Over the past ten years, the nonprofit sector has continued to experience healthy growth in both the number and financial size of these charitable organizations. Consistent with this growth, is the need for increased community service and volunteers. According to the National Center for Charitable Statistics, two-fifths of public charities rely on volunteers. Yet, 2015 saw the lowest volunteer rate since 2002: Just one-in-four adults volunteered at least once in 2015.
The question then is what can a nonprofit do to encourage more individuals to donate their time, energy, and talent to their cause? One answer is to reduce the risk of liability that volunteers are exposed to when working with a nonprofit. Ohio nonprofits are governed by general corporation law. Consequently, a nonprofit—and its volunteers—face a diverse set of risks when serving the public good.
What Claims Affect Nonprofits?
When assessing the risk of potential claims, nonprofits must consider claims against three distinct groups: (1) the nonprofit organization, (2) individual service volunteers, and (3) board members, directors, and officers. Under Ohio general corporation law, a claimant may sue not only the nonprofit but also its volunteers and directors or officers.
In the past, charitable immunity protected nonprofit organizations from tort liability. This limitation, however, no longer protects nonprofits or their stakeholders. In addition to tort claims such as negligence, nonprofits may be liable for claims based on contract theory or statutory law. Furthermore, given the legal duties imposed on board members, directors, and officers, these volunteers may be subject to derivative actions and claims against them as individuals for breach of their fiduciary duties.
What Insurance Coverage Should I Consider?
The insurance market is complex, and in order to determine how to best protect against these vulnerabilities, nonprofits may need to find an experienced broker or engage coverage counsel to help assess the risks that are unique to that organization and its target beneficiaries. The following nonexclusive list identifies coverage all nonprofits should carefully consider whether they are just getting started or if they are well established:
Commercial General Liability. A CGL policy is arguably the most important coverage an organization can obtain, as it provides coverage for a wide variety of claims involving "bodily injury" or "property damage." This policy language typically is broad enough to cover the nonprofit as well as its employees and volunteers. The policy pays both the cost to defend a lawsuit and any resulting judgment for physical harm to a person or property damaged as a result of the nonprofit’s events, activity, or conduct.
Nonprofits also should be aware of, and look-out for, areas of exposure that may not only affect coverage, but also increase its risk:
Malicious or willful behavior: a common exclusion to coverage in CGL policies is the “intentional acts” exclusion. This provision may allow an insurer to deny coverage for injuries sustained by a third party that was the result of an intentional or deliberate bad act such as intentionally hitting another person or destroying property.
Professional Services: a nonprofit that offers counseling, training, or another kind of instruction may find that claims arising from such services are excluded under a CGL policy. Organizations that offer these types of services may need to acquire errors-and-omissions coverage, discussed below, to protect against claims alleging errors or omissions in the delivery of such services.
http://hiphopmorning.com/sites/default/files/styles/contentfront/public/Dj%20Khaled%20Skinny%20Old%20Pic.jpg?itok=MyBnj3JX. D&O coverage complements the coverage provided by a CGL policy. While a D&O policy may not cover "bodily injury" or "property damage," it protects the individual interests of board members, directors, and officers for claims alleging a breach of a duty owed to the organization, often called a “wrongful act.”
Discrimination Claims: another area where nonprofits may find an increased exposure to risk is where there is discretion in the distribution of benefits. Consequently, many nonprofits may find a need for an "association liability" policy. This policy will extend the coverage under a D&O policy to the organization and the persons associated with it, such as employees and volunteers. In the event that an individual applying for benefits from an organization alleges discrimination, an "association liability" policy should provide coverage.
Errors and Omissions. E&O policies, also known as professional liability policies, may be relevant to a nonprofit if its employees or volunteers offer professional services and may be subject to malpractice claims. This type of insurance should be considered if clients come to a nonprofit for advice based on professional judgment. This coverage should cover the cost to defend the lawsuit in addition to the cost of any judgment entered against employees or volunteers.
Specialty products. Other special coverages worth considering are volunteer accidental medical insurance, workers compensation, and auto coverage .These "riders"—or endorsements—are additional layers of coverage that fill gaps in coverage created by underlying policy exclusions. Depending on the types of benefits or services provided by the nonprofit, its volunteers may be subjecting themselves to a variety of different claims. For that reason, nonprofits should take appropriate actions to minimize these risks and protect their volunteers from liability arising out of the nonprofit’s activities.
Even a small nonprofit, still growing and possibly operating from a residential address, should investigate insurance options, including reviewing any potentially applicable homeowners or renter's insurance policy. While such policies often exclude coverage for business-related claims, the failure to report these activities in accordance with the policy terms could limit or void any coverage.
Finding and deciding on the right risk management plan to minimize a nonprofit’s exposure is not an easy task. Considering the significant expense of a comprehensive insurance program, it is critical for a nonprofit to carefully and accurately assess its specific risks and level of exposure. Though the cost of assessing these risks and adequately protecting a nonprofit may be substantial, the cost of failing to evaluate and address these risks is far greater to the nonprofit’s volunteers, mission, and clients.