Why Nonprofit Boards Should Consider General or Professional Liability (at least)

One of the biggest misconceptions in insurance for nonprofits is this:

The directors and officers are fully covered by a directors and officers liability policy.

Here are examples of types of claims excluded under a D&O policy:

  1. Bodily injury claims
  2. Property damage claims
  3. Errors and omissions claims (i.e. professional liability claims for counseling, mentoring, case management, or even educated referrals and professional liability claims that trickle down from other entities’ professional services)
  4. Auto liability claims
  5. Injuries to employees
  6. …to name a few

As you can see, a D&O policy should not be the only policy that a director or officer is concerned about.

Cover the Exposure

One of the keys to deciding what insurance to buy is this:

Define the exposures to claims based on the activities of the organization. Base the coverage on what you do and then make sure it covers the right people.

In other words, if you provide counseling, then counseling is the exposure. If you drive clients from place to place, then you have an auto liability exposure. If you have an after school program, then all the programs affiliated with the after school program, whether a professional educational exposure or an athletic activities exposure, are areas of potential loss.  All of these are not addressed by a directors and officers liability policy.

Were I on a board, my concern would be to have the right risk management and insurance in place to address the actual exposure vs. having a policy that had in big bold letters at the top “Directors and Officers Liability Insurance.”

The Good News for Directors and Officers

The good news is that nearly every liability policy known to man in North America extends coverage to the directors and officers of an organization. I say ‘nearly every’ because I’ve not read every single one. As a rule though, your liability policies – whether general liability, professional liability, abuse and molestation liability, or auto liability – extend coverage to the executive leadership team, either explicitly or by implication.

So be thou encouraged, but not lazy! Identify your exposures and make sure that your team confirms the insurance program in place addresses them.

Policy limits are another matter and are much more of a nuanced issue.  Discuss your limits with your insurance professional to make sure your limits meet your needs.  Standard in the industry is $1,000,000 per occurrence.

Photo Credit: StockMonkeys.com via Compfight cc

Photo Credit: StockMonkeys.com via Compfight cc

Typical Liability Coverages to Fill in the Gaps

The following coverages address many of the exclusions in directors and officers liability policies.

  1. General Liability: The backbone of any liability insurance program, addressing bodily injury and property damage along with personal and advertising injury.
  2. Errors & Omissions or Professional Liability: If your nonprofit even hints at providing professional services, then you should include professional liability. It can be extremely inexpensive if you have little exposure, but you’ll kick yourself in the shins if you have the budget, go without, and then try to convince a judge and jury to force your insurance company to pay for a professional liability policy under your general liability policy.  You don’t have time for that.
  3. Abuse and Molestation Liability: This is excluded on D&O policies and most nonprofit general and professional liability, also.
  4. Auto liability: Even hired and nonowned only, if you don’t have an owned vehicle
  5. Workers Compensation with Employers Liability: Be very concerned here. If an employee or even a ‘1099’ (some of you are kidding yourselves calling your contractors contractors – your receptionist simply can’t be a subcontractor).
  6. Other Liability Coverages: Are Available: Everything from medical malpractice to cyber liability and media/publishing liability are out there in the marketplace. Depending on your operations, you might need to consider one or more of these other coverages.

The Takeaway

The directors and officers liability policy is the only policy that actually has in its title the individuals or group of people covered instead of the description of the coverage. It’s actually unfortunate since having such a policy in place can create a false sense of security.

The D&O policy is absolutely vital to your protection, but it definitely is not a magic bullet.

Question:

As a nonprofit leader. what type of loss or claim are you most concerned of?

Disclaimer: Please discuss your situation with your insurance professional. All details for all organizations are different and varied. Content here is for information only

Comments

  1. Hi Brett,

    I had a question reading your posts. We are a First RObotics Team that is currently part of a public school. We would liek to start a 501 c3 mainly for finance simplicity instead of having to rely on the schools financial system. Our liability concerns ar every small but I understand better safe than sorry. If th eclub would be doing all its activities within a school with teachers and parent mentors what coverage would you suggest? the only coverage I could think of is Abuse and Molestation Liability. We may buy a 6X9 utility trailer to transport our stuff to competition but that would be towed by a parent or mentor. Woudl we need suto liability then? If we got this coverage about how much would it be per year? Any input is helpfull. Thanks

    Mike Ames
    Technology Teacher,
    First Robotics Mentor
    Northwest High School, Germantow MD

    • Hi Mike,

      Thanks for stopping by. You’re asking all of the right questions. Would you mind if I emailed you directly to respond to your questions? (or feel free to email me at brett@hains.com.

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