Insurance Coverage for Non-Profits: Protecting Yourself While Focusing on Others
Non-Profits come in a variety of shapes and sizes, and the focus of their work is endlessly diverse. Similarly diverse are the types of risk that Non-Profits can experience. While Non-Profits are typically comprised of individuals who work tirelessly to advance the mission of the organization, many of those individuals may not be familiar with how to anticipate and manage the risks faced by their Non-Profits. Risk management comes in several forms, and the most obvious form may be to finance risk through the purchase of insurance coverage. The purpose of this article is to generally provide an overview of the different types of insurance coverage that may be available and appropriate for a wide variety of Non-Profits.
Generally speaking, the types of insurance coverage that likely apply to Non-Profits can be organized into two categories: Liability Insurance and Property Insurance. Health insurance may also be an issue of importance for many Non-Profits, but it is beyond the scope of this article. There are a variety of sub-categories that fit within each of these categories, and we will discuss some of them below. The lists below are not exhaustive, but merely serve to provide examples of the types of insurance that may be available and appropriate for Non-Profits.
A. Liability Insurance
Liability insurance is designed to protect an organization from allegedly negligent conduct, as well as allegedly wrongful acts, errors, or omissions. Common liability insurance policies include: Commercial General Liability (CGL) – Provides coverage for liability exposures common to many (if not all) organizations regardless of size or character. Typically provides coverage for general liability (bodily injury and property damage), personal injury and advertising injury liability, and medical payments. In addition, Non-Profits in the business of publishing, advertising, or e-commerce may want to also have Media or Cyber Liability coverage. Directors’ and Officers’ Liability (D&O) – Provides coverage for alleged “wrongful acts” of directors, officers, and other policyholders under the policy. In the non-profit context, the majority of D&O claims are employment-related, and a non-profit D&O policy may include sufficient Employment Practices Liability Employment Practices Liability (EPLI) – which is coverage for employment-related claims and may also be purchased as a stand-alone policy. Professional Liability or Error & Omissions (E&O) – Provides coverage for errors and omissions occurring while providing professional services to clients or patients. Fiduciary Liability – Provides coverage for claims arising out of alleged negligent violations of the Employee Retirement Income Security Act of 1974 (ERISA). Workers’ Compensation and Employers’ Liability – Provides coverage for bodily injury by accident or disease caused by conditions during or related to employment and liability claims narrowly permitted by statute.
B. Property Insurance
Property insurance is designed to cover a building and its contents, such as inventory, furniture, machinery, supplies, money and securities, and accounts-receivable records, when damage, theft or some other loss occurs. As described below, the scope of coverage under a property insurance policy can be limited or expanded depending on the needs of a Non-Profit. Basic Property Insurance policies are historically based on coverage for damages caused by fire and are expanded from there. Endorsements that may be used to expand a property coverage policy may include: Business Interruption (BI) – Provides coverage for the loss of income if a Non-Profit’s premises are totally closed down for a period of time because of damage sustained from a covered peril. Contingent Business Interruption – Provides coverage for the interruption of a Non-Profit’s business because of damages away from the Non-Profit’s property. Extra Expense – Provides coverage for the additional costs of keeping a Non-Profit operational if its property is damaged by a peril that is covered under the policy. Computer Hardware and Software – Provides coverage for damage arising from a peril that may be specific to computers, such as an electrical surge. Valuable Papers – Provides coverage for the cost of salvaging or recreating important papers and records damage by a covered peril. Crime Insurance – Provides coverage for theft by insiders of the Non-Profit as well as theft by third-parties. Crime Coverage can include several types of coverage, such as a fidelity bond, forgery or alteration coverage, computer fraud coverage, extortion coverage, and theft, disappearance, and destruction coverage. Boiler and Equipment Breakdown Coverage – Provides coverage for equipment-related accidents and breakdowns. Policies available can vary and should be reviewed to ensure an appropriate fit for an organization. Flood Insurance – Driven by the cause of the loss, and provides coverage for damage to buildings and contents from flooding.
C. Package Problems
Non-Profits may also be able to purchase packaged policies that include both liability and property coverage, such as a Business Auto Policy or a Business Owners Policy. Business Auto Policy – Provides coverage for liability and physical damage relating to vehicles owned by a Non-Profit. Business Owners Policy – Provides coverage that combines property, general liability, and crime coverage into a single policy, which can be a less expensive option than purchasing the multiple types of coverage as stand-alone policies.
As noted at the outset, the types, limits, and scope of insurance coverage needed by a specific Non-Profit will be driven by several factors, and each Non-Profit must perform an analysis to determine appropriate types, limits, and scope of coverage needed to protect itself and its people. Below are some considerations that may be unique to Non-Profits. Broadening Endorsements for Non-Profits Under CGL Policies – Some insurance companies offer unique CGL policies for Non-Profits that incorporate several broadening endorsements under one endorsement to enhance the scope of coverage. Professional Liability Coverage Unique to a Non-Profit’s Activities – Depending on the mission and work of a Non-Profit, it may be advisable to purchase a Profession-Specific Professional Liability Policy (e.g., focused on educational institution, blood bank, counseling center, etc.), Allied Health Care Professional Liability Policy, or a Social Services Professional Liability Policy. Such policies contemplate the risks associated with a specific profession or practice and can provide coverage that otherwise might not exist under a CGL or other more generalized liability policy. Non-Profits, depending on their work, may also want to consider the following types of insurance:
- Sexual Abuse Liability Policy Endorsement
- Hired and Non-owned Auto Liability Coverage
- Volunteer Accident Insurance
Non-Profits should also review state volunteer protection statutes to ensure that the Non-Profit has the liability insurance necessary to ensure protection under these laws.
As with any entity addressing risk management and insurance coverage, Non-Profits should consult with insurance professionals to help them identify risk unique to their organization, consider the types of coverage available to manage their risk, and make informed decisions about purchasing insurance coverage to finance that risk. Investing the time and effort to perform these functions intelligently and carefully can go a long way toward protecting the organization and the people who work so hard to advance the organization’s mission. This article is part of the summer edition of Offit Kurman’s quarterly Insurance Recovery Advisor. You can download the full advisor here. If you have any questions about coverage issues affecting non-profits, please contact Michael Conley at firstname.lastname@example.org, or (267) 338-1317.