In unprecedented times, nonprofits have seen a rise in risks that threaten their organization and livelihood. According to an AdvisorSmith survey, three out of four (76.2 percent) respondents reported having experienced an insurable event in 2020, such as an employee injury, burglary, fraud, client compliant, cyberattack or employee complaint of harassment or discrimination.
Choosing the proper liability insurance policies can help protect nonprofit organizations and their employees from financial and reputational harm. When shopping for liability insurance, there are several key policies that every nonprofit should consider carrying:
1. General Liability Insurance
Commercial general liability (CGL) insurance offers protection for third-party damage or personal injuries allegedly caused by a business owner or employee. In the event that a nonprofit is sued for an injury that occurred at the business, damage to a visitor’s property, or an advertising injury such as libel or slander, CGL insurance would act as a safety net.
General liability insurance policies typically cover judgments and settlements, as well as the court, attorney and expert witness fees. It may also cover any medical expenses incurred by the plaintiff. CGL insurance can be purchased as a stand-alone policy or bundled with other types of key coverage options with a Business Owner’s Policy (BOP).
General liability insurance does not cover injuries or losses that a business causes through their own negligence, breach of confidential personal information, personal or commercial property, damage or injuries that were intentionally caused, professional services provided to a client or disabilities or injuries among the organization’s own employees.
2. Product Liability Insurance
Product liability insurance protects businesses from claims that a product that they produced or sold caused property damage or bodily injury to another person. This type of coverage is available as a stand-alone policy or can be included as part of a general liability insurance policy.
Customers can be harmed by how a product is designed, manufactured, marketed or misused. Even if the court determines that a product was used incorrectly, a business could still be held liable for any damages that result from the misuse. Product liability insurance covers legal fees that may accumulate as part of a lawsuit; it may also cover medical bills, business damages and compensation to the injured party.
3. Professional Liability Insurance
Professional liability insurance (PLI) protects professionals against negligence and other claims from their clients. This type of policy is typically arranged on a claims-made basis, meaning coverage is only good for claims made during a specified period. Incidents that occur before the coverage is activated may not be covered.
A professional liability insurance policy can protect nonprofits against a wide range of claims, including the settlement and legal costs. Some of these claims include breach of contract, errors or omissions, failure to deliver a promised service on time and professional negligence or failure to meet an expected standard of care.
There are some limitations when it comes to professional liability insurance. This type of coverage does not protect a business against property damage or bodily injury that clients or customers suffer while doing business. It also does not cover lawsuits filed by employees with allegations of workplace harassment or wrongful termination.
4. Directors & Officers Insurance
Directors and officers (D&O) liability insurance protects the personal assets of directors and officers, as well as their spouses if they should ever be personally sued by a competitor, vendor, employee, customer, investor or another party for any alleged or actual wrongful act. D&O insurance covers settlements and other legal costs.
This type of liability policy can protect nonprofits in a range of situations, such as breach of fiduciary duty resulting in bankruptcy or financial losses. It can also protect against misuse of company funds, misrepresentation of company assets, fraud, lack of corporate governance, theft of intellectual property and failure to comply with workplace laws.
Any organization that has an advisory committee or corporate board should consider investing in a D&O insurance policy. It is important to remember that smaller organizations with few assets are at just as much risk of facing a costly lawsuit as large corporations.
5. Workers’ Compensation
Workers’ compensation insurance provides employees with medical and wage benefits if they become ill or injured at work. Each state has its own mandates for wage and medical benefits but employees are responsible for purchasing workers’ compensation which is underwritten by insurance companies.
A workers’ compensation policy enables injured or ill workers to recover lost wages and pay for medical expenses and rehabilitation costs. It may also pay death benefits to the family of an employee who is killed on the job. Businesses that fail to comply with state mandates by not providing workers’ compensation coverage to employees may face costly repercussions, such as fines, payment of claims out of pocket and possible imprisonment.
6. Business Auto Insurance
Business auto insurance is an essential policy for any nonprofit that uses vehicles for work purposes. A commercial auto insurance policy applies to vehicles owned or used by the business and protects against liability for damages caused by collisions or other accidents.
Most auto insurance policies offer two types of liability coverage. Bodily injury coverage protects against accident-related injuries to others in which a business or one of its employees is found at fault. Property damage coverage protects against accident-related damage to another person’s property, such as a house or car, in which a business or employee is found at fault.
Any nonprofit organization that uses vehicles for business, carries a commercial license or tag, or is registered commercially should consider acquiring business auto insurance. Nonprofits should also carry commercial auto insurance if vehicles are used for any work-related tasks, such as driving to sales calls, driving clients to the airport, shopping for office supplies or bringing packages to a shipper.
Request a Consultation with BBG
The Business Insurance Division at the Business Benefits Group offers expert advice and service to ensure that nonprofits are equipped with the right insurance coverage. For more information, or to request a consultation with a premier benefits consultant, contact the Business Benefits Group.