Nonprofit Liability Insurance: 5 Ways to Reduce Legal Liability Exposure
As an insurance professional, you understand that your nonprofit clients are not immune from legal liability issues caused by actions of their board of directors, executives, staff and third parties. Unfortunately, organizations can be woefully unprepared when issues arise. And while having the right nonprofit liability insurance can help mitigate risks, proper risk prevention measures can help stop an incident before it happens.
The following are key areas nonprofit organizations should address to help reduce their legal liability exposure.
Establish & Enforce Key Policies & Procedures
Policies and procedures are effective ways to help reduce legal liability risks. However, to be effective, they must be presented to and understood by board members, staff and volunteers — and most importantly, enforced by the organization. According to the Foundation Group, the following policies and procedures are essential to ensuring consistency within an organization and helping limit its risk exposure:
- Gift acceptance policy
- Whistleblower policy
- Records retention and destruction procedures
- Employee compensation policy
- Fiscal management policy
Create Financial Checks & Balances
It is critical that checks and balances are applied to the financial part of an organization and included in all appropriate policies. Three key procedures are:
- Having multiple signatures on all checks
- Requiring that two or more people handle cash at all times
- Enlisting the services of an outside accounting firm or bookkeeper
Encourage Regular Communication with Board Members
Critical issues of concern are best addressed early — before they escalate. According to The NonProfit Times, regular communication with board members keeps the members of the organization’s main governing body apprised of the following:
- Potential developments that could be problematic
- Changes in major contractual relationships
- Staffing changes
- Stakeholder concerns
- Ongoing claim threats and development
- Litigation issues
- Fundraising trends and forecasts
Hold Staff & Board Members Accountable
Policies and procedures are effective in helping reduce legal liability risks, but only if staff and board members are doing what they have agreed to do. To best remedy these issues:
- Consider designating a member of the board or a manager to follow up on board member and staff commitments.
- Establish a list of rules that board members and staff must follow and hold them responsible for things such as attending a certain number of meetings or completing weekly or monthly committee reports.
Address Gross Negligence Exposures
Incidents of gross negligence are difficult for nonprofits to predict and prevent. Why? Because they include liabilities associated with the actions of people.
According to the Foundation Group, “Gross negligence can expose those in [the organization’s] governance to legal liability if they allow a preventable situation to exist that could be reasonably foreseen. Even more reasons why great policies are important.”
Examples of gross negligence include:
- Failure to keep walkways safe, such as de-icing and fixing cracks in sidewalks
- Incidents involving unattended children
- Noncompliance with the fire marshal’s occupancy limits
- Failure to properly vet staff — especially those who work with children, the elderly or the disabled
While legal liability lawsuits against nonprofits are not as common as they are for those in the for-profit sector, they still occur. As an insurance professional, your nonprofit clients will look to you to help them better understand potential risk exposures, best practices for prevention and how having the right nonprofit liability insurance can mitigate the consequences of these types of incidents if they do happen.
About Charity First
The incredible services nonprofits provide come with unique and complex risks that are part of their everyday work in serving the elderly, children and other vulnerable populations. That is why Charity First is committed to providing our retail partners across the country with best-in-class underwriting, consistent and responsive service, and risk management services that include nonprofit liability insurance and accident insurance for volunteers and participants.
To learn more, please contact us at 800-352-2761 or marketing@charityfirst.com.