author
Jeanneane Maxon
Her PLAN
Compliance Officer
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Blog
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Lawsuit Prevention
Record Keeping
Risk Management
Starting a Nonprofit
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May 27, 2022

While the first line of protection from liability is exercising best practices, holding adequate insurance is essential for any organization as a fail-safe when human error occurs.  

Insurance is “is a contract, represented by a policy, in which an individual or entity receives financial protection or reimbursement against losses from an insurance company,” according to Investopedia.[1]

One of the most important benefits insurance offers is to cover your costs in potential civil litigation. Defending yourself and/or your organization in a lawsuit is expensive, even if the lawsuit is frivolous. Some typical litigation costs include attorney fees, monetary court judgments against you (called “damages”), mediation costs, and settlement agreements. We live in a litigious society. In 2020, civil lawsuit filings rose 16%.[2]

Another benefit of insurance is to protect against damages to the organization’s assets. These damages could occur due to everyday issues such as frozen pipes or due to more dramatic events such as a natural disaster or crime.  

Most organizations can obtain adequate coverage by considering a combination of five (5) types of insurance, discussed below:

General Liability

General Liability Insurance protects your organization in the case of injury to people or property on the premises of any property owned or operated by your organization. It may also provide additional protections for copyright infringement claims, defamation claims, and others. Whether or not General Liability covers vandalism by third parties will be dependent upon your particular policy. If you are concerned about coverage for vandalism, you should ask your insurance agent or broker to ensure you have coverage for that need.   In fact, you can also add limited coverage for other specific needs to your general liability policy.  Talk with your agent or broker to see what your options are, as they vary by carrier.  If you need broader coverage for these specific needs, you may consider taking out a full policy for the exposure you are trying to mitigate.  

A note of caution: While your organization’s landlord’s general liability policy will cover public areas such as sidewalks and lobbies, this policy usually does not cover damages to your organization’s personal property in the space the organization rents or “trip-and-fall” cases within your rented space. [3] Likewise, renters’ insurance will not address these scenarios. Renters’ insurance addresses damage or theft of property, not liability for claims brought by others.  In other words, you will still need to consider General Liability if your organization is a lessee.

Automotive Insurances

If your organization frequently leases or rents automobiles, as a best practice to add onto your own general liability policy, you should consider obtaining non-owned/hired automotive insurance to cover any accidents that occur while driving rented or leased vehicles.  

Professional Liability

Professional Liability Insurance, also known as “Errors and Omissions” or “malpractice” insurance, generally protects professionals, such as doctors, attorneys, accountants, and professional counselors for claims of negligence in the services they provide. Often insurance providers can craft policies to cover lay counseling, peer counseling, life coaching and other services of a professional nature. 

Directors and Officers/Employment Practices

When attorneys sue, they tend to include as many parties in the lawsuit as possible, including leaders of the organization. To protect the leaders of your organization, you should consider Directors and Officers insurance, which is designed to cover claims made against Directors and Officers in connection with the exercise of their duties to your organization, excluding fraud and criminal offenses. Directors and Officers insurance is sometimes combined with Employment Practices insurance, which you should also consider. Employment Practices insurance is designed to cover lawsuits brought under employment claims, such as wrongful discharge.  

Other Types of Insurance

Be aware that the list above is not a fully comprehensive list of every type of insurance you should consider. Other insurances might include Events insurance and Worker’s Compensation (which may be a legal requirement in your state).  In almost every instance, these insurances will NOT provide protection for intentional misconduct or pay for defense in criminal proceedings.   Of course, it is best to consult with your organization’s attorney and insurance agent or broker to determine which types of insurances are best for your organization, and what your coverage limits should be.  It is important to alert your insurance provider as soon as you reasonably believe you might have a claim. Waiting too long could disqualify you from coverage. 

Questions to Ask when Seeking Insurance

Be sure to have a thorough conversation with any insurance provider before purchasing a policy.  

To that end, consider asking these questions in addition to your own: 

  1. Describe your organization’s services and ask what recommendations he/she would have to help you have the best coverage within your price range.  
  1. What is your AM Best Rating? 

              - a to aaa means its Excellent to Exceptional 

              - b to bbb means its Marginal to Good 

              - c to ccc means its Poor to Weak 

  1. Does the Directors & Officers Insurance cover employment practice claims?  
  1. Who is my main point of contact? 
  1. What is your appeal process should a claim for coverage be denied?  

All in all, you can never have a 100% protection from being sued but maintaining adequate insurance can help reduce the financial costs of undergoing litigation.  

Legal Disclaimer: This blog contains general educational information related to legal concepts, but this information does not constitute legal advice.  Anyone seeking legal advice is strongly encouraged to consult with a licensed attorney regarding any of the matters discussed herein.  Although licensed attorneys work with NLI, NLI is not a law firm and does not undertake legal representation on behalf of any clients.  Further, no licensed attorney working with or on behalf of NLI agrees to undertake legal representation on behalf of any client unless the terms of such representation are set forth in a separate, written representation agreement.

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Jeanneane Maxon is an attorney, licensed in New Hampshire, who practices as a consultant for various Christian non-profit organizations. She is an associate scholar with the Charlotte Lozier Institute and serves as the Compliance Officer of Her PLAN.

[1] Julia Kagan, Investopedia, Insurance, Investopedia (October 12, 2021), https://www.investopedia.com/terms/i/insurance.asp

[2] U.S. Courts, Federal Judicial Caseload Statistics 2020, US Courts Statistics and Reports, Federal Judicial Caseload Statistics 2020 | United States Courts (uscourts.gov)

[3] Avante Insurance, If You’re Leasing Space, Protect Your Business With Commercial Rental Insurance and Business Liability Coverage, Avante Insurance Agency Blog (May 19th, 2021), Leasing Office Space? Here Are the Insurances You Need (avanteinsurance.com)