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The more than 1.5 million non-profits operating in the United States – according to statistics from the National Center for Charitable Statistics (NCCS) – have unique workers’ compensation insurance needs that have to take into account the ways that volunteers are classified in specific states, the issue of “class creep,” and the broad variety of risks present in this sector.
However, non-profits also have to be aware of the necessity of directors and officers (D&O) liability insurance to protect their workers. Yet many organizations skimp on D&O coverage because they think it’s too costly or they believe that they’re covered under other policies.
“Most of the time, they think it’s expensive. Some of them also mistakenly assume that their personal home insurance policy or their business policy will cover their D&O insurance liability, but that’s not the case,” said Parvathy Sree, vice president of non-profit underwriting for AmTrust Financial Services. “The homeowners’ insurance will not cover their D&O liability, [and] their personal assets are [threatened] when there is an allegation of mismanagement of the funds of the organization or a dereliction of duties.”
The key risks that non-profits face when they’re carrying out their charitable work can come from a number of sources.
“Most of the claims come from a mismanagement of funds – it can come from clients, it can come from donors, it can come from government agencies,” explained Sree. “For example, if the insured collected donations for a particular cause and then they divert that money to a different cause, then the donors might sue.”
If the non-profit’s data is hacked and they don’t have a cyber liability policy, then the directors and officers can also be sued for failing to maintain adequate insurance, in addition to many other situations where a non-profit can be hit with a lawsuit.
D&O insurance helps to shield board members and their personal assets from a lawsuit that alleges mismanagement, neglect, or breach of duty while managing a non-profit. The policy will cover the non-profit entity, in addition to past, present, and future directors, as well as officers, committee members, trustees, employees, and volunteers, according to AmTrust. Heirs, executors, administrators, and legal representatives of an organization will also be covered by the policy, in the event of an insured’s death, insolvency, or bankruptcy.
“Most of the D&O policies will also offer employment practices and third party liability coverage. The cost of an EPL to add to a D&O policy is minimal in my opinion, but it gives them the defense coverage,” said Sree.
A big misconception among non-profits is that D&O isn’t in their budget. However, average claim damages in this sector range in the tens of thousands of dollars, while premiums for the policies tend to be priced at less than $1,000.
“I volunteer at multiple organizations and the first thing I ask is, do you have insurance?” Sree told Insurance Business. “They’ll say, ‘I think the D&O insurance is too expensive, we only have $100,000 in our budget,’ but you can get a D&O policy for $600 or less and most of the policies are less than $1,000 for the smallest non-profits. If you think that you don’t have $1,000 to pay the premium, how do you expect to defend a lawsuit, if that does happen? Just to talk to a defense attorney for a couple hours, you might blow away a thousand dollars.”
In the case of AmTrust, the insurer offers up to $10 million in D&O coverage, as well as employment practices liability coverage and a host of other coverages.
“AmTrust is a one-stop shop,” said Sree, listing off the coverages that the insurer offers for non-profits, which also includes workers’ comp. The company likewise has a hotline where non-profits can pose questions about, for instance, how to proceed after being hit with a cyber breach or before firing an individual. “These are value-added services that we offer the insured. Instead of just terminating an employee, the insured can take proper precautions and [collect] documentation before they terminate an individual.”
