As of 2011, 501(c )(3)s made up the majority of tax-exempt organizations. The IRS listed nearly 1.1 million of them. This number did not include the countless non-profit organizations with incomes under $25,000 who are not required to file a Form 990 with the IRS, or those with less than $5,000 in revenues who aren't even required to register with the IRS.[1] In other words, there are a whole lot of small and very small public, private and religious charitable concerns in America, and the smaller they are, the less likely it is that they have adequate business liability coverage. If you run, work for or volunteer for a small non-profit, the following is a brief primer that may save your organization from time-consuming and costly lawsuits.
Who Needs Professional Liability?
According to the National Center for Charitable Statistics, most nonprofits are small. They fall into 10 basic categories including the arts, education, environment, health and human services, public benefit, faith-based, and fraternal and professional associations.
Size and good works do not prevent your nonprofit or its board of directors from being a target in today's litigious society. Lawsuits can come from many sources, according to NonprofitRisk.org, which lists the following as examples:
- Current and present staff (and volunteers) can bring suit for wrongful termination, discrimination, sexual harassment, and violations of the Americans with Disabilities Act.
- Vendors, funders, and any third-party who has a relationship with your organization can allege harm caused by your directors, officers, employees or your nonprofit in general.
- Directors may sue other board members for violation of duty.
- Beneficiaries, the actual people you're trying to help, can allege wrongdoing against your organization or board.
- Donors can sue because of misuse of a restricted gift.
- State Attorneys General representing the interests of the general public may allege wrongdoing.
- Government agencies such as the IRS and Department of Labor may bring action for alleged violation of state or federal laws.
- Your nonprofit itself may bring action against its own directors and officers, including former trustees.[2]
In addition, you could be sued for injuries sustained by a delivery guy on your property or for traffic accidents that occur while driving a car that isn't properly insured for business use.
What Professional Liability Insurance Does Your Nonprofit Need & Why?
Even if you win a claim against your nonprofit, you will have had to spend countless hours dealing with them. Without the proper liability insurance, you'll also be paying for the attorney. Lose your case, and the legal fees alone, not to mention the settlement costs, could put your nonprofit out of business. The right professional liability coverage can protect you. According to Nolo.com[3], basic policies you should consider include:
- General Liability Coverage
Also called commercial general liability or CGL, this covers your nonprofit for damages sustained by visitors to your premises. They do not cover injuries to your employees, however. For that you need workers compensation insurance.
- Directors and Officers Insurance
This provides protection including legal assistance and payment of any damages if a member or office of your board of directors is named in a suit against your nonprofit for financial malfeasance, fraud or other mismanagement. Nolo.com advises that you make sure your D&O policy doesn't exclude employment-related claims, one of the most common filed against boards.
- Professional Liability Insurance
Also called Errors and Omissions and PLI, this is a type of professional malpractice coverage that protects your non-profit from suits resulting from sexual harassment, discrimination, organization mismanagement and similar claims. It covers your board, employees and volunteers.
- Product Liability Insurance
PLI is essential to protect you from claims that a product you sold for fundraising caused injury, illness or death. For example, selling ice cream bars with peanuts to someone with a peanut allergy could land you in court.
This covers loss and damage caused by vandalism, theft, storms, fire and other named perils. Even if you don't own the property, you want to be able to replace your office equipment, fixtures, furniture, supplies and inventory. Pay attention to the deductible and as to whether your policy pays replacement cost or actual value.
- Homeowners Insurance Endorsement
Are you running the nonprofit out of your home or apartment? Your standard homeowners or rental insurance may not be sufficient to cover losses related to your business; it may even preclude such activity, which could void your entire policy. Be sure to check with your insurer to protect your home and home-run nonprofit operation.
- Commercial Vehicle Insurance
Many personal car insurance policies exclude the use of the covered vehicle for business use. If a volunteer or employee uses a vehicle owned by you or your nonprofit, you should get a commercial auto policy to cover you in the event of an accident.
You can learn more about small business insurance for your nonprofit and to shop for competitive quotes here.
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