I am approached by many nonprofits that say they need General Liability, or they need Directors & Officers Liability but not both. However, I always recommend both because these two coverages are the cornerstones of any effective nonprofit risk management and insurance program.
These two coverages provide completely different types of insurance protections for your nonprofit organization. It is a common misconception, particularly among smaller organizations, that insurance is too expensive and so they opt for one or the other. Purchasing one without the other simply doesn’t address the basic risks faced by all nonprofits and is throwing good money after bad. And a lot of times you can purchase both for under $1,500.
A General Liability policy can address claims related to your location, activities, programs, events, etc. But it will not provide any coverage if one or all your board members is sued due to a management decision they have made.
Claim Example: As one of their activities an after-school program for troubled youth provided a class about vegetable cultivation. The students met once a week at the school garden for hands off demonstrations. Although the students were instructed not to use or touch any of the tools one of them was playing with a rack, stepped on it and punctured his foot. His parents claimed in adequate supervision was provided and made a claim against the nonprofit organization. The total paid out was over $75,000 for medical bills and damages.
A Directors & Officers policy can address claims related to board decisions made about finances, handling of donations, new or discontinued programs, etc. But it will not provide any coverage for injuries to others or damage to someone’s property.
Claim Example: The board of an environmental organization decided to discontinue the practice of allowing the public to hike on their land as they viewed it as a liability. A group of nature advocates sued the organization and each individual board member claiming that their decision had harmed the public good. There were not damages paid but the cost to defend the lawsuit cost more than $15,000.
It’s important to note that Nonprofit Directors & Officers Liability policies can often also include coverage for claims related to harassment, discrimination, unlawful termination, etc. made by either volunteers or employees. This is critical coverage since there are a great many of these types of claims made against nonprofit organization.
Claim Example: A volunteer of Latin dissent at a food bank continually committed to help at certain times but frequently didn’t show up. This created a scheduling problem for the food bank, and they asked the volunteer not to sign up or help anymore. The volunteer then filed a lawsuit against the organization for unlawful termination and discrimination. The unlawful termination claim was dismissed but the court awarded the claimant $20,000 for discrimination damages.
The reality is that people can and do make claims against and sue nonprofit organizations for all sorts of reasons. And when faced with a lawsuit these organizations are forced to defend themselves which can be a very costly endeavor.
Keep in mind that when you purchase any of the coverages discussed above part of what you are purchasing is legal help in the event of a claim. Your insurance company will provide a lawyer and tender your defense at no additional cost to your organization. You may think it’s far fetched that your nonprofit faces similar situations but the do happen and it’s important to have the right insurance coverage in place when it does.
There are other very important coverages that nonprofits need depending on their operations and mission. Those are determined through conversations with your insurance broker who will make the appropriate recommendations. However, those additional coverages build upon the General Liability and Directors & Officers Liability cornerstones.
Understanding the basics of insurance for nonprofits plays an important part in effectively managing your organization. Our team of specialists at SteelBridge is committed to helping you develop an insurance program that fits the unique needs of your nonprofits. Please contact with any questions you have and to see how we can help.