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Types of Insurance Policies

Nonprofit organizations are often viewed the same as for profit organizations when it comes to insurance products. There are four common commercial insurance policies that may be of interest to a nonprofit organization. There are many other types of commercial policies available. Please contact a broker or agent for more information.

• Commercial General Liability (CGL)
• Directors and Officers (D&O)
• Commercial Property Insurance
• Special Event Liability

While there have been few lawsuits brought against nonprofits in Canada, it has happened. Nonprofits have been sued by government, donors, members, clients, employees, uninvited guests and even directors suing other directors. While not all these lawsuits result in payment, they all have defense expenses which can be very costly.

For more information on insurance policies and examples of claims faced by the voluntary nonprofit sector please visit Imagine Canada , Insurance and Liability Resource centre for Nonprofits.

Commercial General Liability

The Commercial General Liability (CGL) is the most basic policy or starting point of a commercial insurance program for a nonprofit or profit organization.

Does your organization…

• Own or rent premises or office space?
• Visit clients?
• Have clients or the general public visit your space?
• Do volunteers use their own vehicles in the course of their volunteer work?
• Offer wine to board members during dinner meetings or cocktails to volunteers during a thank-you reception?

Did you know that you could be liable for the following types of claims?

• Slip and fall injuries on your premises - this is the most common claim.
• A volunteer uses their own vehicle while doing work for the organization and causes an accident.
• A volunteer is negligent and starts a fire damaging the space your organization leases as well as the office space next door.
• Being sued for libel or slander (making an untrue statement that damages a person's or organization's reputation).

A CGL provides your organization with the following coverage if your organization is liable or responsible for the following damages or injuries to another party:

Coverage A

• Bodily injury covers injury to a third party for physical injury, sickness, disease or death.
• Property damage covers damage to a third party's physical property, not damage to property the organization owns or rents.

Coverage B

• Personal injury covers injury to a third party that is not bodily injury and includes such things as libel, slander or violation of privacy.

Coverage C

• Medical payments usually have a separate smaller limit and are used as payment to third parties who have suffered minor injuries on your property even if you may not be liable or responsible. Coverage is provided to prevent lawsuits.

Coverage D

• Tenants' legal liability has its own limit and provides coverage for damage you cause to premises you occupy but don't own.

Additional Extensions

• Non-owned automobile liability provides coverage if your organization is named in a lawsuit because an employee or volunteer is responsible for an accident while driving their own vehicle on behalf of your organization. It also covers other non-owned vehicles that are being used on behalf of your organization if the drivers are responsible for an accident. This is an excess insurance which will only respond when the automobile owner's insurance has been exhausted.
• Advertising injury provides personal injury coverage for claims resulting from your advertising (may require separate purchase).

Liquor Liability

If serving alcohol is something your organization does, even if it is done through an outside facility, it is important to make sure you disclose this to your agent or broker and confirm your CGL policy will provide liquor liability coverage. There are also risk management procedures you can put in place to limit this exposure, such as restricting the amount of alcohol served, providing food with the alcohol, and ensuring taxis or designated drivers are provided.

The CGL makes sense for most organizations. A law suit brought against your organization could cost a substantial amount to defend and the resulting payment may mean the end of your organization.

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Directors and Officers

Did you know that Directors and Officers (D & O) could face personal lawsuits for the following types of claims?

• A former staff member sues for wrongful dismissal or a volunteer claims sexual harassment.
• A Director is sued for authorizing excessive spending or borrowing money without proper authorization.
• A client sues the Board of Directors for discrimination.
• The Government or a donor sues the Board of Directors for spending money that was allocated for a specific project on a different project.

The Board of Directors of nonprofit organizations can be sued the same as the Boards of large for profit organizations. A Directors and Officers policy can provide some protection.

A Directors and Officers Policy:

• Provides personal financial protection to the Directors and Officers for third party financial losses as a result of alleged wrongful actions of the directors and officers.
• Provides important defense costs even in instances where claims are not legitimate.
• Does NOT cover liabilities imposed by legislation such as failure to remit employment insurance premiums or income tax remittance for employees.
• Does NOT cover bodily injury or property damage claims. Other insurances are available to provide this coverage.

Some policies may extend coverage to the organization and its employees and volunteers.

Keep in mind that the organization should have an indemnification clause in their bylaws to provide protection for the Directors. This clause basically states that the organization will indemnify the Directors and Officers if they are found personally liable for their actions as a Director or Officer. A lawyer can provide assistance with the wording.

Occurrence-based policies vs. Claims-made policies
It is also important to know the difference between claims-made policy and occurrence policies. Occurrence based policies pay for claims that occur or happen within the policy period, so if you had a car accident in 2009 and the injured party did not come forward until 2010 the policy you had in force in 2009 would respond to the claim. Claims-made policies pay for claims that are reported in the current term but could have occurred or happened in the past. This is the most commonly sold type of D & O policy.

There are important points to remember about a claims-made policy:

Retroactive date
A claims-made policy may have a retroactive date which means the policy will not respond to claims that occurred before the retroactive date. This date should be the same as the effective date of your first claims-made policy and should not change even if you change insurance companies. The only exception to this is if the policy you purchase covers full prior acts then a retroactive date does not apply.

Extending reporting periods
Any incident that is reported to the organization that could result in a claim should be reported to the insurance company as soon as possible. If the claim does not get reported until after the expiry date there may be no coverage. Check to see if the policy has an extension period for reporting claims and how long it is.

If the policy is being cancelled and coverage is no longer being carried it will be important to purchase an extended reporting period. The length of the extended reporting period can vary from several months to years.

There are advantages and disadvantages with both types of policies; be sure to ask your insurance professional when purchasing or changing coverage and for more information check out the following websites at Nonprofit Risk Management Center and at Answers.com

Things to note

If your organization is not incorporated each member can be held personally responsible for the debts of the organization.

If your organization is incorporated the Board of Directors is then responsible for the organization and the liability of the individual members of the board is limited. The organization stands on its own regarding ownership of property, being responsible for obligations including any debt. Incorporation limits the liability of the individual board members; however, the members or directors can become personally liable if they fail to carry out their duties or obligations.

There are three areas of duty or obligation for the members of the board of directors:

Fiduciary Duty means they must act honestly, in good faith and always in the best interests of the organization. Avoiding a conflict of interest is very important for board members. Any time a decision is being made that might benefit a member or their family that member should declare the conflict of interest and refrain from participating in the discussion or decision making.

Duty of Care means they must act with the due diligence and skill of a reasonably prudent person. This level of care will vary from person to person depending on their expertise.

Statutory Duty holds the members personally liable under certain statues, for example:

• The Labour Standards Act will hold members personally responsible for unpaid wages.
• The Income Tax Act will hold members personally responsible for income tax deductions that have not been remitted to Canada Revenue Agency.
• Other statutes that may apply include those dealing with the Environment, Human Rights, or Occupational Health and Safety.

A person should consider the following when joining a board of directors:

• Is this a cause you are passionate about? What level of commitment is expected and are you able to make that commitment? If the timing is not right for you there may be other ways you can help out, maybe you can sit on a committee.
• A good board package will provide you with significant information on the organization and will include among other things the mandate, objectives and values of the organization, the financial situation, policies and procedures, details of activities, description of the board duties, and information from any committees. Check it out prior to making a decision to join the board.
• Are there areas where you need training, for example assistance with understanding financial statements? Make sure there is training provided for those areas where you need it.

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Commercial Property Insurance

Commercial Property Insurance can be purchased to cover the organization's buildings and/or contents including furniture, computers and office supplies.

Keep in mind:

• Replacement cost provides more coverage than actual cash value.
• All risk provides broader coverage than named perils.
• The amount of insurance should accurately reflect the value of your building and/or contents.
• There are many extensions to this coverage that are available for purchase. A thorough review with your insurance provider is recommended.
• Choosing a higher deductible can keep your premium costs down while ensuring you have coverage for larger claims.

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Special Event Liability

Nonprofit organizations often host special events, such as festivals, fundraisers or concerts to raise money and awareness for their cause. While insurance companies recognize the need for such events they are often more risky than your usual operations and therefore may be excluded from your Commercial General Liability (CGL) policy. Make sure you check with your agent or broker.

Special Event Liability can be purchased to cover individual events whether it is for a day or a month. You can even purchase cancellation insurance to cover if the event has to be cancelled.

Special events often include the serving of alcohol. Anytime alcohol is involved it is important for your organization to have proper Liquor Liability Insurance in place. Even if your organization is contracting this service out to an outside facility the possibility remains that your organization could be named in a lawsuit should something go wrong.

Make sure your broker or agent knows about these events in plenty of time so that the right insurance can be obtained if necessary.

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