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The Necessity Of Nonprofit Liability Insurance

By:   |   Jul 08, 2018   |   Views: 31   |   Comments: 0

Many nonprofits are scared off by the high premiums that come with nonprofit liability insurance. Some nonprofits consider foregoing purchasing nonprofit liability insurance as a way to cut costs. Nowadays, nonprofit boards are very likely to be the target of litigation, and must protect themselves at all costs.

Employee Claims Statistics

According to statistics compiled by the Nonprofits Alliance of California, 98% of nonprofit EPLI claims are employee related, and 80% of those cases are related to wrongful termination.

Employee-related claims are on the climb, and nonprofits need to take notice. These claims can seriously damage nonprofit organizations, and can even totally annihilate them. Here, it's easy to see the importance of nonprofit insurance.

Chubb Insurance has noted a dramatic increase in the number of employee related claims in the past five years. Chubb has noted that roughly 65% of its claims are employee practice liability claims.

D&O claims include membership issues, misallocation of funds, mismanagement, and fraud.

Protecting Your Nonprofit with a D&O Policy

An Executive Liability policy can group together coverages like D&O and EPLI to indemnify the directors and officers of nonprofit organizations from damages or losses that arise from claims when there organization cannot indemnify. An Employment practices liability policy can cover such claims as wrongful termination, discrimination, and sexual harassment.

Insurance for Non-Profits has a lower rate when it comes to D&O insurance for publicly traded or for profit companies. This is due to the fact that nonprofits have much less liability exposure than for-profit corporations.

Different providers offer different D&O policies with varying coverage. The majority of D&O policies exclusively cover the directors and officers of the organization, but some policies extend coverage to protect employees, consultants, and volunteers.

The EEOC has noted a significant increase in claims in recent years. A slow economy is partially to blame, as people who find themselves out of work often file lawsuits to recover funds lost to unemployment.  This is why EPLI insurance is important all types of organizations with employees.

Take Preventative Measures

Robert Hartwig, the chief economist and vice president at the Insurance Information Institute, has stated that "leaders of for-profit and nonprofit companies are at the crosshairs of a lawsuit today."

There are a few ways that nonprofits can structure their protocols to prevent lawsuits. Here are a few tips:

  • Detail and establish a firm consensus for procedural issues such as timing of content, notices, access of records, record-keeping, frequency of meetings, scheduling meetings, etc.
  • All board members need to stay up to date regarding the management of the nonprofit organization. Board meetings should contain comprehensive presentations and documentation that pertains to the issues at hand.
  • Delegation of responsibility will help alleviate the decision-making traffic jams. Building strong committees can help the board with the decision-making process.
  • Always consult outside legal advice before making any employment decision.
  • Avoid conflicts of interest within the board.

Even if a nonprofit follows all of these tips, a lawsuit can threaten the very existence of the organization. As such, it's especially important to purchase a D&O and EPLI policy that will cover expenses incurred through such litigation.

Evaluate the policies that are available on the market. An executive risk policy can combine D&O, EPLI, Crime, Kidnap & Ransom, Fiduciary Liability, and some Miscellaneous E&O coverage.

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