Running a nonprofit organization can be a gratifying job as it allows you to help people in need while improving the world. Although a nonprofit operates with a different philosophy than a business, these organizations are still vulnerable to many of the same risks that for-profit businesses are. As you carry out your operations, the potential to unintentionally harm other parties exists, no matter how noble your organization’s intentions may be. To protect your volunteers, independent contractors, and all those who work with your organization, it is important to have proper insurance coverage in place. Although there is a broad range of policies that nonprofits need, one of the most important ones is an errors and omissions insurance policy.
Here is a detailed look at what type of protection errors & omissions insurance offers and why it is so important for nonprofit organizations to obtain a policy.
What Is Errors & Omissions Insurance?
Also known as professional liability insurance, errors & omissions insurance covers the legal expenses involved in cases where a mistake or an oversight that occurs as part of your nonprofit’s operations leads to a lawsuit. It protects nonprofits against the costs of claims made by individuals or other groups, including donors and volunteers.
It will typically cover the expenses related to litigation, settlements, and the payment of damages. It does not typically protect against the costs that arise from criminal prosecution, however.
What Does Errors & Omissions Insurance Policy Cover For Nonprofits?
Below are some common examples of scenarios where an errors & omissions insurance policy can protect nonprofit organizations against costly risks and liabilities.
Work Mistakes & Oversights
There are many ways in which a nonprofit organization could be accused of a professional mistake. For example, if an animal shelter does not perform a background check properly and an adopted pet is abused, there could be a costly lawsuit. In incidents like these, professional liability insurance can cover attorney’s fees and legal expenses such as court costs.
The liability for nonprofits providing services such as guidance and counseling can be significant. For example, suppose someone on staff at a counseling center misses signs of suicidal ideation in a young person. In that case, the organization could be accused of negligence if that person causes self-harm later. Professional liability would cover the attorney and court costs along with any settlements or judgments.
Nonprofits tend to operate on tight budgets, which means there may not be enough funds to pay expensive claims on your own, not to mention the costs of defense and hiring an attorney.
What Kind Of Deductible Should Nonprofits Get?
The price of an errors & omissions policy will depend on factors such as the organization’s nature, location and previous claims. Most insurance policies will include some amount of deductible. This is the amount of money that the nonprofit will pay out of pocket before the insurer kicks in to cover their share of the insured loss.
The deductible will affect the premium or the cost paid for the policy. The higher the deductible, the less you can expect your premium to be. After all, when you pay a higher deductible, you are taking responsibility for a greater share of any claim expenses. Nonprofit boards should assess the premium costs at the different deductible amounts offered to ensure they get the best value.
What Other Policies Do Nonprofits Need?
Professional liability is a valuable tool in protecting against work mistakes and negligence. However, it does not provide nonprofits with complete protection. Injuries and property damage are also possibilities. Here is a look at some of the other types of policies nonprofit organizations should consider.
A general liability insurance policy can cover expenses related to client property damage and injuries, such as pets biting visitors at animal shelters.
Directors & Officers Insurance
Directors & Officers insurance protects a nonprofit organization’s board members and officers against the legal expenses associated with being sued for making a bad decision, such as extravagant purchases that misuse donated funds.
Employment Practices Liability
An Employment Practices Liability Insurance (EPLI) policy can cover the legal costs if an employee sues a nonprofit for discrimination, harassment or other types of employee rights violations.
Business Owner’s Policy
A business owner’s policy (BOP) bundles commercial property insurance and general liability insurance. It typically provides them at a lower rate than an organization would pay when buying the policies separately.
Workers’ Compensation Insurance
Nonprofits that have employees are usually legally required to have workers’ compensation insurance to cover the medical expenses of any work-related injuries or illnesses.
Reach Out To The Nonprofit Insurance Brokers
Everyone makes mistakes from time to time, and those errors could result in a costly lawsuit for your nonprofit organization. To find out more about how an errors & omissions insurance policy and other commercial insurance policies can protect your nonprofit organization, reach out to the nonprofit insurance brokers at CI Solutions by calling 703.988.3665 or by contacting them online.