Nonprofit Insurance FAQs

At a minimum, an insurance broker should be:

• Knowledgeable about “commercial lines” insurance (insurance for corporations and organizations) and the insurance companies that offer it.
• Experienced with regard to the special risks facing nonprofits and the insurance products best suited to finance those risks.
• Willing to take the time to learn about your agency’s operations and to provide thoughtful advice and counsel about the agency’s exposures and insurance needs.
• Assertive in advocating your interests.
• Well connected with the various insurance markets and able to offer you competitive choices with respect to pricing and coverage terms.
• Organized to meet deadlines
• Responsive to your changing needs – he or she should return your phone calls, assist with claims filing, notify insurers of any change, issue certificates of insurance, and assist with the design of risk management strategies.

Nearly every state in the country has in place a statue that affords some protection to volunteers serving nonprofit organizations. Laws differ from state to state. Among the common elements are the following limitations on whatever immunity the laws provide.

• The exclusion of protection for any willful acts on the part of a volunteer
• The exclusion of protection for any claims involving the use of an automobile
• The exclusion of protection for any claims alleging violation of civil rights laws
• The exclusion of protection for any volunteer serving a nonprofit that does not have liability insurance.

All of these exclusions and exceptions are critically important. Together they represent a significant percentage of the claims filed against nonprofits and nonprofit board members. Also keep in mind that the laws do not stop anyone from filing a claim against your volunteers. Even if a court eventually rules that the volunteer is immune, defense costs could be substantial. 

It is possible that some coverage for board service may be found under an individual’s homeowner’s policy, but the extent of that coverage depends on the specific wording of the policy. A homeowners policy may provide coverage for accidents, but these types of policies typically provide no protection for the activities involved in the governance of the agency nor does it provide any protection for the nonprofit itself.

Host liquor would apply to policyholders that are not considered to be in the business of selling or serving alcohol regardless of whether or not they are making guests purchase tickets to buy alcohol or serving it for free. Sometimes cities or landlords require the insured to purchase liquor liability coverage even if they are not considered to be in the business of selling or serving alcohol.

A certificate of insurance provides evidence that insurance coverage is in effect the day the certificate was printed. These are different from an “additional insured endorsement” in that it does not add anything to your policy – it is merely a document that acts as evidence of insurance. You may see certificates of insurance issued with additional language that state “the certificate holder is an additional insured on XXX policy.” When you need a certificate of insurance you should request it of your broker and it should not cost you anything. Also, you should request a certificate of insurance anytime you are working with another organization under a contract. You don’t want to work with a vendor that is not insured. If the vendor carries their own insurance, a potential claimant is less likely to seek damages from you.

A hold harmless is an agreement between two parties that obligates one party to protect another against certain risks of legal liability. In a typical hold harmless agreement, one party agrees to pay and defend claims brought against the other party as a result of the first party’s activities.

Usually a landlord will include hold harmless language in a lease to protect him or her from being sued as a result of an event occurring on his or her property. So, before signing a lease containing a hold harmless agreement, always ask yourself whether you are in a position to prevent or control losses covered under the agreement. Leases of this type also usually require you to name the landlord as an additional insured. Funders, such as governmental agencies may also require a hold harmless agreement so that they will not be held responsible simply because they fund an event or a program.

On the other side of the issue are the agreements you should require from vendors and subcontractors that participate in events. Vendors may sell food and beverages, security, clean-up crews and other services – you want to be sure that you have a hold harmless agreement that protects your nonprofit in the event of an incident involving the vendor. But the most effective way to protect yourself in these instances is to require that your organization is named as an additional insured on the vendor’s policy. There are coverage considerations involved in a hold harmless agreement because one party agrees to assume legal obligations of another in a lawsuit for damages to third parties arising from specified operations. It is important that the operations be specified, or the agreement may be ambiguous and cause coverage questions in the event of a claim. The requirement that a hold harmless be signed by the nonprofit is becoming increasingly common. Just be sure that you read the language and make sure that you are NOT accepting more risk than is appropriate under the circumstance or for activities that are outside of your control.

Endorsements are policy forms that modify the main coverage forms by changing or adding to the policy. For example, if you add a new automobile to your policy, that would be an endorsement on to the main coverage form.

This is a liability coverage form that covers claims that occur during the policy period, and for which claims can be reported to the insurance company at any time during or after the policy period. For example, if the policy is purchased for the year beginning July 1, 2003, and an incident occurs on November 1, 2003, the incident is covered even if a claim is not filed until years later, regardless of whether the organization is insured at the time of the claim. Keep in mind, however, that claims that are learned about must be reported promptly to the insurance company.

This is typically the “core” coverage for a nonprofit. Most commercial general liability insurance provides coverage for a wide range of acts or offenses which result in bodily injury, personal injury, advertising injury or property damage to a third party. The most common type of incident covered by this policy is a “slip and fall”. Commercial general liability (often referred to as CGL or GL) insurance is generally available as an “occurrence” policy, which provides significant advantages over a “claims-made” policy.

A general liability policy may also extend to special events. If your organization conducts any type of special events, you should make sure that your general liability policy includes special events and that you follow any requirements about providing notice of special events.

This coverage is usually purchased as an endorsement to the commercial general liability policy. It is intended to cover specified damages from your organization’s negligent handling of the administration of your employee benefits program. For example, a new staff person starts on July 1st and ends up needing emergency surgery on August 15th but because of an oversight they were not added to your health plan. This coverage would typically apply.

As its name suggests, Improper Sexual Conduct (ISC) Liability coverage insures against claims of improper sexual conduct. General liability policies typically do not include this type of claim because ISC is based on an intentional malicious act. Some insurers claim this coverage is included in their general liability insurance because the policy does not specifically exclude improper sexual conduct, but relying on a general liability policy is a risk that may provide no coverage for employees and volunteers who may be unfairly accused. Unless this coverage is purchased as a separate policy specifically providing coverage for improper sexual conduct, you likely will not have any coverage for your employees or volunteers.

Property coverage is purchased to protect the physical assets you own or lease such as buildings, office equipment, furniture, fixtures, etc. There may be special types of coverage which need to be purchased for property in transit, mobile equipment, fine arts, etc. When considering this coverage, it is important to have a thorough inventory of all physical assets, then make sure that the property is accurately valued and that adequate coverage limits are purchased.

This coverage is often provided as an endorsement to the commercial general liability policy. It typically provides coverage for errors and omissions as a result of social services activities. While it may, depending on the policy, cover counseling, nurse practitioners and the dispensing of medications, it is not true malpractice liability coverage. This policy is typically not sufficient for organizations with medical malpractice or other professional liability exposure.

True to its name, umbrella coverage typically provides higher liability limits for a variety of coverages as well as potentially providing coverage for damages which may not be covered by the primary coverages. For example, a single umbrella policy may increase the limits of coverage on a commercial general liability policy, a business auto policy, and a directors and officers policy simultaneously. This policy engages when the limits of another policy have been exhausted.