Nonprofits Insurance Alliance

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4 Tips for a More Rewarding Nonprofit/Broker Relationship

In an earlier blog, we explained the difference between an insurance broker and an insurance company.  As discussed in that article, the broker is someone who specializes in insurance and risk management, whose role is to help the nonprofit put together an insurance program of one or more policies to mitigate the potential for financial loss from a variety of risks. Essentially, they act as a consultant to the nonprofit to understand the risks associated with the nonprofit’s mission and the types of insurance needed to cover those risks. Part of that discussion would include if there are risks that cannot be insured against.

As you begin (or continue) a relationship with your broker, here are some key considerations to ensure you are getting the best coverage for your nonprofit at the best price.

  1. Ask your broker to walk you through your policies

Part of your broker’s job is to help you understand the insurance coverages you are purchasing.  That includes understanding not only what is covered, but also what may not be covered.  The last thing you want is to have a loss and find out it is not covered or that the limits available are not adequate.  Here are a few sections included in most insurance policies to which you want to pay close attention:

Limits Section (aka Declarations or “Dec” Page) – This part of the policy shows what limits you have available to you for each accident (occurrence limit), and also for the whole policy year (aggregate).  You and your agent should review this section to make sure you have adequate limits, especially if any of your contracts require you to carry specific insurance limits.

Insuring Agreement (aka Coverage Agreement) – These paragraphs will summarize when your policy will be triggered, and who is covered.   It may also discuss when the insurance company starts and stops defending a claim.

Exclusions – This is a very important section as it details what things are specifically excluded from coverage in your policy.  You and your broker should look through this section and confirm that there are no exclusions for activities critical to your nonprofits mission or activities.

Definitions – This section defines all the key terms used in the rest of your policy.  As an example, your policy may say that it pays “Damages” for claims which occur in the “Coverage Territory.”  You need to understand how the insurer is defining Damage and exactly what the Coverage Territory is, to ensure it meets your needs. For the most part, any term in quotes or capitalized will be in the Definitions section.

Lastly, review the schedule of properties and vehicles listed in the policy to make sure everything is there that should be and nothing is missing.  More about that in the next tip.

  1. Tell your broker ASAP about any changes to your operation

This can’t be emphasized enough.  In order to ensure you have the necessary coverages in place you should, as soon as possible, tell your broker about any changes to your operations.  This includes buying or selling properties, buying or selling (or leasing) vehicles, changes in location, change to employees and adding or changing programs or operations.

Some polices give a grace period for reporting new vehicles and buildings, but not all.  You don’t want to have a claim only to realize it won’t be covered because the vehicle or property was not listed on your policy.  On the flip side, if you sell a vehicle or a property, you don’t want to pay insurance for something you no longer own.

Also, if you change operations (i.e. add a new program) you want to make sure these new operations are covered.  As an example, maybe just a general liability (GL) and a directors and officers (D&O) policy were adequate for your operations when you first started. Subsequently you added a program with children, and now you want to consider adding an improper sexual contact and physical abuse (ISC) policy in addition to the other policies you have.

  1. Don’t sign a contract without first reviewing it with your broker

Part of the broker’s job is to assist the nonprofit with risk management.  This includes helping the nonprofit review those parts of any contract they sign (as part of work they perform) that may affect their exposure to loss.

Recently, the indemnification and insurance requirements in contracts that nonprofits are required to sign have become draconian.  Specifically, municipalities all over the country have begun to push as much liability as possible off to the nonprofits performing services and work.  Quite often, the liability that the nonprofits are being asked to accept are outside of the control of the nonprofits.

As an example, many contracts have wording which require the nonprofits to accept liability for all claims “arising out of this contract from any cause whatsoever, including the acts, errors, or omissions of any person.” The argument can be made that every claim “arises out of” the contract.  This means the nonprofit may be forced to defend and possibly indemnify another party for claims caused through the negligence of that other party.  In other words, the nonprofit may be forced to pay for a loss that was not their fault and out of their control.

Your broker can help you review the insurance sections of your contract to make sure the liability flows in the correct direction.

  1. What to ask when comparing quotes from different insurance companies

Comparing quotes from different insurance companies can be a very daunting task, even for those familiar with insurance.  You must look at limits, price, exclusions, sublimits, endorsements, etc.  For those who don’t do this on a regular basis, it can make your head spin!

The first thing your broker should explain is variance in price between different quotes.  As Warren Buffett once said, “Price is what you pay.  Value is what you get.” One quote for insurance may look more attractive than another quote because it is less expensive but quite often, it is less expensive because it provides less coverage or there are hidden costs. As an example, sometimes insurance companies use deductibles and self-insured retentions (SIR) as a way to lower their own costs and shift risk to the nonprofit.

When the nonprofit accepts a deductible or SIR, they are responsible for that portion of a claim.  For example, if there is a $10,000 loss and the policy has a $1,000 deductible (or SIR), the nonprofit is responsible for that deductible and will only receive a net claims payment of $9,000. When comparing two policies, make sure any deductibles or SIRs are the same.  A policy with a higher deductible may have a lower up front cost, but may be a bigger overall “insurance spend” on the back-end.  Also make sure your broker explains the difference between a deductible and a SIR.  The latter is an “upfront” out-of-pocket cost. The former is billed back to the nonprofit once the claim is settled.

Another question to ask the broker about is claims settling philosophies between companies.  Some companies have the reputation of denying claims often and with wild abandon.  They can afford to charge less premium because they are more likely to deny claims. Their polices are craftily worded to exclude certain coverages and losses, or are silent on certain issues.  Other carriers, like the carriers in the Nonprofits Insurance Alliance Group, try to find coverage for their nonprofit members.

Lastly, you should ask your broker about the difference in commission they will receive from the different insurance companies.  Your broker is compensated by the insurance company via a commission which is part of the premium you pay.  Most brokers will advise their clients based on what is best for the nonprofit.  They want to make sure the nonprofit understands the differences discussed above and makes an informed decision.  There are a few brokers, however, who may be tempted to recommend an insurance policy from the company that will give them the biggest commission, regardless of what is in the best interest of the nonprofit.  Asking for transparency of the commission arrangements will help you understand the decision making process.

Does My Organization Really Need an Employee Handbook?

Despite the fact that there are no state or federal laws that require an employer to have and provide handbooks to their employees, it’s almost universally agreed that having and using a well-drafted, comprehensive, and easy to understand handbook serves a number of legal, practical, and risk preventative purposes, and nonprofits are no exception.

Ideally, handbooks not only provide clear and specific information on a large number of important topics to employees, about both their employment and their employer, but they also provide specific notices to the employee about their rights. These often include rights to any job-protected leave, communication of zero-tolerance policies, information on employee benefits, and much more. If applicable, the handbook is also used to establish and clarify the at-will nature of the employment relationship, performance and disciplinary expectations, and policies on vacation and holiday benefits.

However, even well-crafted handbooks can be victims of the passage of time, as well as changes that take place in the law and in the workplace. Regulatory and legislative action can change what an employer is required to do with regard to their employees — often without time to adequately prepare for that change. In their efforts to remain compliant with these changes, employers should be prepared to revise and update any applicable policies in their handbook to reflect new legal realities.

Similarly, if an employer has always had fewer than 50 employees and later increases their workforce to 51 employees, they would then become subject to a number of new laws. The best example would be the fact this employer, who once was not subject to the Family Medical Leave Act (FMLA) leave laws, would now be required to provide their employees FMLA.  In this case, the handbook that never needed an FMLA policy would have to be revised to ensure employees were aware of their newly acquired rights.

Thus, by their very nature, employee handbooks should never be considered “carved in stone.”  They should be reviewed on a regular basis, annually at a minimum. This review should be performed by experienced employment law counsel to ensure that any and all recent legal and workplace developments are taken into consideration in the review and revision process.

 

Claims That Could Have Been Avoided: Why Words Matter with Independent Contractors

For many nonprofits, special events and fundraisers are a huge part of what keeps operations moving forward. They raise awareness about critical issues in our communities, while simultaneously raising the funds necessary to cultivate change. Given how important special events are, and how complex they can be to execute, it’s not uncommon for nonprofits to hire independent contractors to provide products or services the day of, or in the days leading up to or following an event. Your nonprofit might choose to hire a clean-up crew or entertainment for the event, or it may need to rent a larger space to house the event itself – no matter the work contracted, it’s typical to bring on extra help. However, did you know that the actions or inactions of an independent contractor could potentially put your nonprofit at risk? In fact, if an incident is in some way caused by an independent contractor and your nonprofit is not listed as an additional insured on their policy, your nonprofit could be left holding the bag for the injury! Unfortunately, this is exactly what happened to one Nonprofits Insurance Alliance Group member, as described below.

The Claim

A nonprofit member-insured held a Bingo Night fundraiser at a local, third-party business. The contract to rent the space for the Bingo Night required the nonprofit to obtain an additional insured status for the business under its insurance policy, as well as execute a contract which included an indemnification provision, a clause used in contracts to shift potential legal liability from one party to the other.

On the night of the event, one of the guests was injured when she tripped and fell in the parking lot of the business where the Bingo Night was being held — an incident caused by an unrepaired pothole in the parking lot, as well as a parking lot light that had burned out so that the claimant could not see the pothole. The nonprofit had no control over the parking lot, nor did it have the opportunity to fix the light that had burned out, as it was not their premises to maintain.

The nonprofit’s insurance policy included an automatic extension of an additional insured status to the business for liability which was “caused by” the nonprofit organization, and because the nonprofit did not control the parking lot or the burned out light, the nonprofit did not cause the incident and it was the business owner’s own coverage which was applicable to the loss. However, the indemnification provision within the contract which was executed by the nonprofit included an obligation to indemnify the business for any liability “arising out of” the operations of the nonprofit. Because the claimant was injured as she left the event, her injury was treated as “arising out of” the operations of the nonprofit.

Lessons Learned

First and foremost, independent contractors should provide evidence of insurance coverage by providing your nonprofit with their own certificate of insurance. If the contractor is one that the nonprofit does business with regularly or is providing an essential service, the nonprofit should request that it be named as an additional insured on the contractor’s insurance policy. Whether a claim or suit has merit or not doesn’t prevent an organization from being sued, and for that reason, additional insured endorsements are vital when it comes to protecting your nonprofit. While these modifications to an existing contract between the insurance company and the insured organization may seem trivial, they have the effect of adding the name of the endorsement holder, your nonprofit, to the list of insureds under the policy, and this could save your nonprofit from a world of hurt.

It’s also essential to perform due diligence to make sure all contractors and subcontractors name your nonprofit as an additional insured, not just assuming as much to be true. Additionally, don’t assume the contractor has appropriate insurance; check that the policy limits of contractors and subcontractors are equal to or greater than your nonprofit’s so you don’t become the deep pocket.

Some nonprofits may think that contracts presented to them, such as the business rental agreement in this case, cannot be negotiated. However, all contract terms are subject to negotiation and must be evaluated to assess responsibilities and risks imposed. With respect to indemnification obligations, nonprofits must evaluate which entity is accepting which risk, whether there is appropriate insurance coverage for the risk, and whether the party with control over the risk, in our example the maintenance of the parking lot, is the one that is legally responsible.

General liability insurance coverage through the Nonprofits Insurance Alliance Group automatically provides an additional insured status to any business, if required by a contract, but only if the acts or omissions of the covered nonprofit have caused the liability. In this example, a change in the language in the indemnification obligation of the nonprofit included in the rental agreement to only accept liability “caused by” the nonprofit or its guests, rather than liability “arising out of” the event would have fixed the problem.  With that language, the business owner’s own liability coverage would have been applicable to a loss caused by the business owner (i.e. poor maintenance in the parking lot), and it would have prevented this nonprofit from contractually accepting this otherwise uninsured loss.  As we all know, especially when in a contract, it’s the words that matter.

If you need additional guidance, clarification, and/or assistance with additional insured endorsements, contact your insurance broker.

 

Post-Accident Drug Testing – It’s No Longer Automatic

For years, many employers have automatically required drug testing of an employee involved in any work-related accident.  The fact that an accident occurred was justification for the testing, without regard to whether any suspected drug or alcohol use contributed to the accident, and regardless of the severity of the injury or damage.

Some states have placed limitations on this practice. For example, in the 2013 California decision resulting from Freeman v Kohl’s, it was found that such a policy of automatic testing was overbroad and invaded privacy rights of  employees.  It held that an  employer’s post-accident policy that requires drug testing in the event of any reported work-related injury, regardless of the extent of any damage, the extent of the injury, and whether the claimant bears any responsibility for incurring the injury, is invalid.

There is now a new and national directive that affects virtually all employers who maintain and implement such a policy.  In August of 2016, the Federal Occupational Health and Safety Administration (OSHA) issued its final rule on electronic reporting of workplace injuries.  Among other things, this rule found that the use of this broad policy after any workplace injury may deter reporting of such injuries and concludes that drug testing policies should limit post-incident testing to situations in which employee drug use is likely to have contributed to the incident, and for which the drug test can accurately identify impairment caused by drug use.

According to OSHA, examples of unreasonable use of the test would include a bee sting, a repetitive strain injury, or an injury caused by a lack of machine guarding or a machine or tool malfunction.

As a result of this new order, there is an increased, but significant risk in continuing the practice of conducting an automatic drug test after any work related accident.  There are significant fines that will be imposed for use of these policies that deter reporting of workplace injuries — and there is also the possibility of facing claims of invasion of privacy from affected employees.

In light of this new rule, drug testing policies must be reviewed and modified to ensure that post-accident drug testing is performed in a fashion consistent with OSHA’s mandates.

 

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