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FAQ Nonprofits and Schools

Why does my organization need directors & officers/employment practices liability?
Every person who serves on your board is personally liable and their personal assets are at risk. And, contrary to popular belief, their homeowner’s personal liability won’t be of much use if they are sued for their board activities. For that reason and an organization’s obligation to indemnify board members in its bylaws, most nonprofit organizations carry directors and officers liability coverage.

While directors and officer’s liability coverage is important, the coverage that typically comes with it—employment practices liability insurance (EPLI)—is the more important of the two coverages. EPLI typically extends to first party lawsuits (you and your own employees) for sexual harassment, wrongful termination, and discrimination. These suits are fairly common, especially for smaller nonprofits that do not have a dedicated human resources staff.

 

What are some examples of claims that can happen under my directors & officers/ employment practices policy?

  • Negligence in handling funds, or maintaining financial records
  • Squandering a gift
  • Co-mingling of funds with those of an individual or another organization
  • Use of charitable contributions for other than the stated purpose
  • Irresponsible administration or management
  • Unfair hiring and termination procedures
  • Sexual harassment of an employee

 

What are the typical ways a nonprofit organization covers its volunteers?
There are several ways to cover the exposures of volunteers:

  • Volunteer accident policies are the most common way volunteers will get medical expenses paid for injuries that occur while volunteering. Generally, to keep premium costs down, this coverage is written excess of any other medical protection carried by the volunteer. A typical limit is $50,000, with deductibles ranging from $50 to $250.
  • Commercial general liability covers the nonprofit organization for the negligent actions of volunteers, providing protection for bodily injury, property damage, or personal injury lawsuits, including attorney fees.
  • Vehicle use. When volunteers drive their own vehicles on behalf of the organization, you can be liable for auto claims that exceed any coverage they have. For that reason, you need to broaden the organization’s non-owned auto coverage to pick up this very real exposure.
  • For volunteers used in a professional capacity, such as nurse practitioners or pro bono legal work, you should make sure their policies are expanded to pick up these professional or malpractice exposures.
  • Volunteers who serve on boards can be sued by disgruntled employees, clients, government officials, and others. Board governance risks are best covered through a directors and officer’s liability policy.

 

Is my organization at risk for employees driving their own vehicles on agency business?
Insurance follows the employee’s car, so the employee’s own insurance is responsible first and the organization’s non-owned auto liability insurance is the deep pocket after that. For that reason, it is crucial that an organization makes sure each and every employee carries at least statutory auto liability insurance, has a good driving record, and maintains a valid state license. You want to be sure the organization has a suspense system in place to verify this information annually.

 

What do I need to worry about in covering my fundraising or other off premises events?
The biggest exposure insurance companies worry about is liquor liability, where you serve someone too much alcohol or they are underage and when they leave the event, they have an accident. For that reason, before offering liquor liability, carriers are going to want to know that the serving exposure is controlled. The best way to go is to have the serving outsourced to a licensed and insured third party. If you decide to serve alcohol yourself, we recommend employees and volunteers get “TIPs” trained (Training for Intervention Procedures).

Other exposures to think about are the controls you have on higher-than-normal-risk activities at your event such as using a “jumpie” for kids or the use of agency transportation to or from an event.

 

Do I need sexual abuse coverage?
If you have a one-on-one exposure between employees and/or volunteers and any vulnerable people you serve, this coverage is a must. It is even more critical if you have any programs or activities that provide overnight activities, especially with children or teens.

There are many ways to manage this risk. The most common way is to run some form of criminal check on all employees and volunteers that interact with target groups. While live scan, DOJ or FBI checks are often mandated by contracts, there are many services like Intellicorp* that offer inexpensive ways to do a 50-state criminal check for under $10.

* Farallone Pacific Insurance Services does not endorse or recommend Intellicorp, and is simply using it as an example.