Nonprofit Insurance

There are numerous and diverse exposures facing nonprofit organizations presented by corporate governance and professional service delivery; below we have outlined a variety of coverage forms that have emerged to address such exposures. It should be noted that while the policies covering corporate governance and professional service exposures often overlap, the exposures themselves are quite different. Your GHM agent is always on call to answer specific questions relating to your nonprofit and its myriad exposures.

“Miscellaneous Professional” Mislabeled and Mishandled

Commercial General Liability, Commercial Auto, and Commercial Property products are the basic coverages purchased by most nonprofits. Insurance brokers and risk managers operate fairly comfortably when working with these types of policies. In stark contrast, specialized coverages for the activities of counselors, paraprofessionals, teachers, and volunteers, including volunteer board members, are another matter. Such policies are often manuscript forms that include in their titles the words "professional" or "miscellaneous professional" to describe coverage provided for the errors or omissions of professionals or paraprofessionals. Many brokers and nonprofit managers incorrectly assume that this type of policy is necessarily the same as an "Association Professional Liability" policy that might well include coverage for the actions of directors and officers. Assuming that "Miscellaneous Professional" and "Association Professional" policies provide even remotely the same coverage is a big mistake. The label attached to the coverage form provides little insight into the covered exposures.

To sort out the issues surrounding Directors' and Officers', Association Professional, and Miscellaneous Professional policies, it is important to clearly understand the differences between two exposures: corporate governance, and the delivery of professional and/or paraprofessional services. It’s critical to understand the distinction. 

Corporate Governance

This refers to the decisions and actions of the nonprofit's board of directors during the course of providing leadership for the organization.

Professional and/or Paraprofessional Service Delivery

This refers to services that a nonprofit provides to its clients. Professional service occupations have traditionally referred to medicine or law, although the term is now used to describe other professions that require less extensive education or credentialing such as teaching, social work and counseling. Paraprofessionals, with few or no formal credentials, such as peer counselors, may also be included here. Although the policies covering these exposures often overlap, the exposures themselves are quite different.

Directors and Officers

Nonprofit directors and officers may have an even more demanding job than their for-profit counterparts, because the affairs of the organization may be less familiar to the individual and may be conducted under less efficient conditions than in business corporations.

Damages recoverable from directors and officers of even a relatively small nonprofit organization can easily exceed the net worth of many individuals.

A surprising number of persons unknowingly face nonprofit D&O liability exposure. It is estimated that approximately 20 percent of all U.S. corporations are nonprofit, thus indicating an extremely large number of nonprofit directors and officers. A significant percentage of these individuals are not business persons with experience as a director or officer, nor do they have knowledge of their legally recognized responsibilities and duties.

Regardless of organizational structure, directors and officers of all nonprofit organizations share certain common responsibilities which, if not properly discharged, may give rise to personal liability.

Key features of D&O liability policies may include:

Broad definition of insured: D&O liability policies cover all directors, officers, employees, including staff, volunteers and committee members.

Employment practices coverage: D&O liability policies help protect all insured persons of the organization against damages from claims for wrongful termination, sexual harassment, discrimination and unfair hiring/firing practices.

It should be noted that these policies are not standard in form, and, consequently, coverage does vary from one carrier to the next.

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