Who needs nonprofit directors and officers (D&O) coverage when you have volunteer immunity and homeowners insurance? Not so fast. It is possible to find some coverage, or form of immunity, under your homeowner’s policy, and there are attorneys that find ways to wedge things into coverage when there are no other remedies available. However, that doesn’t mean you should ignore the availability of the proper insurance. Rather than hope to fit a round peg into a square hole, buyers should look to purchase coverage for any exposure that keeps them up at night.
There are people who wrongly believe that if they are performing charity work they can’t be sued, won’t be sued, or have some form of mythical immunity or free insurance somewhere to protect them. Let’s explore those theories in more detail.
Isn't there a federal law that grants immunity?
In 1997, our government passed the federal Volunteer Protection Act (VPA) to promote volunteerism for nonprofit organizations. There is more to the act than can be summarized in this article, and any legal advice should come from an attorney, but it’s important to know that there is a federal law designed to provide protection to volunteers. Also, note that the immunity applies to volunteers, and not necessarily the nonprofit organization or compensated employees/executives. With that knowledge, it’s important to be aware of other limitations of the act.
Exceptions from the federal law include:
- Acts of violence
- Acts of international terrorism
- Hate crimes
- Sexual offenses
- Civil rights violations
- Claims involving use of alcohol or drugs
In the absence of a definition of “Civil Rights” in the act, all sorts of common problems could be exempt. Three instances that immediately come to mind are discrimination, sexual harassment and privacy rights. Those are common allegations in claims we see made against volunteers, nonprofit organizations and their leaders.
Volunteers may also lose their potential immunity in these situations if:
- the volunteer is acting outside the scope of his or her responsibilities to the organization
- the volunteer was unlicensed if required or appropriate
- the harm was caused by gross negligence rather than ordinary or simple negligence
- the harm was a result of operating a vehicle, vessel or aircraft that requires a license or insurance
- the volunteer receives compensation or anything other than compensation that is worth over $500
- the charity loses its nonprofit status
The VPA has provisions indicating that immunity provided by the act cannot be reduced by state laws, but can be broadened by state law. The federal law will apply to volunteers unless a state opts out of the law, which is permitted. New Hampshire, for example, opted out in instances where everyone involved is a state resident and a New Hampshire state court is used.
Can we find immunity provided by state laws?
Many states do have immunity laws available to volunteers providing services to nonprofits. Every state has its own advantages and limitations. Again, seeking the advice of an attorney licensed in the relevant state is appropriate. When seeking the advice of counsel as to the immunity provided by state law, there are some questions to ask:
- Does the state law only protect volunteers, D&O or both?
- Will the state law prevail if the plaintiffs are from a different state?
- What material limitations exist?
- How is immunity impacted by willful or negligent activities?
- Is the nonprofit organization immune from vicarious liability arising from the conduct of the volunteers?
- Can an organization subrogate against a volunteer for costs associated with vicarious liability?
Will a personal homeowner's insurance or personal umbrella policy protect me?
The easy answer is that an insured might find some coverage, but not for all situations. Not all homeowners policies are the same and some may have special D&O enhancements. If you review what is generally covered, you will see coverage for bodily injury and property damage on those policies. It is also important to keep in mind that these are personal policies and any coverage provided would not be shared with the nonprofit organization or any other person affiliated with the organization. So if a homeowners policy or personal umbrella is designed to only cover bodily injury or property damage and is limited to protecting only one individual, is this the best solution for a nonprofit organization and all its leaders, employees and volunteers? That’s easy – no.
How about buying the proper insurance?
There is a policy specifically designed to protect the directors, officers, employees, trustees, volunteers, committee members, interns, domestic partners and the organizational entity. Note that the coverage isn’t limited to just the directors and officers. Those other individuals are also protected by this insurance. A typical D&O policy pays on behalf of the nonprofit organization when that organization is obligated to indemnify the individuals for their actions on behalf of the organization, as outlined in the organization’s bylaws. The organization itself is also generally covered for alleged wrongful acts. D&O policies are broadly written to cover claims alleging any error, act or omission arising from activities on behalf of a nonprofit organization. The policy won’t cover bodily injury, property damage, pollution, workers’ compensation or issues arising from the administration of benefit plans. Those items should be covered on other policies specifically designed for those exposures. You should also find coverage for the individuals and entity for things like discrimination, harassment, wrongful termination and other personal injury violations such as invasion of privacy, wrongful imprisonment and, in some cases, copyright violations.
Similar to personal lines policies, no two D&O policies are the same. Each one needs to be closely reviewed to identify limitations as well as unique coverage enhancements. Some limitations to avoid are antitrust exclusions, third party discrimination exclusions, or overly broad insured versus insured exclusions. There are enhancements to negotiate such as coverage for immigration claims, wage and hour claims, lifetime personal extended reporting provisions, publishers liability, public relations expense coverage, priority of payments, punitive damages coverage, where insurable, and more.
Considering the relatively low cost for a properly constructed D&O policy for a nonprofit organization, it makes a lot more sense to buy the coverage than try to hide behind limited immunity or wedge coverage into the wrong insurance policy.