The fast and easy answer is “yes” nonprofits do need insurance, particularly Liability insurance. All organizations can find themselves accused of causing harm to someone, whether it’s intentional or unintentional. There’s also the question of whether the nonprofit could afford to pay a high-priced claim out of its own funds, while also covering expensive legal defense costs.
Unfortunately, nonprofit organizations can and often do find themselves wrapped up in this situation. Not only are the penalties high, but liability claims can also harm the nonprofit’s reputation.
Donors, grantors, former employees, current team members, third parties and board members; you probably never thought that any of these individuals could present a liability risk to your nonprofit organization. However, this can and does happen regularly. As we mentioned earlier, liability claims from any of these parties can easily cost your nonprofit thousands of dollars, not including any court costs or associated attorney fees.
Let’s explore three different scenarios that could impact your nonprofit. This might help you better understand the reality that all nonprofit organizations must face.
In general, there are certain at-risk areas that can heavily impact nonprofit organizations.
The single liability trend facing both nonprofit organizations and profit organizations is Employment Practices Liability insurance (EPLI). Typically, EPLI claims are only resolved in the courtroom and the settlements can cost in the hundreds of thousands of dollars.
According to the U.S. Equal Employment Opportunity Commission (EEOC), there were 76,418 charges of workplace discrimination during the 2018 fiscal year. Overall, the EEOC secured a combined total of $505 million for employees working in all levels of the government along with the private sector.
The most recent EEOC workplace claims indicate employees (or former employees) complained with the following percentages regarding various types of discrimination:
The EEOC also reports that many organizations have experienced a 13.6% increase in sexual harassment charges and a collective total of $56.6 million in settlements for sexual harassment claimants.
Nonprofits must keep careful records of their donations and their spending. As you know, proper bookkeeping is crucial to allow for nonprofits to account to board members and grantors. In addition, there is an increasing amount of litigation against nonprofits over how organizations use their funds, particularly regarding private donations.
Furthermore, government agencies have also begun more actively prosecuting nonprofits regarding how these organizations manage their government grants.
As with all businesses, nonprofits usually establish websites to share information, including details about their services. Many nonprofits include email access and links to other resources. Since these trusted organizations are disseminating information to the public, they must be careful about what’s posted online.
You may not be aware that by posting online, your nonprofit is taking on the same responsibility that a publisher would, including aspects such as invasion of privacy, trademark infringement, copyright infringement and defamation.
Nonprofits with websites are also at a higher liability risk than those without because of potential computer viruses and data theft caused by hackers, or due to lawsuits seeking to prevent the misuse of a trademark. Your organization does not have to do anything wrong to still be named in a large spectrum of internet liability claims.
So, let’s explore the assistance your nonprofit will want to secure in order to manage a possible lawsuit or claim (false or not).
Your nonprofit has a clear mission. Therefore, getting sidetracked with an unforeseen liability claim can derail your organization’s goals and prove to be an annoyance and cause undue stress to all involved. The best thing to do is to buy a complete package of Business insurance policies to protect your nonprofit’s future. Review the following types of insurance for a better idea of what your nonprofit might need.
Protection of your nonprofit’s assets against a variety of claims including liability, slander, personal injury, marketing mistakes, third-party physical damage, third-party property damage and other risks is essential. As such, General Liability is a must-have in this regard as it will pay for your nonprofit’s legal defense, court costs, litigation fees and judgments.
Commercial Property insurance provides for the replacement or repair of your nonprofit’s owned or rented building when a disaster occurs. Covered events are usually fires, storms, theft, flood and other natural disasters.
D&O insurance protects board members and executives working within the nonprofit organization from financial damages associated with lawsuits and allegations indicating any wrongful acts.
Hired & Non-Owned Auto insurance covers property damage and bodily harm caused by a rental vehicle or employee vehicle used while doing business.
Each nonprofit is slightly different based on the work they perform and the inherent risks they take on (number of employees, data stored, vehicles, size, locations, etc.). If none of the standard business policies mentioned above are not enough to cover every exposure, your nonprofit may benefit from additional types of insurance.
Special Event Insurance: Protection for third-party property damage or bodily injury during special events hosted by your nonprofit.
Ransomware: Protection from losses caused by cyberattacks that hold your data hostage.
Extra Expense Coverage: Pays for costs needed to keep your nonprofit open in the event of a disaster or loss. This coverage is meant for any expenses outside of normal, every-day operations.
Data Breach (Cyber Liability): Expenses resulting from data hackers or thieves stealing data.
Besides the variety of Liability insurance policies that nonprofits may purchase, the next most important coverage for all organizations is Workers’ Compensation. In fact, many U.S. states mandate that all businesses, even organizations in low-risk industries, buy Workers’ Compensation. Organizations that fail to have the mandatory minimum in Workers’ Compensation coverage may receive heavy fines, costly lawsuits or even criminal prosecution.
In short, nonprofits need Workers' Compensation the same as any other company operating within the same state.
Universities, trade schools and other educational institutions are a unique subset of nonprofits that also must create their own customized Business insurance package. Of course, all of the same policies mentioned above can be used for education-based nonprofits too. In addition, these organizations will want to consider buying Educator Legal Liability coverage.
A School Board or Educator Legal Liability insurance policy is meant to protect not just teachers but also administrators, volunteers, school board members, student teachers, teaching assistants and other educational staff. In the traditional version of this policy, an insured educator is covered for alleged or actual breaches of duty, misleading statements, neglect and other errors or omissions. Often time, an Educator Legal Liability plan will also include EPL coverage.
Educator Legal Liability supports education-based nonprofits involved in these types of claims:
Many people think nonprofits aren’t quite like a traditional business and somehow may be above liability lawsuits and big-dollar claims. This is simply not true. Nonprofits of all kinds face an increasing risk of costly and time-consuming litigation.
To get easy, fast, and convenient nonprofit Business insurance quotes, check out CoverWallet and protect your organization. Contact us today to explore comprehensive insurance plans that are specifically tailored to your nonprofit.