This is a guest blog post by Briley Brind'Amour from CI Solutions.
There are many different ways that nonprofits help their community and those around them. With all their great work, insurance can sometimes be put on the back burner. It is important to have nonprofit insurance in order to keep the corporation running smoothly and without liabilities. Below are some of the answers to questions about nonprofits and liability.
What Kind Of Insurance Policies Do Nonprofits Need?
There is no master list of the kinds of insurance policies that nonprofits should buy, or what amounts of coverage they should purchase. Instead, nonprofits must depend on the expertise of experienced, licensed insurance experts to help them determine the best policies that meet their needs.
Below is a shortlist of some of the common types of policies about which nonprofits should consider purchasing.
General Liability
General liability covers claims made by third parties from property damage to bodily injuries that occur in the course of a nonprofit’s operations.
Auto Insurance
Nonprofits purchase auto insurance if their employees use vehicles for nonprofit’s businesses. Nonprofits may buy liability coverage to cover others and physical damage covers for cars.
Property Insurance
It covers the loss and damage to buildings, inventory, office equipment, and any other property that nonprofits own. Theft and fire are the most common claims. Management should be cautious because not all insurance policies cover earthquakes and floods.
Worker’s Compensation
Worker’s compensation covers employees who get injured on the job. This type of policy is a must except in the state of Texas. This coverage offers a cover for wages and medical expenses whenever an employee gets injured while working for the nonprofit.
Professional Liability
The Board of directors may forget to inform people well or make errors. Professional liability is also referred to as omissions or errors insurance, it covers any claims made as a result of a board of directors’ inaction or action.
Directors and Officers' Liabilities
It provides cover for management decisions. It protects the organization and individual members against employment practice liability. It protects against discrimination, harassment, and wrongful termination.
What Is The Prevalence Of Nonprofit Claims?
It is reckless for a nonprofit not to have liability insurance. According to a study conducted by Nonprofits Insurance Alliance Group, 95% of the claims filed against Directors and Officers policies concern harassment, wrongful termination, discrimination as well as other employment-related claims.
According to Blue Avocado, one out of every 100 nonprofits file a Directors and Officers claim annually. The average cost of a settlement is likely to be around $28,000 in case it is settled outside the court. The average cost incurred by hiring an attorney to defend a nonprofit liability is usually around $35,000.
Unfortunately, these trends are not improving. According to Allianz, a major insurance firm, there is an increased exposure after the financial crisis of 2008. The firm also noted that plaintiffs are going to court with aggressive litigation strategies and demand damages in higher amounts compared to what was demanded in the past.
What Type Of Claims Could Be Brought Against A Nonprofit?
Lots of circumstances bring a claim to the door of a nonprofit. Our society is increasingly getting litigious. Groups and individuals can sue for profits.
Claims regarding workers' compensation and disability discrimination and retaliation are one that a nonprofit can face. This claim can cost the organization an excess of $500,000 in legal costs and damages.
Another may involve a breach of contract and collusion over an event. This kind of claim can cost the nonprofit to the tune of over $2 million in damages.
Do Nonprofits Need Liability Insurance?
The answer to the above question is more than a simple “yes” or “no”. When an individual or a group considers purchasing any kind of insurance policy, it is important to think about the reason why they require it. The potential for them to cause harm to someone else intentionally or unintentionally must be considered as well. There is always a matter of whether the organization could afford to incur an expensive settlement out of their own money as well as pay the costs of hiring an attorney.
The reality is that claims against nonprofits can and do happen. Settlements can be high and come with additional risk to the nonprofit’s reputation.
How Are Nonprofits Monitored, Regulated, And Governed?
Nonprofits are not immune from damage that can be caused by fraudulent and unscrupulous solicitors, financial improprieties, as well as board members and executives who care about their own financial welfare rather than the mission of the company. Issues, when they do arise, are particularly disturbing due to the nature of organizations themselves-organizations developed to provide the public benefit.
All nonprofits are governed by a board of directors, a group of volunteers that is regulated for making sure the organization remains true to its mission, operates in the public interest, and safeguards its assets.
The IRS is charged with ensuring that nonprofits organizations are complying with the demands for eligibility for tax-exempt status. The attorney general’s office and some part of the state government maintain a list of registered nonprofits. They investigate complaints of abuse and fraud. Often the attorney general serves as the primary investigator in cases of nonprofit abuse and fraud.