Insurance for Nonprofit Organizations: Your Most Frequently Asked Questions Answered

Like any organization today, nonprofits face a range of risks that could expose you to significant financial loss and reputational harm if you don’t have the right insurance protection in place.

Based on our experience with nonprofit organizations of all types, the business insurance specialists at B. F. Saul Insurance have learned what nonprofits most want to know about how to protect their assets and reduce their risks. These are the frequently asked questions (FAQs) we hear from our nonprofit clients.

What kind of insurance do we need for our events?

Nonprofits that host conferences, trade shows, and other events typically need two types of event coverage to protect against your risk as a host:

• Event cancellation coverage protects you against loss of revenue or commitment of expenses if an event is cancelled, postponed, or curtailed for a reason that is covered by the policy. It can protect against a variety of incidents, such as severe weather that causes your organization to cancel the event. Note that after the COVID-19 pandemic hit, most carriers began excluding communicable diseases as a covered claim for event cancellation. 
• Event liability coverage helps protect your organization if a participant or other non-employee is injured at the event or if the event results in property damage. One of the biggest event liability exposures occurs when you serve alcohol. If an event attendee became intoxicated, drove home, and caused a fatal crash, your organization could be held liable in a lawsuit. Your general liability (GL) policy might not automatically cover events; in fact, many GL carriers specifically exclude events with fireworks, live music or bands, rides, animals, or inflatables. Before your event occurs, it’s critical to determine whether your GL policy will cover it. If not, your organization can purchase a standalone event liability policy.

Do we need insurance to cover our board members?

Your board members can be held liable for a variety of risks, so it’s essential to have the right insurance protection. Typically, that means obtaining a management liability policy that combines three coverages:

• Directors and Officers (D&O) liability, which protects both your organization and your board members and officers as individuals against claims of actual or alleged wrongdoing in managing the company, through an error, omission, neglect, or breach of duty.
• Employment practices liability (EPL), which protects against risks like wrongful termination or harassment lawsuit claims.
• Fiduciary liability, which protects against claims of mismanagement related to your nonprofit’s fiduciary responsibilities, such as your management of an employee retirement or health plan.

Even if you maintain a comprehensive management liability policy, many nonprofits also advise board members to check whether their personal umbrella policy includes coverage for their role serving on a board.

Is it necessary to buy insurance to protect our volunteers?

If you rely on volunteers to supplement your internal staff, as many nonprofits do, then you’ll need to ensure that you and they are adequately covered. In some cases, your existing policies might already cover volunteers; but other times, they are expressly excluded from coverage.  

For instance, workers’ compensation policies typically make it clear that volunteers aren’t considered employees. So, if a volunteer was injured while working on your behalf, your workers’ compensation insurance wouldn’t cover their medical costs. On the other hand, if a volunteer working at your charity event caused injury to an attendee, it’s possible your GL policy would cover any associated liability. To ensure you and your volunteers are adequately protected, ask an independent advisor to review your current policies and identify any gaps.

If our nonprofit uses independent contractors, are they covered under our existing policies?

Independent contractors are usually not considered insureds under a GL policy. So, if the contractor were to cause bodily injury or property damage to a third party, your GL carrier would cover and defend your organization, but not the contractor. It’s in your best interests and theirs to require independent contractors to carry their own general liability insurance.  

When it comes to workers’ compensation, most states require organizations to provide this insurance to independent contractors that don’t carry their own workers' comp coverage. If you use independent contractors, be sure to request a certificate of insurance (COI) to ensure they have workers’ compensation coverage in place and that your own policy would not need to respond in the event of loss. 

An independent insurance advisor can review your existing policy language and determine whether independent contractors are sufficiently covered.

What should we do if a vendor contract requires insurance obligations?

Most vendor contracts require you to carry certain limits of liability coverage, designed to shift much of the liability onto you. Before you sign a contract with any vendor—whether it’s the hotel hosting your annual conference, the caterer that’s handling your charity auction, or an entertainer for your staff party—ask your attorney and your insurance advisor to review the contract language.  

At a minimum, you could discover you need to increase your policy limits to comply with the contract terms. In the worst case, you could find that the indemnity section exposes you to undue risk, in which case you could try to negotiate more favorable terms.

Does our nonprofit have exposure to errors & omissions risk?

As a nonprofit, you could have exposure to a variety of risks that fall under an errors & omissions (E&O) policy, also known as professional liability insurance. If a trade association sets standards for accreditation and those standards cause a member to be sued, that member is likely to turn around and sue the association. An NGO that offers advice on a fee-for-service basis could be sued for negligence. Or an educational institution could face a lawsuit claiming it offered negligent counseling to students or unlawfully refused to grant tenure to a faculty member.  

Each nonprofit will have unique E&O risks, requiring different types of coverage. An insurance advisor with deep expertise in serving nonprofits can review the nature of your operation and recommend the right professional liability policy.

How important is cybersecurity insurance for most nonprofits?

At a time when cyber threats are escalating, cybersecurity insurance is vital for every business. Nonprofits may be even more vulnerable for several reasons: You maintain donor data that would be advantageous to criminals; depending on your size you might lack the resources to employ an in-house IT director or invest in sophisticated cyber technologies; and if you solicit donations, you’re an attractive target for social engineering scams.  

It’s essential for nonprofits to carry proper cybersecurity protection (as this case study underscores), but it isn’t always straightforward. There are various coverages that each protect against different risks—such as cyber liability, social engineering liability, and computer crime—and it’s uncommon to find sufficient protection for every cyber risk in a single policy.    

Your nonprofit also should invest in measures that reduce the risk of a breach, such as preventive technologies and staff training, and conduct a cybersecurity screening to assess your risk (which some carriers do at no charge). It’s equally important to develop a data breach response plan that gets you back up and running quickly if a cyberattack occurs.  

Could our nonprofit be held liable for our hiring or other employment practices?

In today’s litigious society, every organization is at risk of a lawsuit related to their hiring, termination, or other employment practices, and the resulting award or settlement could be exorbitant. If you operate in a state that is more friendly to employees than employers, especially on EEOC (equal employment opportunity commission) claims, your risk is even higher.

The right EPL coverage will protect your nonprofit against such claims and the resulting financial loss. To complement your EPL insurance, be sure to review your HR policies, procedures, and documentation to ensure they’re appropriate, clear, and complete.

The business insurance specialists at B. F. Saul Insurance understand the exposures your nonprofit organization can face in the course of your normal operations. And we know how to help you reduce risk through proper insurance protection. We work with nonprofits across the spectrum—from trade and member-benefit associations to charitable foundations, educational organizations, and social services organizations. 

Learn what to look for if you’re ready to team up with an independent insurance advisor. 

Then contact B. F. Saul Insurance to learn how we can help reduce and mitigate risks for your nonprofit organization. 

Authored by Adrienne Schickert

Adrienne Schickert is an insurance advisor with over 15 years of experience in the industry. As Vice President and Account Executive in B. F. Saul Insurance’s Commercial Lines practice, she provides clients with guidance on coverage, appropriate limits, risk management, and claims. Adrienne specializes in advising clients with difficult or diverse operations and helping them manage their risk holistically.

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