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Column: An insurance checklist for nonprofits

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Kevin McPoyle, president, KMRD Partners
Kevin McPoyle, president, KMRD Partners - (Photo / )

Nonprofit is big business in the Lehigh Valley. The Greater Lehigh Valley Chamber of Commerce alone has 5,000 members who employ more than 200,000 people working to make a difference in our community.

However, individuals working at nonprofits who are so generous with their time and talent often assume significant risk:

  • 63 percent of nonprofits reported a directors and officers (D&O) Liability claim in the past 10 years
  • 85 percent of the claims filed were employment-related
  • D&O claims are filed twice as much in nonprofits than private companies

Directors and Officers (“D&O”) Liability coverage offers protection to board members and officers by transferring risks for activities and actions to insurance.

D&O coverage provides protection to these individuals and the group in the event an employee, client, supplier, beneficiary or other individual or group sues the nonprofit, along with directors and officers, for common law failures of management, control and loyalty.

While a corporation by definition offers a degree of personal protection against liability to directors and officers, many nonprofits choose to offer additional protection to key members of the executive team.

In addition to D&O Insurance, insurance for nonprofits should include the following additional coverages:

Also known as a Commercial General Liability or CGL, General Liability insurance protects a nonprofit’s assets and pays for obligations incurred if someone gets hurt on its property. A visitor or client slipping on a wet floor is an example of a common covered accident. The CGL policy also protects a nonprofit’s assets and pays for obligations regarding property damages to a third party caused by the nonprofit or any of its employees. CGL covers the cost of legal defense and any settlement or award.

General Liability Insurance for nonprofits can also protect against liability as a tenant if the nonprofit causes damage to a rental property, such as by fire or other covered loss. Finally, General Liability insurance can also cover claims of false or misleading advertising, including libel, slander and copyright infringement.

Property insurance transfers risk if a nonprofit loses all or a portion of its assets in a fire, earthquake, vandalism, storm or similar catastrophic property loss event, whether the nonprofit owns or rents the space it occupies.

While basic property insurance policies will typically cover the following items, a nonprofit should check with its trusted insurance broker prior to an insurable event. It should also confirm its policy will cover the full replacement value of lost or damaged property, rather than paying market value as a used good immediately prior to the damage.

Auto insurance for nonprofits will transfer the risk for injuries a driver causes to other people or property while carrying out the nonprofit’s activities, whether these vehicles belong to the individual or the nonprofit. It should be noted, the state in which an organization is registered may require a minimum amount of coverage. Check to determine if state law also requires additional auto insurance, including personal injury protection and uninsured/underinsured motorist coverage.

Nonprofits sometimes manufacture and/or sell products to raise funds. Girl Scout cookies are probably the most well-known example. Product liability insurance will protect a nonprofit from lawsuits filed by customers claiming they were injured by an unsafe or defective product sold during fundraising efforts. Choking hazards, broken teeth and allergic reactions are three examples of potentially worrisome insurable events.

A Professional Liability insurance policy (also known as “errors and omissions” or “malpractice” insurance) is triggered when an organization or person fails to properly perform his or her professional duties.

In the nonprofit world, this could potentially include health care professionals, attorneys, paralegals and mental health counselors. Because these professionals are expected to possess experience, technical knowledge or training in their particular area of expertise, they are also expected to perform the services for which they were engaged according to standards of conduct established for their professions. If a professional services individual or organization either chooses to or is unable to use the skill level a client should be able to reasonably expect, they can be held legally responsible for harm caused to another entity.

A nonprofit should purchase a professional liability insurance policy if any of the following applies to its:

  • The nonprofit organization provides a professional service or represents its services in this manner
  • The nonprofit supplies advice to clients on a recurring basis
  • The nonprofit is requested to have professional liability insurance as a requirement to signing a contract

Home-based nonprofits

Many homeowners’ or renters’ insurance policies exclude coverage of business-related claims. Other policies forbid use of your home for business purposes. This could result in your coverage being limited or rendered void if you run a nonprofit from home.

Play it safe by telling your trusted insurance broker you are running a nonprofit from home and obtain the appropriate insurance for nonprofit coverage prior to an insurable event.

Wherever your business is located, your trusted insurance broker should help negotiate a policy flexible enough to cover volunteers, independent contractors and medical professionals who help to support your nonprofit’s mission.

Kevin McPoyle is president of KMRD Partners Inc., a risk management consulting and insurance brokerage firm in Warrington. He can be reached at kmcpoyle@kmrdpartners.com.

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