Feb 14, 2019

Why Management Liability is a Crucial Coverage for Nonprofits and Social Services

Category: Social Services

Nonprofits are the backbone of charity organizations in the United States. With a drive to help their communities and provide assistance to those in need or support to certain causes, nonprofits are encouraging and inspiring entities. However, even though they may have the best intentions in mind, it’s the people that help run them that can make mistakes and tarnish the reputation of the entire operation.

Nonprofits are not immune to lawsuits just because they are working for a worthy and upstanding cause. Some nonprofits can be targets for litigation just because it is perceived they have connections to unsavory people or other organizations, especially if it comes to financial support. In fact, because of recent social movements around sexual harassment, insurance submissions from those in the nonprofit sector have gone up sharply. It’s important for nonprofits and their board members and officers to understand that they are vulnerable to claims just as much as they need to understand the role importance social services insurance programs play.

Why Management Liability is Important

Nonprofit organizations are run by passionate individuals who come together with others to spearhead the cause they believe in. But while passion is a good thing to have, not everyone who serves as a board member or officer has experience serving in thee positions. General duties and responsibilities of running an organization are less familiar to nonprofit board members and officers than those with experience in for-profit organizations and can open things up to liabilities. Lack of knowledge, governance and, to some degree, decision-making skills creates unwanted risks of claims against nonprofit organizations.

When an allegation of any kind is made against a director or office of a nonprofit organization, or against the organization as a whole, consideration the size or cause of the organization aren’t fully executed. One claim, if it’s big enough, can sink a nonprofit as litigation can be costly, time-consuming, and thoroughly damaging to the overall reputation of an organization. From damages to legal fees, the complete cost can completely break the bank of a nonprofit.

Average claims against nonprofit directors and officers costs around $35,000 to settle and can even be as high as $100,000. This is why nonprofits in the social services sector require the need of social service insurance programs.

Claims Facing Nonprofits

There are a number of different responsibilities that board members, director and officers have within a nonprofit. Given this fact, it’s important to note that with various responsibilities comes various liabilities. Directors and officers oversee the setting of the organization’s policies and procedures and handle major complaints or claims against the nonprofit. There may be a public relations issue that brings about more claims of negligence or issues with fundraising, or even sexual harassment claims against someone who serves on the board.

While nonprofits don’t want to run like a for-profit organization, they should operate like a business in terms of staying away from these types of claims, making sure to keep everything above board, as it were.

Managing risks through directors and officers (D&O) social services insurance programs will help to keep the overall cost of allegations to a minimum. They won’t, however, bar a nonprofit from being targeted by claims. Lawsuits and potential claims may originate with vendors, donors, competitors and employees can come up at any time, but having insurance will give peace of mind.

About Tangram Insurance Services

Located across the Golden Gate Bridge, just outside of San Francisco, Tangram is a full-service Managing General Underwriter and Program Manager offering specialty programs. We focus on industry-relevant coverage, competitive pricing, and practical business and risk management solutions for your clients. Since we are not all things to all people, we make sure to create outstanding custom-built solutions that matter to those businesses, and the brokers who serve those industries. Contact us at (888) 744-9810.