Overview of Insurance for Friends Groups
Insurance is a complicated topic, and each organization’s needs, and resources are different and require a solution tailored to it. The National Wildlife Refuge Association (NWRA) does not intend this overview to offer definitive solutions or advice for any Friends group. Nothing can substitute for consulting with an insurance professional knowledgeable in nonprofit management. But this overview is intended to help you better understand the topic, have a more productive discussion, and finally make a better-informed decision. At the end of the article is a list of websites used to compile this information: there are many similar websites with further detail and insight and additional references for further study.
Start with a Thorough Review
Insurance is designed to protect the insured individual or group against loss. Friends groups risk potential losses from the activities of their members, volunteers, board of directors, employees, and the general public. Protection from loss begins with risk reduction through conscientious execution of organization and board member responsibilities.
By examining their group’s particular circumstances, Friends members can identify and evaluate their extent of exposure to two crucial categories:
- Those losses, large or small, that are most likely to occur; and
- Those losses, however uncommon, that would have a most severe impact on the group’s organizational and financial stability.
A careful and thorough analysis enables the group to then consider how to protect itself and its members and make responsible insurance purchase decisions most effectively.
The basic types of insurance for Friends groups to consider are:
- General liability
- Volunteer accident insurance
- Property
- Special events
- Directors & officers’ insurance
- Auto liability
- Worker’s compensation
- Cyber risk
- Umbrella policy
Types of Insurance to Consider
General Liability
General Liability, typically thought of as “slip and fall”, provides protection from claims where the organization is alleged to have caused bodily injury, property damage as a result of negligence or acts of omission while conducting normal day-to-day activities. Every Friends group is at risk of such claims.
A group’s Friends Partnership Agreement with the US Fish and Wildlife Service might require insurance for nature stores, special events, and high-risk activities. The Service Volunteer Agreement does NOT protect a Friends organization from any claims.
Volunteer Accident Insurance
Friend’s volunteers are not covered by workmen’s compensation policies and may have limited coverage under a group’s general liability. Volunteer Accident Insurance provides accident medical insurance directly to a volunteer injured while working on behalf of the organization.
Property
Property coverage protects the assets belonging to the Friends group, such as equipment, office furniture, computers and accessories, and nature store merchandise.
Special Events
Typically, your liability insurance covers your day-to-day operations. If you are hosting a fundraiser or additional event you may need special event insurance that can provide protection if a volunteer or participant is injured or there is damage to a third-party’s property.
Directors and Officers Insurance
Directors and Officers (D&O) Insurance provides coverage to the organization and any “Insured Person” from allegations of any actual or alleged act or omission, error, misstatement, misleading statement, neglect or breach of duty.
The policy also provides Employment Practices Liability that covers the organization against claims by unpaid volunteers as well as by traditional paid employees of wrongful termination, sexual harassment, and age, sex or race discrimination.
D&O insurance can be viewed as legal defense insurance since the great majority of cases brought against a board are dismissed; defense costs are part of this coverage.
Many nonprofits’ bylaws state that the organization will cover its officers, directors, employees, and volunteers for defense and settlement expenses resulting from lawsuits related to service for the organization, provided that the covered member was not guilty of criminal activity. Friends groups with such an “indemnity clause” in their bylaws need to consider how these legal fees will be paid by the group should the need arise; the clause obligates the group to pay legal fees whether or not the case actually makes it to court. D&O insurance is one way to provide the funds to support these indemnity clause payments. Many candidates and currently serving board members, knowing that the indemnity clause provides only as much protection as the Friends group is financially able to provide, may expect the Friends group to carry D&O insurance for this reason.
Auto Liability
Auto Liability covers bodily injury or property damage caused by non-owned vehicles (including vehicles owned by volunteers or staff or rented autos).
Workers’ Compensation Insurance
Workers’ Compensation Insurance provides wage replacement and medical benefits for employees for an injury or illness resulting from work-related duties. State requirements for workers’ compensation differ.
Cyber Risk Insurance
Cyber Risk Insurance covers losses from breaches of your information and those impacting third parties’ information.
Umbrella Policy
An Umbrella Policy for the Friends organization acts as a boost to existing coverage when limits of underlying liability policies are exhausted by the payment of claims.
Reviewing and Purchasing Insurance Policies
Most people have a familiarity with automobile and homeowner insurance policies, which are standard and list specific types of covered claims. Friends groups can readily comparison shop for General Liability policies by comparing prices and lists of coverages. Policies covering Property owned by Friends groups are similar in many respects to property coverage in homeowner insurance. Some individual board members and volunteers may even have riders to their homeowner insurance policies that provide coverage for the policyholder’s non-remunerated participation in registered 501(c)(3) nonprofit organizations for bodily injury/property damage liability. They typically do not offer coverage for breach of fiduciary duty, harassment, etc.
By contrast Directors and Officers policies are called “manuscript forms” because there is not standardized off-the-shelf coverage for such “wrongful acts” as actual or alleged errors and neglect or breach of duty. Each insurance company must write its own specialized version for nonprofits, often by adapting policies developed to protect for-profit companies. The policy lists limitations and exclusions narrowing the types of “wrongful acts” covered rather than simply listing types of covered claims. This language makes it difficult for the customer to tell exactly what coverage is provided and what is omitted. Each exclusion must be read carefully to determine its specific impact.
The information that insurance companies require for underwriting D&O insurance varies but will probably include:
- Up-to-date bylaws or articles;
- List of board members and work affiliations, where applicable;
- Most recent IRS Form 990 or audited financials.
Key Policy Provisions for Directors and Officers Insurance
Important and desirable provisions for Friends groups considering D&O coverage:
- Requirement to advance defense costs: This provision requires the insurer to pay for costs of the defense and indemnity as the costs are incurred. Few Friends groups can afford to wait for the insurance company to reimburse them after the claim is settled.
- Broad definition of insured: Coverage should extend to the Friends group itself as well as to any individual who was, is or becomes a director, officer, committee member or volunteer of the Friends group.
One Significant but complicated aspect of any D&O policy is the coverage trigger:
- Claims-made: Most D&O policies are written on what is called a “claims-made form” where two requirements must be met to trigger coverage under the policy: first the claim must be made and reported during the policy period and secondly the act for which the claim is being made must have occurred during the policy period. Special care must be taken when changing between policies with claims-made coverage triggers to acquire “prior acts” or retroactive coverage to extend the reporting period for covered damage that occurred during a preceding policy period.
- Occurrence and Event-trigger: Some insurance carriers now offer D&O policies which have “occurrence or event-trigger” forms. This protection provides permanent coverage for events that occurred during the time the policy was in force, even if the claims of damage are reported after that policy has been cancelled or non-renewed. This type of coverage trigger will probably cost slightly more but the protection is considerably more extensive.
Potential Insurance Providers
Should you decide your Friends organization has a need for insurance coverage the NWRA suggests:
- Contact a local insurance agent or broker that understands nonprofit organizations. Get them out to the refuge to see your operation and educate your board. Your agent or broker needs to be your advocate who will find the best coverage for your organization and works with you should there be a claim.
- Here is one option for coverage:
- Alliant Insurance offers coverage for nonprofits focused on conservation and land trusts called Conserve-A-Nation. Their insurance package policy covers:
- General Liability
- Volunteer Accident Insurance
- Property
- Directors and Officers Liability, and
- Several other coverages,
Megan Mullee is the Vice-President at Alliant who is responsible for this insurance program and her number is 703-547-6292.
Cost of Insurance
Combination policies offering general liability and personal property coverage are likely to cost around $1,000. Volunteer Accident Insurance is often priced according to the number of volunteers covered.
Directors and Officers Insurance
The expense of buying D&O insurance is a major financial consideration for most Friends groups. Supply, demand, and other market pressures keep premiums costly.
A $1 million limit is the most common for community-based nonprofits. A small nonprofit with no employees may be able to purchase a $1 million policy for $600, but the premium increases rapidly to cover nonprofits exposed to additional risks through a large membership, sizeable assets, high visibility or a greater level of activity. A large deductible may help reduce premiums, but Friends groups do not have many options for lowering the expense.
Reducing Risk
A Friends group should seek to minimize the risk to the organization and its board members by creating adequate operating policies ad controls and taking them seriously. It is impossible to purchase a guarantee that no one will ever bring suit against the group. Deliberate risk management is essential. The law does not mandate that a Friends group always make irrefutably perfect decisions—but it does require that the group follow appropriate guidelines for making decisions.
The Friends group should clearly state expectations concerning the conduct of any group member while representing the Friends organization. Every nonprofit must make it a high priority to recruit and retain effective board leaders who accept their responsibility to do a conscientious job.
The Board should establish and diligently follow rules and procedures governing its operations. Board meeting minutes should demonstrate that the board consistently exercises due diligence and seriously considers in advance the consequences of important actions. These minutes and other important organizational documents should be organized and kept readily available for periodic reviews and updates.
To reduce risk of lawsuit, each board member must:
- Ensure that the organization is operating within 501(c)(3) guidelines;
- Accept the board’s legal responsibility to protect the groups assets;
- Confirm all major contracts with formally recorded board authorization;
- Attend board meetings. Repeated absences may be interpreted as indicating a lack of serious dedication to the obligations of the position;
- Require a thorough debate on controversial or complicated issues;
- Exercise sound judgement even when relying on the accuracy and integrity of others (including in areas of special competence);
- Avoid any conflict of interest or appearance of conflict of interest. If a board member is connected in any way with a business transaction with the Friends group, the board must be prepared to clearly demonstrate that fairness was maintained.
Conclusion
A Friends group’s evaluation of appropriate risk reduction measures and insurance needs is an ongoing responsibility, not a one-time exercise. Each refuge Friends group needs to periodically review its growth and accomplishments and reconsider its obligation and ability to protect the organization and its members.
A new Friends group with few members, limited property, no public events, and minimal funds may get by with very little insurance. But as a group expands its membership and public visibility or broadens the scope of its activities, the organization and its members are exposed to increased risk and should consider expanding its insurance accordingly. The board of directors may decide to chip in their own funds to provide adequate directors’ and officers’ insurance protection for the organization and themselves as an intermediate step until such time as the group is sufficiently established financially to include the D&O expense in the annual budget.
A Friends group owes the organization and its members the duty of making a deliberate and considered insurance purchase decision and conducting periodic update reviews. Ignoring the risks does not lessen or eliminate them. Whatever decisions a Friends group makes regarding insurance, the process of weighing the options and reaching the decision requires careful and deliberative thought.
The Volunteer Protection Act
A federal law called the Volunteer Protection Act of 1997 (VPA) is not insurance and does not protect organizations. But it is worth knowing about because it protects individual volunteers who are not paid more than $500 per year, including officers and directors, from liability for simple negligence when acting on behalf of a nonprofit group. The VPA does not protect the nonprofit group itself from being sued for its volunteers’ negligence; it only protects the volunteer. Therefore, the burden of responsibility is on the nonprofit to assure that its volunteers are acting properly while carrying out their duties.
Additional Research
This summary is intended for informational purposes only. Most of this information was drawn from the following sources. You can use this list as a starting point to do additional Internet research for more details in your area of particular concern.
Note: Insurance companies maintain many of these websites, especially those dealing directly with D&O insurance.
Overview
http://www.njnonprofits.org/ins_overview.html
http://www.nolo.com/legal-encyclopedia/insurance-types-for-nonprofits-32393.html
http://www.blueavocado.org/content/board-members-guide-nonprofit-insurance
http://nonprofit.insureon.com/small-business-insurance/things-to-know/157
D&O Insurance
http://www.cimaworld.com/nonprofits/
http://www.intuitiveinsurance.com.au/directors-and-officers-liability-limit-structure/
Volunteer Protection Act
https://www.rueinsurance.com/understanding-the-volunteer-protection-act/
Risk Management
https://www.aspenrmg.com/Articles/insurance_guide_for_nonprofit_organizations.htm
https://nonprofithub.org/resources/a-nonprofits-guide-to-risk-management/
