Risk Cover with Insurance for Nonprofit Organization

A nonprofit organization works in a dynamic environment with several risks. Getting an Insurance done for the organization is a option that nonprofit leaders could consider to mitigate some of the avoidable risks.

Mentioned below are the commonly used options for nonprofit organization insurance coverage. Depending upon the perceived risk, an organization may wish to apply for one or all of the following risk coverage insurance options.

I) Comprehensive general liability insurance – Also called the Commercial general liability insurance (CGL) – this is the most common insurance that nonprofits seek.

Risk Coverage – CGL in general covers the risk for the organization, the directors,  officers, employees, members and volunteers against the following risks –

a)  Liability of general nature arising out of negligence of the organization and its covered representatives.

b) Liability resulting from damage to properties – own or third party.

c) Damages resulting from personal injury like those arising from slander, defamation, libel etc.

d) Damages due to Organizational injury such as those resulting from copyright infringements, employee rights etc.

e) Medical damages – such as bodily injuries for the covered group of people, whether or not arising from any negligence.

II) Director’s and officer’s liability insurance

Most of the states have enacted volunteer protection laws to  protect nonprofit members. However it is often difficult to seek protection from personal liability under these acts.

Thus many organizations prefer taking a director’s and officer’s liability insurance (D&O Insurance) to additionally cover the risk of personal liability of directors and officers in the event of ‘wrongful conduct’ on their part in managing the affairs of the organization.

Risk coverage – The D&O policy covers liabilities arising out of general employment practices and includes risks arising out of ‘wrongful conduct’ -which includes breach of duty and other errors and omissions that are likely to result in damage for the organization or for others.

The organization may additionally seek to include employment practices liability coverage (EPLI) in its D&O policy, if it has employees.

The individuals insured under D&O insurance depends on the particular coverage sought by the organization at the time of buying this Insurance.

III) Worker’s Compensation Insurance – Any organization that has employees, whether full time or part time is required to take worker’s compensation insurance. The amount and extent of coverage should be well thought of as employment related claims are the most common liability claims faced by nonprofit organizations in the country.

The extent of Insurance coverage requirement varies from state to state. State specific requirements can be obtained either from the State Compensation Insurance Fund (SCIF or also known as State Fund) or from private Insurers. (There are around 15 private Insurers that provide this cover)

IV) Other policies

Property Insurance – A nonprofit organization may additionally consider a property policy to cover property like office equipments, furniture & fixtures,inventory etc. The organization may also consider covering its computers under the Electronic data processing (EDP)policy.

Business Automobile insurance – Organizations that use automobiles or motor vehicles should consider getting a business automobile insurance policy (BAP). BAP covers both auto and physical damage protection.

If the nonprofit organization does not own but hires vehicles for its operations it should consider getting a hired and non-owned liability cover, if not already included under the CGL.

Crime Insurance – Some nonprofit organizations get this policy to cover losses arising out of possible thefts or dishonesty of its employees.

Excess liability policy -(also called umbrella policy) to additionally cover losses due to catastrophe over and above if the limits of insurance sought through any of the above policies is not considered sufficient to cover any particular risk.

Additional resources