Welcome to the last blog post in our 3-part blog post series covering nonprofit insurance coverage options! As a reminder, we started this series as a preview to what RSS CEO & Owner, Aaron Hoffman, will be discussing at our nonprofit Lunch & Learn on July 23rd. If you are part of a local nonprofit and would like to attend our Lunch & Learn, please CLICK HERE.
Our team at RSS is passionate about helping our clients AND giving back to our community. Having the ability to help nonprofits, who give back so much to the community, is very important to our team at RSS.
In our final blog post on Nonprofit insurance coverage, we will go over who could be a potential threat to nonprofits and a few different claim scenarios that can occur.
Who can file lawsuits against nonprofit organizations?
Nonprofit directors are under significant legal scrutiny. The applicable legal standards for nonprofit directors and officers are as high as, if not higher than, the standards with respect to for-profit executives. Because of the fiduciary and legal responsibilities these directors and officers have for multiple constituencies, there are several parties that can file against them as claimants in a lawsuit:
Donors and contributors to a nonprofit may bring a lawsuit against the organization, often citing misappropriation of a restricted donation.
The recipients of the work a nonprofit does can bring legal action against the directors and officers of the organization and allege wrongdoing.
- Regulatory Bodies
Claims against nonprofit organizations can be brought by state attorneys general in most jurisdictions. At the federal level, government officials from entities such as the Internal Revenue Service or the Department of Labor can bring legal action.
If the nonprofit organization in question is operating as a membership organization, it is vulnerable to claims being filed by members alleging harmful acts with respect to the interests of the members.
- Third party affiliates
Vendors, fundraisers, or other nonprofit organizations that have a relationship with the organization in question can allege harm and bring forward a lawsuit.
Staff members (both current and former) of nonprofits can bring legal action against their organization for alleged wrongful acts including discrimination, wrongful termination, Americans with Disabilities Act (ADA) violations, and sexual harassment.
Nonprofit organizations file D&O claims twice as much as private companies do, according to Willis Towers Watson. For this reason, it’s helpful for nonprofit leaders to understand the types of scenarios that lead to a claim as well as the associated costs. Below are some claims examples with costs to the organization that would be covered by a D&O policy.
Misappropriation of Funds: A nonprofit grant foundation receives private donations in support of the foundation’s expressed mission. A claim is made against the foundation alleging the funds were used for purposes not aligned with the foundation’s mission.
Cost to the organization: $175,000
Breach of Bylaws: A nonprofit association is named in a lawsuit filed by its members. The lawsuit alleges the recent election of a new Executive Director violated the procedures articulated in the association’s bylaws.
Cost to the organization: $115,000
Anti-trust: A large trade association was being investigated for violations of restraint of trade and anti-trust activities associated with their accreditation and certification program. The case was settled out of court after the association agreed to modify its standard setting and trade practices. However, the legal defense
amounted to $150,000.
Nonprofits better our communities and provide opportunities and stability for those in need. It is so very important that nonprofits obtain the proper insurance coverage so they can continue to do what they do best: help others. For more information on insurance coverage for nonprofits, please contact our office.
We hope to see you at our Lunch & Learn on July 23rd!