Though the insurance needs of each nonprofit organization are different, several common types of coverage apply to most groups. Those types are described below.

When it comes time to buy your policies, SCORE recommends that you consult an insurance agent or broker who has experience with nonprofit organizations. He or she can help you evaluate your needs and assure that your organization is adequately protected.

Commercial General Liability

A Commercial General Liability (CGL) policy covers the organization and its directors, officers, and employees for their liability arising from bodily injury or property damage B for example, if one of your employees accidentally harms a client, or a chair collapses and a client hurts his back. You can also add volunteers as insureds under the CGL policy.

You need the CGL policy if you have an office or if you use another organization’s facilities (for example, a church, school, or home). Usually, the other facilities will require proof of insurance so that if your organization causes an injury or claim, you have insurance to pay for it.

The CGL policy also covers claims arising from Personal and Advertising Injury. Personal Injury includes such offenses as libel, slander, defamation, malicious prosecution, and false arrest or imprisonment. Advertising Injury covers you for copyright or trademark infringement that occurs in the course of your advertising (for example, fund-raising materials, brochures about your programs, and any newsletters or other publications). Most CGL policies now exclude coverage for personal injury arising out of chat rooms, bulletin boards, and list serves.

Though the standard general liability policy does not contain an exclusion for claims arising from professional services or activities, many insurance companies will attach a Professional Liability Exclusion Endorsement. If your CGL policy has this endorsement, read it carefully to see how it defines Aprofessional services.@ If your organization provides (for example) support groups, that activity leans towards counseling, which is usually considered a professional service. Unless you have a policy specifically designed for an organization providing support services, you probably have a professional liability exclusion.

Also, remember that the CGL policy only covers losses involving bodily injury and property damage, not professional errors and omissions. In most states, the claimant must suffer a physical injury to their body before they can assert a claim for mental anguish, pain, and suffering. So just claiming mental anguish due to improper counseling would probably not trigger coverage under the CGL policy, as that would be considered professional liability.

Professional Liability

Professional Liability insurance covers the insured for any errors and omissions occurring while providing professional services as defined by the policy. If you have licensed social workers or other certified or credentialed people in your organization, you probably need Professional Liability insurance. This is especially true if the CGL policy has a Professional Liability Exclusion. Make sure that the Professional Liability policy does not exclude bodily injury or property damage.

Directors and Officers Liability

As a nonprofit organization, you also need nonprofit Directors and Officers (D&O) Liability insurance.
This policy insures your directors, officers, employees (and often, volunteers) for their Awrongful acts@ in governing the organization. Most D&O policies exclude bodily injury and property damage, since those are covered under your CGL policy.

Make sure that your D&O policy is specifically designed and written for nonprofit organizations. Also, if your organization has employees, make sure that the D&O policy includes Employment Practices Liability insurance: some 80% of all nonprofit D&O claims are employment-related.

The D&O policy will usually pay for your defense costs in investigating and defending a claim, as well as any award or settlement, subject to the policy limits. Some nonprofit D&O policies include the defense costs inside the policy limit; others have it outside the policy limit (the defense expenses are paid in addition to the policy limit). Determine which way your policy is written, and select the appropriate policy limit.

Other Coverages

If your organization owns any vehicles, you need Auto Liability and Physical Damage Coverage. Even if you don’t own any vehicles, you should have Hired & Nonowned Liability coverage to cover the organization when employees or volunteers are driving their personal vehicles on organizational business.

If you have an office, you should have Property coverage for the office furniture and fixtures, and a computer or EDP policy to cover your computer system. You also should have Extra Expense insurance that will pay for the extra expenses incurred in restoring your office and computers after a fire or other insured loss If you have employees, you also need a Workers Compensation and Employers Liability policy.

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This information was provided by Leslie T. White, CPCU, CIC, ARM, an insurance consultant specializing in nonprofits. 

The material in this publication is based on work supported by the U.S. Small Business Administration under cooperative agreement SBAHG-04-S-0001. Any opinions, findings and conclusions or recommendations expressed in this publication are those of the author and do not necessarily reflect the views of the U.S. Small Business Administration.
Updated May 2006
George Hannye