Liability Insurance: Nonprofit's Safety Net

Nonprofit organisations face a variety of risks and claims during their normal operations. While insurance is not mandatory for nonprofits, it is highly recommended to protect the organisation from financial loss and unexpected expenses. The most common type of liability insurance purchased by nonprofits is the Commercial General Liability (CGL) policy, which covers claims for bodily injury, property damage, personal injury, and advertising injury. Nonprofits should also consider other types of insurance such as Directors' and Officers' Liability, Workers' Compensation, and Cyber Liability Insurance, depending on their specific needs and budget.

To cover the cost of legal fees and settlements in the event of a lawsuit

Liability insurance is a crucial safeguard for nonprofits, offering protection against financial and legal repercussions in the event of unintentional harm caused to others. This type of insurance is designed to cover the costs associated with legal fees and settlements, providing a valuable safety net for nonprofits facing legal action.

The financial burden of legal proceedings can be significant, often including attorney fees, court costs, and settlements. Liability insurance serves as a financial shield, covering these expenses when the insured party is found liable. This protection extends to both the insured nonprofit and any third parties affected by the organisation's unintentional negligence. By shifting the risk from the nonprofit to the insurance company, liability insurance provides peace of mind and financial stability during challenging times.

General liability insurance, for example, safeguards nonprofits against classic slip-and-fall scenarios, covering damages that the organisation is ordered to pay to injured individuals on its property. Similarly, auto liability insurance is essential if staff or volunteers use vehicles for nonprofit activities, protecting the organisation from claims arising from injuries or property damage caused by drivers.

Additionally, product liability insurance is vital for nonprofits selling products to the public. This type of insurance shields the organisation from lawsuits by customers who experience harm due to unsafe or defective products. For instance, if a customer is injured by a sharp-edged sculpture created by one of the nonprofit's artists, product liability insurance would cover the legal defence and a significant portion of the damages.

Directors and Officers (D&O) Insurance is another critical component, offering protection for management decisions made by the nonprofit's board of directors and officers. This type of insurance covers the cost of legal defence and any resulting damages, including those arising from allegations of mismanagement, fraud, or financial mismanagement.

To protect against financial ruin in the event of an unexpected expense

Nonprofits should carry liability insurance to protect against financial ruin in the event of an unexpected expense. This type of insurance is designed to safeguard nonprofits from financial ruin in the face of costly accidents, injuries, or damage claims. It provides a safety net to catch them when they fall, protecting their financial stability and assets.

Liability insurance covers legal costs and payouts for which the insured party is found liable. It is often referred to as third-party insurance because it pays third parties rather than the policyholder. This means that if someone is injured on the nonprofit's property, the insurance will cover their medical expenses and any legal fees associated with the incident. It also covers property damage, so if a nonprofit accidentally damages someone else's property, the insurance will pay for the repairs.

For nonprofits operating on shoestring budgets, a single large and unexpected expense could be devastating. Liability insurance acts as a buffer, ensuring that the nonprofit won't have to pay these expenses out of pocket. This protection is especially important for nonprofits as they often lack the financial cushion to absorb these unexpected costs.

Additionally, liability insurance can provide legal defence coverage, protecting the nonprofit's financial resources. Legal proceedings can be expensive, and liability insurance ensures that the nonprofit can hire a legal team and cover court costs without draining its funds. This is crucial, as without insurance, the nonprofit may struggle to afford a strong legal defence, potentially jeopardising its case and exposing it to greater financial risk.

In summary, liability insurance is a vital safeguard for nonprofits, providing financial protection and legal defence coverage in the event of unexpected expenses. By having this insurance in place, nonprofits can focus on their mission and serving their communities without the constant worry of financial ruin hanging over them.

To cover the cost of property damage or loss

Nonprofit organisations should carry liability insurance to cover the cost of property damage or loss. Property damage liability insurance covers the cost of repairing or replacing property damaged by the policyholder. This includes damage to buildings, vehicles, equipment, machinery, computers, accessories, inventory, and supplies.

For example, if a nonprofit volunteer is driving their own car for the organisation and damages someone else's property, the nonprofit's property damage liability insurance would cover the cost of repairs. This could include damage to the other person's car, buildings, fences, lampposts, or landscaping.

Property damage liability insurance can also cover legal expenses if the policyholder is sued due to property damage. This can include attorney, court, and other legal defence fees. Additionally, it can cover lost income and other recurring expenses resulting from the property damage.

The cost of property damage liability insurance varies depending on the location, type of property, and the coverage amount. It is important for nonprofits to assess their specific needs and consult with an experienced insurance agent or broker who understands the unique needs of nonprofit organisations.

By carrying adequate property damage liability insurance, nonprofits can protect themselves from financial losses and ensure they have the necessary funds to cover the cost of property damage or loss.

To protect employees and volunteers

Volunteers and employees are not the same thing, but employers have a duty of care for volunteers as well as for their paid employees. Therefore, it is important to have adequate insurance in place for volunteers.

Volunteers can be added as additional insureds to a nonprofit's liability insurance policy. This protects the nonprofit in case a volunteer causes accidental property damage or injury to a third party, or if a third party sues the nonprofit over an injury the volunteer received while working. It also covers the nonprofit if a volunteer acts inappropriately, causing a third party to sue the organisation.

Volunteers who repair homes for elderly homeowners, for example, may accidentally cause property damage. In this case, general liability insurance would cover the costs associated with accidental injuries or property damage. Similarly, if a volunteer manages a nonprofit's social media accounts and posts photos without the necessary consent, the nonprofit could be sued for using someone's image without their permission. Again, general liability insurance may handle the legal expenses.

Volunteers who handle sensitive data, such as customer information, should also be covered under cyber insurance. This means that if hackers strike and access sensitive donor information, the nonprofit has lawsuit protection.

Volunteers are not usually covered by workers' compensation insurance, as this is meant to cover paid employees. However, short-term volunteers may be covered by this insurance, but long-term or frequent volunteers are unlikely to be. In this case, a volunteer accident medical insurance policy can be purchased to cover volunteer injuries. This is usually cheaper than workers' compensation insurance.

Volunteers can also purchase their own liability insurance to protect themselves against any claims that may arise from their volunteer work. This can include protection from claims of negligence, fraud, breach of fiduciary duty, wrongful termination, discriminatory practices, mental anguish, emotional distress, libel, slander, invasion of privacy, malicious prosecution, copyright infringement, and plagiarism.

To cover the cost of vehicle damage or loss

Nonprofit organizations should carry liability insurance to protect themselves from financial ruin in the event of an unexpected expense. Liability insurance is especially important for nonprofits, as they often operate on shoestring budgets.

Auto liability insurance is a specific type of insurance coverage that nonprofits may need to consider if their staff or volunteers use any vehicles for organizational activities, including their own. This type of insurance will cover injuries caused to other people or property while carrying out the nonprofit's business. It is important to note that auto liability insurance does not cover damage to the insured vehicle in an at-fault accident.

In the context of vehicle damage or loss, liability insurance can provide coverage for the following:

Bodily Injury Liability Coverage:

This component of liability insurance covers medical bills, lost wages, and sometimes funeral costs for individuals other than the insured who are injured in a car accident caused by the insured. It is important to select appropriate coverage limits, as medical costs can be high, and the insured may be held responsible for any expenses exceeding their policy limits.

Property Damage Liability Coverage:

Property damage liability insurance covers damage to other people's property, including vehicles, buildings, fences, and government infrastructure like guardrails and road signs. It may also cover the cost of a rental car for the other driver if their vehicle is damaged in an accident caused by the insured.

Legal Costs:

Liability insurance can also provide coverage for legal costs if the insured is sued due to a car accident. This includes legal defense costs, judgments, and settlements that may arise from a lawsuit.

Nonprofits should consult with a licensed insurance professional to determine the appropriate level of coverage for their organization, taking into account the value of their assets and the potential costs of claims. It is essential to understand the specific exclusions and limitations of any insurance policy before purchasing it.

Frequently asked questions