Story reposted with permission from The Times-Standard.
A smart person recommended that I write about this topic. I had mixed feelings, as I’ve struggled mightily in recent years with insurance coverage in my private life. On the other hand, some of my favorite people, including my mother, work or have worked in the industry. My conflicted feelings to the side, it’s an important question: What insurance does a nonprofit organization need to have? The start of the answer is this: All legal entities have liabilities and obligations. In short, people can sue you.
I spoke with Colleen Lazanich and Adam Thorn of CalNonprofits Insurance Services, specialists in brokering insurance solutions for nonprofits. Colleen referred to a 3-legged stool that she finds often represents the needs of a new or smaller nonprofit.
- Board members take on personal responsibility, and directors can be held personally liable. Therefore, the organization needs Directors and Officers (D&O) insurance.
- If your organization performs any operations, you’ll need general liability. It covers third-party bodily injury (e.g., a visitor tripping over a cord) or property damage during fundraisers, community gatherings or in the office. It’s often required by landlords and funding sources.
- Nonprofits with employees are legally required to maintain workers’ compensation. Even board members who are compensated have to be covered (this applies to stipends and similar compensation, not expense reimbursements).
Colleen says that if she were to turn her 3-legged stool into a 4-legged chair, the next addition would be cyber coverage. “In this day and age,” she said, “you ought to have cyber as a foundational insurance coverage.” It covers things like ransomware attacks, credit card fraud and data breaches of information like donor records. Nonprofits candidly often aren’t the best at cyber security and so are hit by a high number of cyber claims.
Other potential needs include:
- Employment Practices Liability Insurance (EPLI) protects against claims like wrongful termination or discrimination – often included in the Directors and Officers Insurance.
- Hired and non-owned vehicle insurance covers people driving on organizational business using their own car or a car personally rented by them.
- Accident insurance: Volunteer and participant coverage adds additional protection for volunteers, … providing backup medical insurance at a relatively low cost.
- Errors and Omissions – professional liability insurance covers situations where, as Colleen states, “you failed to do something you promised to do, or you did it wrong.” This most often applies to organizations that provide professional services such as counseling, legal aid or consulting.
Sometimes, these can be unaffordable enough to make the whole agreement a losing proposition. It’s critical to be certain that you’re covered correctly before signing a contract. Colleen says this can often be negotiable, and that you may persuade funders that a certain coverage or coverage amount is unnecessary. Adam added that 90% of operations might be within a policy’s commonly covered items, but you might have to go to another carrier for a specific contractually obligated piece of insurance.
And while we’re on the subject of contracts, you need to ensure any contractors have insurance. In part, this keeps them from becoming costly additions to your workers’ compensation.
If this feels like a lot, you’re not alone. So where can you turn?
Independent brokers, especially nonprofit specialists like CalNonprofits Insurance Services (https://calnonprofitsinsurance.org/), provide one such resource. NorCAN coordinator Maricela Wexler, who sat in on this interview, refers a lot of nonprofits to the company. Often, professional associations prove helpful, as with associations of musicians or educators. Be clear and upfront about your operations and exposures.
The prospect of dealing with issues like insurance and bookkeeping often provides compelling reasons for good causes to seek an umbrella organization, rather than to seek separate 501(c) status. NorCAN provides a local list of organizations that serve as fiscal sponsors here: https://norcal-nonprofits.org/fiscal-sponsorship-2/. (As a general rule, you won’t go wrong reaching out to NorCAN for various issues having to do with running a 501c organization.)
Nonprofit management concerns more than just attending to good causes. There are multiple businesslike functions to perform. Love it or hate it, insurance represents one of those. Dialing that stuff in correctly can save heartache and large financial woes down the line.
Michael Kraft writes the Good Work series, volunteering on behalf of the Northern California Association of Nonprofits (NorCAN). NorCAN, a DreamMaker project of the Ink People Center for the Arts, supports connections between people and organizations that work every day to keep our communities strong by offering professional development, board support, networking connections and more. Learn more at https://norcal-nonprofits.org/. To nominate a deserving nonprofit organization to be profiled, email michael@kraftconsultants.com.