January 2005

Last month we discussed the unique issues presented by nonprofit directors and officers insurance. There are issues lurking in other parts of your insurance program, too.

Property Insurance

Limit of Coverage

Review the amount of property insurance you buy. Is it adequate to replace your buildings and the contents? Have your agent remove any penalty clauses. Coinsurance, for example, reduces loss payments if the insurance company thinks you didn't buy enough insurance. Ask your agent to identify any other penalty clauses in the policy.

Deductibles

A low deductible can be costing you higher premiums. Consider deductibles of $1,000, $5,000, or more. Small losses should be considered a "cost of business" and paid for out of operations funds. Let the insurance company take care of the debilitating claims. You handle the small stuff.

Extra Expense Coverage

In the event of a fire you may incur increased expenditures while you rebuild. Extra expense insurance pays the higher cost of short-term leases and the increased cost of getting a temporary location in shape for your operation—phone lines, computer cabling, moving expenses, and the like. Watch out, though, for limitations in the percentage of the coverage amount you can use in any month.

Business Income Coverage

Many nonprofit organizations skip business income insurance, thinking that there are no revenues to protect. Look at your operation and its various departments. How would a fire affect those operations? Would you start right back up in a new location or would you have to wait while you rebuild? How will you pay your key people during your downtime? Are there expenses that continue even though revenue flows may be reduced? Don't assume you don't need business income insurance.

Liability

Volunteers as Insured

General liability insurance protects your organization from lawsuits involving bodily injury and property damage. The policy responds to a wide variety of allegations of negligence, including "slip-and-falls" or a customer/client getting sick eating your food. The policy automatically covers the "business" named on the policy. Employees are insured within the definition of "who is an insured." Consider also adding volunteers as insured. Without this endorsement, your unpaid partners must depend on their own resources or their homeowner's insurance for protection. Tell your broker you want coverage for "volunteers as an insured."

Abuse/Molestation Coverage

Some insurers exclude liability from allegations of sexual abuse or molestation. Check your policy. If the mission of your agency includes kids, the elderly, or the infirm, then abuse coverage might be important to your financial security. Review the definitions of abuse in any exclusion. Some policies include abuse coverage by endorsement. Be certain the definitions affecting this coverage area are not overly restrictive.

Damage to Premises Rented to You

This coverage section pays for damage to the part of the building you rent. Some policies call it "fire damage" coverage. If your coffeemaker causes a fire, you may be responsible for the damage to your landlord's building. Is the limit of protection in your policy enough to pay for the part of the building you occupy? Also, check your lease for guidance on this issue.

Professional Liability Insurance

Nonprofit organizations in the health-care field or in human services may need professional liability insurance. Such policies protect companies from legal action alleging improper performance of their work. Professional liability coverage is also called "malpractice insurance or errors and omissions." Talk to your agent.

Automobile Insurance

Employees and Volunteers as Insured

Most commercial auto insurance policies don't include liability coverage for volunteers or employees. Adding coverage to your insurance protects your employee or volunteer who may be the defendant in a legal action. Ask your agent to add the protection.

Non-Owned Auto Liability

Accidents caused by employees or volunteers driving their own vehicles while conducting business for your nonprofit can expose your organization to suits. Under common law you're responsible for the actions of your employees. The same may be true of volunteers. Be sure your auto liability coverage includes non-owned auto protection.

Injuries to Volunteers

In some states volunteers can be added to your nonprofit's workers' compensation insurance policy. It may be a bad idea to do so. Injuries to volunteers covered by workers' compensation could affect your experience rating, increasing your workers' compensation premium. An accident insurance policy may be a better way to protect volunteers. Better yet, ask yourself if your volunteers expect to be covered for injuries. Perhaps you don't need insurance covering your volunteers at all.

Scott Simmonds, CPCU, Insurance Consultants of Maine, Inc., January 2005
© 2005, Insurance Consultants of Maine, Inc.

Scott Simmonds, CPCU, is president of Insurance Consultants of Maine, Inc., a "fee-only" provider of insurance advice and counsel. He can be reached by phone at (207) 284-0085 or by e-mail. He often offers teleseminars covering nonprofit insurance issues; for more information, go to his Web site, www.icofmaine.com.