Insurance Against Liabilities

© Copyright, Carter McNamara, MBA, PhD

Can you insure against your liabilities? That answer is easy. Yes -- and no. Every organization , particularly if it owns or rents a physical space, should have general liability insurance. This covers you if, e.g., clients or visitors fall down stairs or a bookcase falls on them. It would be appropriate to add employees and board members as additional insured under this coverage. The organization should also have Non-Owned Auto Coverage, which protects the organization when an employee is driving a family car for business reasons and also covers rental cars. It is usually contained in the general liability policy, and you probably already have it if you have the general policy, but you should check. You may also be able to add wrongful termination coverage under general liability, but there may be a clause preventing it through what is known as an "insured vs. insured" exclusion, that is, you can't use insurance to protect against internal strife.

If you are a tiny organization which does nothing else but, e.g., put on a special event, it is sometimes possible to obtain temporary insurance for a specific occasion or period, covering things that would otherwise be under general liability for another organization.

Workers compensation insurance, though controversial because of its costs, is considered a good buy, and one of its coverages protects against employee lawsuits -- a must.

Organizations employing professional who see clients (health and social services, for example) should ensure that these professionals are covered under professional liability insurance, either individually or as provided by the agency, and that the agency is named as an additional insured.

The most difficult area to discuss is directors and officers insurance, or D & O, which is also intimately concerned to fidelity coverage. Organizations moving large amounts of money should have fidelity coverage to cover possible criminal acts, which are specifically excluded from D & O. Areas under fidelity include theft, robbery, burglary, forgery and general shenanigans involving computers. D & O, on the other hand, may protect the board from failure to implement proper controls that would have prevented the losses from the exposures covered under fidelity. (The writers of this are fully aware that this is ambiguous.) BoardSource's booklet "Nonprofit Board's Role in Risk Management" notes that D&O insurance does not cover: fines and penalties imposed by law, libel and slander, personal profit, dishonesty, failure to procure or maintain insurance, bodily injury and property damage claims, pollution claims and suits by one board member against another.

The larger the organization and the wealthier the board members, the greater the need for D & O. However, D & O is formidably expensive for small organizations, and many plans provide limited coverage for what you are realistically risking. All insurance policies are not created equal, and some in the D & O area tend to be written to cover you for anything except what you might really be risking. There is no hard-and-fast rule n the cost-benefit problem, and you must assess your own exposure. If you are buying this insurance, have the proposal reviewed by an insurance professional other than the person selling it.

You may also explore with the agent for your homeowners' coverage whether your policy covers outside activities of this kind or whether you can purchase protection under what is called umbrella coverage. This is not a high-percentage shot, particularly without an extra premium, but worth the inquiry.

Finally, unless the organization's bylaws specify otherwise, it is now presumed (at least in Minnesota law) that the organization will indemnify you for actions taken, as long as no actual malfeasance is involved. Indemnification is not worth much it the organization has neither assets nor insurance.

And, finally, put your energies into doing a conscientious job, rather than trying to do it all through insurance.

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