Frequently Asked Questions

Insurance

What is Commercial General Liability Insurance?

Commercial General Liability, or “GL” insurance, is often the first type of insurance a nonprofit will purchase because it provides coverage for a wide range of acts or offenses that result in bodily injury or personal injury, advertising injury or property damage to a third party. The most common occurrence under this sort of policy is what people refer to as “slip and fall” cases or “negligence” cases that result in injury.

What does Property Insurance typically cover?

Property insurance protects the physical assets your nonprofit owns – such as computer and office equipment, your facility(ies) and furniture, fixtures, buildings and property used in connection with your nonprofit’s programs.

What insurance covers embezzlement or theft?

Insurance that addresses the risk of insider theft is referred to by various names. The coverage is frequently referred to as “Crime Coverage,” “Employee Dishonesty Coverage” or “a Fidelity Bond.” Many nonprofits purchase this coverage as part of a package policy that addresses other property exposures. It is also possible to obtain the coverage as a standalone policy.

What is Non-owned/hired auto insurance?

This type of insurance is for coverage in situations where your employees or volunteers are driving vehicles that are NOT owned by the nonprofit while engaged in the nonprofit’s business or their work for the nonprofit. The purpose of this policy is to provide what is known as “excess coverage” because the insurance of the owner of the vehicle will be primary. If there is an accident that results in injury that exceeds the limits or is not covered by the insurance of the vehicle’s owner, there is a possibility that the nonprofit will be sued. Non-owned/hired auto insurance is to provide coverage to protect the nonprofit should such a situation arise.

Our volunteers are not covered under our workers compensation policy. Can we get insurance for our volunteers?

Nonprofits can purchase “volunteer accident insurance” which provides coverage for injuries to volunteers. Volunteers may also elect to cover themselves under their homeowners’ umbrella policy, but many volunteers do not do so, and many nonprofits would rather have insurance available to assist volunteers in the event of injury or accident. Others do not purchase insurance but instead set aside a reserve fund for such purposes.

Why would we need Umbrella Coverage?

Umbrella coverage generally provides higher liability limits than are offered under other policies that a nonprofit may have and therefore serves to increase the limits of liability on existing coverages. The umbrella policy kicks in when the limits of liability on other policy(ies) have been exhausted. Nonprofits that face the risk of high dollar losses may wish to consider supplementing their existing coverage with an umbrella policy.

What should we look for in an insurance agent or broker?

Your nonprofit’s insurance agent or broker should be your advocate in finding the best insurance coverage to meet your organization’s needs, and also to work with your insurance carriers if there is a claim to ensure that the nonprofit receives prompt attention and assistance as well as the coverage provided by the various policies you purchase. Because the nonprofit world is different from most commercial businesses, you should look for a broker or agent who is experienced in working with nonprofits, one who has access to insurance carriers that offer special insurance products designed just for nonprofits, and one who is responsive to your inquiries and offers your nonprofit resources to help keep you up to date with the latest risk management tools and techniques. Insurance agents and brokers should be willing to meet with senior staff to explain the insurance policies, identify exclusions and suggest alternative policies for the nonprofit’s consideration. They should also be willing to make a presentation or report to the board of directors annually on changes in coverage or the insurance buying environment that will impact the nonprofit’s insurance program. The nonprofit’s insurance professional should be enlisted to help educate the board as well as help the nonprofit continually evaluate whether the insurance program is adequate, and the costs appropriate.

What types of insurance do we need?

Answering this question is where your insurance professional comes in. S/he can help you assess the organization’s risks and inform you about policies that are specific to certain types of exposures. At a minimum most nonprofits should consider:

Property insurance covers the repairs to or replacement of essential property, such as offices owned by the nonprofit and equipment used in programs.
Commercial general liability policies address claims alleging bodily injury or property damage. Slips, trips and falls are the most common claims covered by CGL policies.
Commercial auto, automobile liability and nonowned automobile insurance address the exposures associated with use of owned, rented and borrowed vehicles.
Directors’ and Officers’ Liability insurance addresses claims alleging wrongful management decisions by the volunteer and staff leaders of the nonprofit. The most common claim filed under a D&O policy alleges wrongful employment practices.
Workers compensation insurance, which is required if the nonprofit has any employees.
Crime Coverage addresses the financial risks of fraud and embezzlement by an insider.
Specialized computer coverage addresses the possible loss of data or equipment (such as laptops) that is not generally covered in regular property insurance policies.
Business Interruption coverage pays for out-of-pocket expenditures, such as renting temporary office space, in the event that something occurs to make it impossible to carry on the normal business of the nonprofit.

Your nonprofit’s activities and programs may be far flung – in many states, in foreign countries, or just across town. Your specific exposures will determine what types of insurance your organization needs. Often nonprofit managers believe that simply purchasing insurance eliminates risk. Insurance is a means of transferring some of the financial consequences of a risk to another party. Simply purchasing insurance doesn’t reduce the likelihood of a mishap, nor does it eliminate many aspects of nonfinancial risk to a nonprofit. The Nonprofit Risk Management Center is a nonprofit resource center that does not sell insurance but is available to answer your questions about insurance via phone (202-785-3891) or email as well as to conduct a risk assessment or comprehensive review of your nonprofit’s insurance program.

What internal controls do we need?

Every nonprofit’s practices and activities are unique so there may be policies and practices that are essential for an all-volunteer organization and others that make more sense for a nonprofit with several bookkeeping staff members. As a baseline, boards should consider adopting the following internal controls:

Specific authority for who signs checks, and for what amount
Specific authority for who deposits checks
Separation of the duties for persons who open mail, and log in checks and those who deposit the checks in the bank
Cash control policies to determine how cash on hand should be accounted for and maintained (where, by whom, who has access?)
Specific authority for who may open bank accounts in the nonprofit’s name and who has signing authority for accounts
A policy prohibiting the use of the nonprofit’s EIN number for any reason other than a business reason authorized by the CEO/Executive Director

Additional resources on financial risk management are available through the web site of the Nonprofit Risk Management Center.

What steps should we take to ensure that only authorized employees of the nonprofit may deposit and withdraw funds?

The key is to limit the number of people with decision-making authority for financial transactions, and adopt a procedure for the approval of all financial transactions. A corporate resolution should be passed by the board to assign banking authority to certain individuals who will have access to the organization’s bank accounts. The resolution should specify the position, such as “Assistant Treasurer” rather than designate individuals by name, so that a change of individuals holding the office will not be inconsistent with the resolution. When the officers change, the bank will require a new signature card, signed by the new individual holding the office named on the resolution.

What is the best way to create an atmosphere that is hostile to fraud?

The atmosphere and environment of your nonprofit should exude a culture of competence and integrity.

Start with a “Code of Conduct” or “Code of Ethics” that reinforces the expectation that everyone will be honest. Start with the application for employment: include a “truth clause” (“I certify that the responses on this application and that I provide during the hiring process are truthful, and not misleading, and I understand that if my responses are later found not to be so I may be terminated from employment.”)
Adopt procedures that restrict the personal use of the nonprofit’s postal meter and office equipment; implement policies requiring authorization of cash receipts/deposits and reimbursement for expenses only with documentation, and enforce these policies.
Control physical access to cash, computers, and valuable property/equipment.
Engage your outside accountant in assisting you with recommendations well before the audit process and keep the board informed of steps staff is taking to secure all assets from theft and embezzlement.
Finally, if questionable activities are uncovered or alleged, fully investigate suspected fraud. The second building block in the process is the commitment to fully investigate all suspected fraud. Potential offenders must understand that their actions will be subject to intense scrutiny and that, when appropriate, evidence concerning the fraud will be turned over the appropriate authorities.

What are the basics of a safety policy?

Awareness, reporting and prompt action! Employees and volunteers, and even clients/customers, should be trained so that they are alert to safety concerns and know where to report unsafe conditions or other concerns. After the nonprofit has been alerted to a safety issue, prompt remedial action, and documentation of all of the above, is essential. Training should include everyone—even board members, who may be on-site and in the position to report an unsafe condition. Finally, if there is a safety issue that results in harm or injury, there should be a policy to determine who at the nonprofit is the appropriate spokesperson, and a “lessons learned” evaluation to devise procedures and policies that will help avoid similar occurrences in the future.

The web site of the Nonprofit Risk Management Center has a free online Workplace Safety Tutorial that can be completed 24/7.
The web site of the Nonprofit Risk Management Center has a free online Workplace Safety Toolkit for employees and volunteers that can help you set up a workplace safety program. The toolkit allows you to print out sample forms and provides links to detailed information on special topics, such as bloodborne pathogens, AEDs, and workplace stress.

Is it possible to get insurance to cover volunteers who help out at various events? We are renting a venue for a fundraiser and one of the conditions of using the space is that we provide insurance for volunteers in the event they are injured while putting up decorations and assisting with the event.

The type of coverage you are looking for is "Volunteer Accident Coverage," which can be purchased to provide a safety net for your volunteers. The coverage is excess over existing health insurance coverage, so if a volunteer suffers an injury and they have their own personal health insurance, their own coverage would apply first. If they are uninsured and hurt while volunteering, the volunteer accident coverage would apply.

Will a D&O Policy help my organization? My nonprofit has failed to do the following: (1) remit taxes to the state and IRS; (2) remit collected medical insurance premiums to the carrier in a timely manner which has caused insurance to lapse on four occasions; (3) mismanaged a government grant.

If the D & O policy is not in place, you may have a very difficult time obtaining insurance, even at a high premium, to cover these known problems. If you don't disclose them on your application, they will undoubtedly not be covered because of that failure. If you do have a D & O policy in place, review your policy and consult immediately with your broker. Most D & O policies will not cover failure to pay taxes or other tax liabilities. Some exclude coverage for failure to obtain or maintain insurance, which might exclude the failure to pay for medical insurance. The policy may cover claims for mismanagement, as long as it was not simply a contractual default and did not involve self-dealing or personal profit, or fall within one of the other standard exclusions. In any case, it sounds like it is time to talk with a lawyer who can help you get out of this mess.

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