Nonprofits Insurance Alliance

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Liquor Liability 101: How to Serve Alcohol at Your Nonprofit Events

When most Americans think of this time of year, they imagine hot cocoa, candy canes, and reindeer. However, when most nonprofit leaders think of this time of year, their minds go to holiday events and fundraisers, the spirit of giving, and, more likely than not, how to safely provide alcohol at said events. Whether your nonprofit is serving alcohol to employees and guests, or selling it in order to raise money, here are some questions to consider so that your nonprofit doesn’t find itself faced with an alcohol-related lawsuit.

Are You Familiar with Your State’s Social Host Liability and Dram Shop Laws?

Social host liquor liability laws cover situations where liquor is provided at no cost. Most states have these laws, which hold your organization responsible for providing liquor to minors in any situation that results in injuries to the minor, or injuries that the minor causes to others due to alcohol intoxication. Some states have stricter social host liability laws which go beyond underage drinking. These laws can hold you responsible for accidents caused by anyone allowed to drink to excess then injures themselves or a third party.

Dram shop laws determine how the liability flows from injuries caused by intoxicated people or minors when alcohol is being sold to customers. If a nonprofit has a fundraiser and sells liquor to attendees, in some states they could be held responsible if an attendee has an alcohol-related accident and injures themselves or others. In fact, depending on the state, an establishment selling alcohol could be held 100% liable for alcohol-related accidents if it’s proven a person got intoxicated, or further intoxicated, at their establishment.

Understanding these laws will help your nonprofit put the proper controls in place to better protect against an alcohol-related accident. This is especially true in states that allow nonprofits to easily obtain an event specific liquor license, such as Colorado. While these days liquor licenses make it easy for a nonprofit to organize a fundraiser where they sell alcohol, that doesn’t mean that liability doesn’t exist.

Do You Have Controls in Place for Service?

The key to any event involving liquor sales or host liquor is making sure you control who can attain an alcoholic beverage, and how much they are able to access. There should be controls in place to ensure that minors are not served alcohol. This can be done in many different ways including:

  • requiring a picture ID anytime someone asks for a drink
  • giving out bracelets or wristbands to potential alcohol drinkers after showing ID, and having the bartender check for the bracelets
  • giving out drink tickets to adults (with proper ID)

In addition to making sure people are old enough to drink, you should also have controls in place to make sure visibly drunk people are cut off from being served additional alcohol.  Depending on the state, there are laws which stipulate when a bartender should stop serving someone who is considered to be intoxicated. In certain insurance claims, it’s the bar’s adherence or neglect of these rules which make them more or less liable in cases of an alcohol related death.

The best way to control the flow of alcohol is to make sure your servers understand the laws and serving guidelines, and to limit consumption when appropriate.

Who is Going to Serve the Alcohol?

In most states, there are companies that specialize in bartending for events. These companies have trained and certified their bartenders to know specific state laws and serving guidelines, and as such, many nonprofits choose to hire one of these companies for their events. In addition to bringing in trained bartenders, these companies also carry liability insurance, which should cover any negligence on the part of the bartender, such as serving a minor or a visibly intoxicated patron.

Some nonprofits will elect to serve the alcohol themselves, especially in host liquor situations where the alcohol is being provided at no cost. If this is the case, having controls in place and an understanding of state liquor laws is essential.  Any designated servers should be trained to proficiency on the signs of alcohol impairment, and have protocol for handling visibly intoxicated individuals.

Do you Have the Correct Insurance?

A standard general liability policy provides host liquor liability, which covers events where alcohol is provided free to guests, but not situations where alcohol is sold. Examples of what is covered include an open bar at a Christmas party, a wine tasting event for staff or donors, or providing beer at a picnic. For many nonprofits, this is adequate liquor coverage.

However, in some cases, nonprofits sell liquor at fundraising events. For example, a nonprofit may hold an event at a local bar, who donates their space and allows the nonprofit to keep 50% of the bar sales. In this example, the nonprofit could be held liable under dram shop laws, which may be more severe than host liquor laws. The nonprofit should request a full liquor policy to cover these events as they may not be covered under the host liquor liability included on their policy.

Although there are potential risks involved with serving alcohol to employees and guests at holiday parties and fundraising events, learning about state laws, putting proper controls in place, and having a comprehensive insurance policy can help limit those risks so that your nonprofit can stay calm and party-on this holiday season.

Use of Non-Owned Autos

Does your nonprofit have employees or volunteers that use their personal vehicles on behalf of your organization, for purposes such as running errands, performing services, or transporting clients? Many nonprofits do not realize that their organization has an additional and potentially serious exposure to loss that arises from employees and volunteers using their personal vehicles. Unfortunately, this is a situation where what you don’t know may very well hurt you!

Your organization can be held responsible for any liability associated with operating that vehicle, since it may be held responsible for the actions of employees and volunteers during the course of service or employment. Although the individual has personal insurance to cover their own liability, that coverage may not be adequate to cover the full extent of damages incurred, in which case a claimant may then pursue your nonprofit.

If you have any individuals driving a personal vehicle on behalf of your nonprofit, even for short errands, at a minimum you should:

  • Have a written driver policy, which is signed by the individual driver (a sample policy is available on our secure site for current members of the Group)
  • Require that individuals have an authorization from your nonprofit before driving a personal vehicle
  • Get a copy of the employee’s current driver’s license
  • Require proof of personal auto coverage and get updated copies at each policy renewal
  • Purchase a non-owned auto insurance policy for your nonprofit

Accident claimants and their lawyers will seek recovery from as many sources as they can, so don’t leave your nonprofit vulnerable! Non-owned auto coverage applies when damages exceed the vehicle owner’s personal auto insurance limits, or in situations where a vehicle owner’s primary coverage declines a claim. We have seen both large and small claims related to non-owned auto use, one of the largest being $2 million. Without a non-owned auto policy to protect them, that nonprofit would likely not have survived.

For better risk management, also consider running an annual motor vehicle record check or use a “DMV pull program.” This is highly recommended for organizations that have a significant non-owned auto use related to the delivery of services (e.g., meals on wheels; neighbor-ride programs). Knowing more about this exposure and implementing some simple risk controls can help protect your nonprofit from financial loss.

 

What Makes a Nonprofit Look Unattractive to an Insurance Company?

Many commercial insurance companies do not offer coverage to nonprofits because of the special risks this sector presents, such as the use of volunteers, the frequent interactions with vulnerable populations, the small size of many nonprofits, the unusual auto exposures, and the misperception that nonprofits are not well-managed.  This article does not address those issues.  This article discusses how to put your best foot forward as a nonprofit to an insurance carrier that is already inclined to offer insurance to a nonprofit. We also recommend that before reading this article, you take a look at our past blog The Difference Between an Insurance Carrier and an Insurance Broker. This will help assure that you have a good foundation of knowledge for understanding the information below.

Whether your nonprofit is looking into getting insurance for the first time, it has a long-standing policy that’s coming up for renewal, or it’s shopping for a new policy, knowing how to put your best foot forward when communicating with insurance professionals can make all the difference. In fact, poor communication with your broker can leave your nonprofit with inadequate coverage, as well as a potentially higher premium than necessary, and trust us – you don’t want either of those things. But what exactly makes a nonprofit look bad, or less-than-appealing? We’ve gathered the top three problems below.

  1. Inconsistent Information

One of the most common problems is inconsistent information provided on applications for insurance. Generating a quote involves looking at a host of information related to the staff, volunteers, location, and operations of your nonprofit, which is why your broker will ask you to fill out insurance applications, which they will then submit to insurance companies in order to get a quote. These applications, in conjunction with other resources such as your nonprofit’s website or promotional materials, help the insurance understand what your nonprofit does, as well as the risks to which it is exposed. This information is what the insurance company uses to develop a quote for your nonprofit, which ultimately becomes the price, terms and conditions of the insurance policy if coverage is bound.

When information on one insurance application doesn’t match information on another, or the information available on your nonprofit’s website or in promotional materials is different from what is listed on the applications, it can make gauging what it is your nonprofit does and what potential risks it faces difficult. For example, if your nonprofit’s website displays a photo of youth playing a sport, but there is no mention of sports activity in your applications, the insurance company will not have a clear understanding of the programs offered. This sort of discrepancy can lead to additional underwriting questions, involving extra back and forth between you, your insurance broker and the insurance company.  Sometimes such lack of clarity can result in unnecessary terms and conditions being placed on your insurance policy.

What’s the best way to avoid this? Double check your applications to ensure everything is consistent. If your nonprofit has a website or any materials that may also be viewed by the public, such as your 990, make sure any and all activities displayed have been included in the applications and are currently being performed by your nonprofit.

  1. Incomplete Applications

Incomplete applications are just as bad, if not worse than inconsistent ones, and they too can make your nonprofit look less appealing to an insurance company. A sloppily completed application can make it appear that your nonprofit doesn’t take documentation seriously or that you don’t have a good grasp of your operations. Remember, if an insurance company is going to have to guess, they are probably going to guess high!  Check your applications for accuracy and completeness before you submit them to your broker.  Don’t just look for inconsistent information; look for missing information as well!

It’s just not worth the risk to under-report your activities in hopes of getting a better price. These things have a way of turning out badly.  It is always better to be up-front so that your nonprofit doesn’t end up with inadequate coverage when a claim arises!

  1. A Claims History with Frequency and Severity and No Clear Fix

Nonprofits often think that poor claims history makes them look bad to an insurance company, but that’s not entirely true. What looks bad isn’t necessarily the claims themselves, but a lack of response to the issue that caused them. If your nonprofit has experienced frequent or severe claims activity and cannot speak to what changes have been made to address the issue and reduce or eliminate the potential for a repeat claim, that can look less than ideal to an insurance company. What’s the best way to avoid this? Provide a statement acknowledging previous claims issues and identifying how they’re being addressed.

You most likely will be asked for your nonprofit’s loss runs, or its claims history. Some may think that by avoiding providing a claims history they can mask poor previous claims experience.  However, remember what we said earlier: when insurance companies have to guess, they invariably guess high! Also, nonprofits that have experienced a lower loss ratio than similar insureds may qualify for a lower premium, which means providing loss information can be beneficial.

Nonprofit Insurance Explained: The Difference Between an Insurance Carrier and an Insurance Broker

For those of us who work in or around insurance, the difference between an insurance broker and an insurance carrier is quite clear. However, for many nonprofits tasked with finding and maintaining insurance coverage, the process can seem quite daunting. Let’s face it — you may not have even been aware until this exact moment that there’s a difference between an insurance broker and a carrier. If this rings true and you need some assistance making sense of all of this information, look no further! Below is an explanation of both a broker and a carrier, as well as the relationship between the two in regards to your nonprofit’s insurance coverage.

What is an Insurance Broker?

A broker is someone who buys and sells products or assets on behalf of another. Therefore, an insurance broker is someone who acts on behalf of a client, called an insured, to provide them with guidance on what insurance coverage they need and to then assist them in buying that coverage from an insurance carrier. The broker is someone who specializes in insurance and risk management, whose role it is to help their insured nonprofit put together an insurance program of one of more policies that serve to mitigate the financial loss of claims. Essentially, they act as a consultant to the insured.

Because an insurance broker is third-party, they receive a commission for their services. The broker’s compensation is typically provided by the insurance carrier as a percentage of the policy premium. The broker may also charge a flat fee for their services, but the nonprofit should be informed of what additional services they will receive before agreeing to such a fee.  Most nonprofit brokers do not charge additional service fees.

What is an Insurance Carrier?

An insurance carrier, also called an insurance provider or an insurance company, is the financial resource behind the coverage provided in an insurance policy.  It is the issuer of the policy and the one who charges the premium and pays for losses and claims covered under the policy. In return for charging a certain premium, the insurance company promises to pay the insured for certain financial losses due to various covered claims’ scenarios.  Some insurance carriers also provide loss control services to help nonprofits avoid claims.  Nevertheless, the distinct difference between a broker and an insurance carrier is that the insurance company bears the financial risk while the broker provides advice.

What is the Group?

The Nonprofits Insurance Alliance Group is an example of an insurance carrier. We financially protect our member-insureds against losses and pay claims when losses occur. We are a 501(c)(3) cooperative insurer, owned and governed by the nonprofits we insure, but we work through brokers to market our policies.  We do this because we believe that nonprofits benefit from the expertise of a broker who works for them to make sure they have the right coverage for their risks.

What Does That Mean for Your Nonprofit?

Because we require that our nonprofit members work with a broker, and because nonprofit insurance is such a specific niche of the marketplace, we provide broker referrals to nonprofits for brokers that specialize in working with nonprofits. While brokers who don’t specialize in nonprofits can still provide great service, they need to understand the special risks faced by nonprofits and the insurance coverage nuances available from specialty insurance carriers.  If a broker doesn’t typically work with nonprofits, they may not be familiar with the variety of options available.

If your nonprofit is already working with a broker, be sure they understand your nonprofit’s mission, as well as how accidents and injuries might happen in the course of your mission.  Also make sure the broker is recommending the best insurance program to cover your nonprofit’s needs, and not the insurance program which will pay them the largest commission.  It never hurts to ask a broker about the commission to determine if that is influencing their recommendation in any way, as some carriers offer much higher commission than others. We do not offer the highest commission in the marketplace, so when brokers place business with us, you can be sure that getting the highest commission was not their first priority!

Once the nonprofit has been in contact with a broker and agree on what kind of insurance program is most appropriate, the broker will approach one or more insurance carriers, such as the Nonprofits Insurance Alliance Group, to get the insurance policies. From there, it is the broker’s job to service the administration of the policy.  This includes assisting the nonprofit in making any necessary changes and obtaining any information needed by the nonprofit in regards to their policy.

Conclusion

While an insurance carrier and an insurance broker are two separate entities with two separate roles, the two go hand-in-hand helping nonprofits establish and maintain insurance coverage. For nonprofits seeking an insurance policy, it’s essential to work with a broker and a carrier that know and understand the unique needs of the sector. With this, nonprofits can continue with their missions, without having to stress out about potential or unknown risks derailing operations.

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