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
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
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.
For the Category of Legal:
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