I was moved to action a few years ago while reading the newspaper. The town that I call home, Turlock, CA, was closing its ONLY homeless shelter. I think the final nudge for me was that the article below the homeless shelter article announced that the county was going to build a $5,000,000 animal shelter.
I do not want to be taken out of context as I am a lover of animals with 8 dogs, 4 cats, a fish pond with dozens of fish, and depending on when you stop by, a horse and goats at our family’s ranch. But it just seemed a bit odd to me that animals in my town were going to be given more humane treatment than a number of actual humans living there. I was left asking myself the following question, “Shouldn’t we treat those (humans) less fortunate with at least as much compassion as we treat our unwanted pets?”
After numerous attempts with little or no success and with the encouragement of my loving wife I turned my focus on helping the organizations that are already successfully helping those in need. The change in direction has allowed me to utilize my talents and professional expertise to help the organizations to be more competitive.
Once we, my wife and I, decided that a change in focus would be the best approach, I spent the evenings of the ensuing month developing a methodology that would allow the helping organizations to maximize the improvements they could potentially get from their insurance programs while minimizing any time and operational disruptions required to do so. We gave the program to our client, Modesto Gospel Mission a little over a year ago without actually being their broker or being paid for the lines of insurance we were working to improve.
Each month they received a predetermined set of safety materials, OSHA compliance documents, and other items we had designed to help them reduce the number and size of their claims. All credit for implementing and adhering to the materials has to be given the Modesto Gospel Mission as they implemented everything we gave them – and did an amazing job of it!
This year (less than 18 months after they starting receiving and implementing the program) we began working on their insurance package. They liked the company they were already insured with and just wanted to make sure they were getting the best deal possible.
Their letter below says it best, but here are a few of the key points.
Please see the letter from Modesto Gospel Mission Below. continue reading at the bottom for more details then call Grant Davis at
888-991-2929 to get your non profit the help and savings it deserves!
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Risks and Responsibilities
To combat the chance of affecting the personal liability of board members, nonprofit organizations should assess the risks involved in holding these positions. The organization should first develop a volunteer risk management committee to identify all risks and pose solutions to minimize potential harm. In addition, the organization must assure that the board members understand their governance responsibilities. The nonprofit should educate its board on their legal duties, fiduciary duties and decision-making roles. Furthermore, the risk committee should assess the following:
The organization is working within the mission by spending funds as donors perceive them to be.
o Avoid accepting donations with conditions.
o Avoid allowing individuals with personal agendas to sit on the board.
o Insist that board members do not use professional contacts in dealings with the nonprofit.
Once the risks are assessed and the Board of Directors is aware of those risks, they must also understand the responsibilities associated with the positions they hold. Legally, board members have three main duties:
1. Duty of Care: The individual should act in the way that a reasonable person would in a similar position and under similar circumstances. Acting under good faith is an essential part of the functions of the board.
2. Duty of Loyalty: The individual should place the organization's financial interests as the primary responsibility. As a board member, one should not use their position for personal gain, financially or otherwise. In addition, individuals should also remain honest about business ventures that pose a conflict-of-interest when acting as a representative of the organization.
3. Duty of Obedience: The individual should try to further the mission of the non-profit by supporting board decisions and implementing policies as they are outlined.
In addition to these responsibilities, board members must also assure that the non-profit follows all tax requirements, complies with anti-trust laws, abides by civil rights laws and manages funds effectively.
Since there are risks involved in being part of a nonprofit Board of Directors, there are several protections available to minimize personal liability. First, there are federal and state statutes designed to protect individuals acting in good faith. The federal Volunteer Protection Act (VPA) provides shielding for individuals acting on behalf of an organization within the scope of their position if the actions are not criminal, negligent and reckless. The state volunteer protection statutes must provide at least the amount of protection that the federal law provides.
Secondly, most nonprofit organizations have indemnification provisions in their bylaws. These provisions explain that the organization will cover the legal expenses accrued in the event of a lawsuit. However, if the organization does not have excess funds, it may not be able to support this provision. In addition, if the board member was not acting in good faith, the provision also becomes null and void.
Thirdly, nonprofit organizations should strongly consider purchasing insurance to cover their board members in situations that fall outside of the indemnification provisions or in the event that their financial situation does not allow them to cover extensive legal expenses.
Nonprofits should consider the follow policies:
ü Commercial General Liability (CGL): Protects volunteers and employees from bodily injury and personal injury claims.
ü Personal Liability.
ü Workers Compensation: Some states allow organizations to cover volunteers in the event that they are injured while on the job.
ü Automobile Liability: Coverage is needed for volunteers operating vehicles while working on behalf of the organization.
ü Directors' and Officers' Liability (D&O): Protects directors and officers against employees, clients and community members serviced by the organization. Specifically, D&O provides coverage for discrimination, harassment and wrongful termination claims. Provisions within the Americans with Disabilities Act of 1990, the Family and Medical Leave Act of 1993 and the Civil Rights Act of 1991 have led to claims against nonprofit organizations and their respective boards. As representatives of the nonprofit, directors and officers need protection, as they will be held liable along with the organization in the event of any wrongdoing.
Nonprofits should strongly consider D&O insurance since most individuals will not volunteer on a board with the knowledge that they are risking their personal assets in the event of litigation.
This Risk Insights is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.
Nonprofit Organizations and Finances: The Importance of an Audit Committee
In recent years, several companies have been lambasted on newspaper front pages for illegal business activities. In response to these events, for profit and nonprofit organizations are recognizing the tremendous value an audit committee is to their organization. These committees serve to ensure that all financial dealings are legal and ethical, and assure that fraudulent behavior is far from the confines of their business.
Businesses have also responded to the regulations set forth by the Sarbanes-Oxley Act of 2002. The Act outlines standards regarding financial dealings and auditing procedures within publicly traded companies. However, several provisions also apply to nonprofits, which instruct organizations to establish concrete auditing procedures. For instance, it provides explicit provisions for electing audit committee members, protections for whistle-blowers and regulations regarding the destruction of documents.
In the wake of recent scandals, nonprofits must remain educated concerning the design and responsibilities of an audit committee to ensure that their organization's financial status is intact.
Audit Committee Members
According to the Sarbanes-Oxley Act, a company's audit committee must be comprised of members of the Board of Directors who are also considered "independent." This means that committee members must not receive compensation for their services on the audit committee or within the organization in another function, except if they are paid as a Board of Directors member. Generally, though, members of the board are volunteers and do not receive compensation.
The committee must also contain one designated finance "expert" who interfaces with the auditor. This person must have the knowledge and ability to analyze financial documents. The other members should be financially competent enough to make sound financial decisions. Specifically, they should be able to select a credible auditing firm and understand the audit data once it is completed.
Although nonprofits conduct an audit with an outside professional, they must also establish an auditing committee to supervise the organization's management and oversee the finance reporting procedures.
The purpose of the auditor, on the other hand, is simply to discover fraudulent activities within the organization. The committee will then interface with the auditor and the Board of Directors to identify financial red flags and assure that the organization is working up to the letter of the law.
In addition, the audit committee has the following duties:
v Selects the outside auditor without management input to assure there is no conflict of interest.
v Works with the auditor to regulate the organization's finances on a regular basis and especially at the end of the fiscal year.
v Establishes a level of openness within the organization and encourage employees and board members to speak up about any fraudulent activity.
v Monitors the organization's operations and risk management controls.
v Ensures that all financial reporting within the organization complies with federal and state regulations, and follows the doctrines established by the Board of Directors.
There are several insurance options available to combat losses in the event of fraudulent activity. These coverage options, along with an audit committee, can add financial security to a nonprofit organization.
v Employee Dishonesty Coverage: Protects the organization in the event of fraudulent activity of one or more employees including loss of funds, property and securities.
v Fiduciary Dishonesty Coverage: Covers the loss of assets from an ERISA plan in the event of theft or larceny by an employee of an organization.
v Fiduciary Liability: Protects employee welfare and pension plans, the organization itself and the individual fiduciaries of the plans. Covers any liability from violations of responsibility, obligation or duties imposed upon the fiduciaries by ERISA.
Contact GDI Insurance Agency, Inc. at 209-634-2929 for more information about these effective coverage options.
This Risk Insights is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice. Photography © Outdoor Office V154 Getty Images, Inc. All rights reserved.
Directors' and Officers' Liability Insurance
In today's business climate of corporate transparency and accountability, an organization's officers and directors face a myriad of employment-related exposures. New Sarbanes-Oxley regulatory mandates and increased shareholder activism mean directors are more frequently at risk, translating to rising claims and escalating settlement costs.
In the wake of unprecedented corporate scandals in recent years, clearly the trend of corporate accountability applies to large corporations. But privately held companies, including nonprofits, are not exempt from litigation arising out of the management decisions of their boards. They, too, are at risk.
Regardless of your company's size, the legal cost to defend a director is substantial, as are the potential penalties that can be personally incurred. Due to the personal liability risk-which is not covered under a personal insurance policy-protecting boardroom talent can be a challenge. To help ensure both your officers' and company's well-being, a directors' and officers' liability insurance (D&O) policy is part of a comprehensive risk financing strategy.
D&O fills the coverage gap
Unlike a commercial general liability policy that provides coverage for claims arising from property damage and bodily injury, a D&O policy specifically provides coverage for a "wrongful act," such as an actual or alleged error, omission, misleading statement, neglect or breach of duty.
For example, a manufacturer told one of its suppliers that it should increase their inventory because they were expecting a large increase in production. As predicted, demand for the manufacturer's product grew, but the manufacturer increased its inventory with another vendor. The original supplier successfully sued the manufacturer, alleging they suffered damages as a result of having relied on the manufacturer's promise.
A D&O policy provides defense costs and indemnity coverage to the entity listed on the policy declarations, which may include:
- coverage for individual directors and officers
- reimbursement to the organization for a contractual obligation to indemnify directors and officers that serve on the board; and
- protection for the organization or entity itself.
Indemnification provisions are typically included in the charter/bylaws of a corporation. While an important risk component, small to midsize privately held companies or non-profit organizations often do not have the financial resources to fund the indemnity provisions, making the bylaws hollow. A D&O policy can provide an extra blanket of security in the event of a covered loss.
A "fraud" exclusion is typically included in a D&O policy, which eliminates coverage for losses due to dishonest or fraudulent acts or omission, or willful violations of any statute, rule or law.
D&O coverage can be tailored to your needs, but be aware that D&O carriers are not consistent with their policy forms. This fact, plus the complexity of D&O claims, requires the carrier to have market commitment and deep expertise, as well as the financial resources to handle potential claims.
There are also additional forms of coverage to adequately protect directors and officers, including:
• entity coverage;
• payment priority for insured persons;
• severability of the insured as well as severability of the application;
• coverage over time, meaning coverage responds to past, present and future directors and officers;
• pay on behalf clause; and
• duty to defend clause.
In addition, some D&O polices can be endorsed to provide employment practices liability (EPL) coverage and/or fiduciary liability.
- While EPL endorsements under a D&O policy broaden coverage, they often do not provide a duty to defend clause and are subject to a substantial deductible. Many EPL endorsements do not provide for a separate limit of liability in addition to the limit available under the D&O policy. If the D&O limit is reduced or exhausted by payment of an employment practices claim involving the wrongful conduct of an employee, a director's or officer's personal assets may be at risk.
- Fiduciary liability provides coverage for liabilities arising out of ERISA, where fiduciaries can be held personally liable for losses to a benefit plan incurred as a result of alleged errors, omissions, or breach of their fiduciary duties.
Who can bring a D&O lawsuit? According to St. Paul Travelers, statistics show that shareholders and employees are the most likely groups to sue private companies. Other parties bringing suits may include corporations against themselves, and a variety of third parties, such as competitors, creditors, regulatory bodies, etc.
Considerations for nonprofits
According to the Nonprofit Risk Management Center, nonprofit organizations often report some difficulty in affording the cost of D&O insurance.
To minimize the annual premium, they recommend choosing only those policy provisions considered most critical. For example, a volunteer-run nonprofit without paid staff may skip employment practices coverage until it hires staff.
If affording a lump sum premium is a concern, inquire about the availability of premium financing.
To defray the cost of premiums, some nonprofit organizations consider charging board members a portion of the policy cost.
We're here to help
Whether you're a nonprofit, privately held or a public company, it is likely that your business can benefit from a D&O policy. Since there is no such thing as a "standard" policy, a professional agent is invaluable when purchasing D&O coverage. We understand your organization and can knowledgeably help design policy language to meet your needs. Call us today to learn more about the appropriate protection for your company against potential directors' and officers' liability. ◊
The Volunteer Protection Act: How Does it Affect Your Organization?
In the 1980s, the number of lawsuits against nonprofit volunteers grew dramatically. As a result, insurance companies increased premiums and added exclusions causing many organizations to terminate coverage for volunteers. Consequently, the number of willing volunteers decreased in fear of a lawsuit against them personally.
To promote volunteerism, the Volunteer Protection Act (VPA) was signed into law in 1997 under President Clinton. This Act pre-empts existing looser state laws protecting nonprofit volunteers. The law encourages the public to participate in social service, as these programs need workers to remain in existence.
Overview of the Volunteer Protection Act
The VPA protects volunteers against civil liability if:
- the volunteer was acting within the guidelines of his/her job description;
- the volunteer had the proper licenses, certifications or was authorized to act AND those acts were within his/her job description;
- the volunteer did not cause harm that was "caused by willful or criminal misconduct, gross negligence, reckless misconduct or a conscious, flagrant indifference to the rights or safety of the individual harmed";
- the volunteer did not inflict harm while using of a motor vehicle, aircraft or other vehicle.
VPA provides consistent protection for all nonprofit personnel since the states' laws vary. More specifically, many states only provide protection to the organization's director or board members, while others protect everyone associated with the organization.
The VPA does not, however, protect a volunteer from litigation brought by the organization onto the volunteer for violating one of previously mentioned criteria.
Most importantly to the organization, the VPA does not protect the nonprofit organization from litigation; it only protects the volunteer. In other words, the organization may be liable for the negligent actions of the volunteer, even when the volunteer is immune from litigation under the VPA. Therefore, the burden of responsibility is on the organization to assure that its volunteers are acting in a lawful manner while carrying out the duties assigned to them by the nonprofit.
Examples of the Scope of VPA
v A child is severely injured while swimming at a church sponsored summer camp. The volunteer camp counselor who neglected to supervise the pool would not be liable for the incident. However, the church is liable for not hiring a properly trained lifeguard to supervise the pool.
v While driving several young players to a little league baseball game, a volunteer coach makes an illegal left turn and hits another car. In this instance, the volunteer is liable and is not immune under VPA or the state law because he violated a traffic law.
Consequences of VPA
Though the Act does encourage the public to volunteer without fear of litigation and assures that volunteer protection laws do not vary significantly from state-to-state, it also poses threats to the organization. With this added security blanket in place, volunteers may take more risks while doing assigned jobs or take on responsibilities without the proper training. Furthermore, they may not exercise the type of caution needed or become careless in their dealings with the populations the organization serves.
The Act may also deter organizations from enacting risk management programs to ensure that volunteers are properly trained, knowledgeable and prepared.
Organization Liability Prevention
To prevent excessive liability on your organization in response to the VPA, you should do the following:
Establish a risk management program - A risk management program established by a designated committee will address factors that could negatively affect your organization. The committee should identify the high risks first which have the potential to be costly for the organization and/or may have a detrimental effect in another capacity.
Have risk financing in place - To be prepared in the event of a lawsuit, your organization should have funding in place to pay for damages, legal expenses, injuries or other costs associated with litigation.
Obtain general liability insurance - A general liability policy protects against bodily injury and property damage claims that are brought against the agency regarding acts committed by the volunteer. Many organizations do not have any general liability insurance to protect their personnel affiliated with the organization, whether they are an employee or volunteer. However, some have policies covering their employees, and boards and directors, but do not have policies covering volunteers.
General liability insurance will protect an organization's assets in the event of a lawsuit. In some cases, the VPA may also reduce the organization's risk and, therefore, may reduce the insurance premium.
Contact us to learn more about our cost-effective liability insurance solutions designed specifically to protect against litigation as a result of volunteer actions.
MANAGING VOLUNTEERS IN YOUR ORGANIZATION
As a nonprofit organization, most of your workforce is probably comprised of volunteers. These individuals are devoting their time and energy to helping the community through your organization. Though these individuals are offering their services without expecting compensation, they still require supervision to assure that their jobs are done correctly. Furthermore, it is essential that your organization manages its volunteers to minimize the risk of harm to the community members you are attempting to serve and the volunteers themselves.
There are three types of volunteer liabilities that may affect your organization:
v Direct Liability: The organization or volunteer is liable for an action or failing to act. For instance:
§ Not properly screening volunteers who will work with children.
§ Providing volunteers with unsafe tools such as a ladder while doing repair work.
v Indirect (Vicarious) Liability: The nonprofit is liable for the actions of a volunteer on the organization's behalf. For instance:
§ Volunteer damaging city property while working for an organization in a park.
§ Medical bills accrued by a community member after an injury while supervised by a volunteer at an organization-sponsored event.
v Strict Liability: The need to determine negligence is not necessary because responsibility for inflicting harm is automatic.
As a nonprofit, it is essential that your organization develops a training program for its volunteers. The individual program will depend heavily on the position the volunteer holds, the experience he/she brings to the role, the needs of the community member(s) he/she is serving and the policies in place by your organization.
While in the training program, volunteers should be given a safety handbook outlining your organization's policies. Further, he/she should sign a waiver after reading through the organization's policies and procedures.
The training program should also include the following at a minimum:
v An official welcome to the organization and education on the history, mission statement and services provided. Outline the goals of the organization and the specific needs of the community members serviced.
v Provide an overview of the skills and responsibilities required for the position. If special equipment is being used, a supervisor should teach the volunteer how to use it until the volunteer feels comfortable.
v Explain the organization's policies and procedures such as reimbursement policies and sexual harassment training.
v Conduct a safety briefing covering how the volunteer can protect him/herself and community members from danger and injury while representing the organization.
After volunteers complete the training program, it is essential that your staff members continue to monitor and manage them throughout their tenure at your organization. Assure that your staff members feel comfortable delegating responsibilities to the volunteers and correcting them if they make mistakes. Furthermore, if a volunteer is acting inappropriately, advise the staff members to dismiss the volunteer before he/she inflicts harm onto another person or him/herself.
On another note, provide motivation to your volunteers to work hard for the community. Encourage them and praise them for giving it their all. In addition, provide them with a t-shirt, hat or poster as gratitude for their hard work.
Checklist for Supervising Volunteers
To ensure that your organization is fully prepared for managing volunteers, determine if your nonprofit has the following in place:
v A description of all volunteer positions describing the tasks and duties expected.
v Maintain and distribute a volunteer safety handbook for use during training.
v Establish a grievance policy in the event that volunteers are dissatisfied while working for the organization.
v Ensure that all volunteers sign a waiver acknowledging the organization's policies.
v Establish disciplinary standards for volunteers.
v Train all staff members and supervisors who come in contact with volunteers on how to interact with them.
Our team of P&C experts is here to help. If you need assistance with establishing policies for volunteers, please contact us today!
SCREENING VOLUNTEERS FOR YOUR ORGANIZATION
Regardless of how your organization recruits volunteers (word of mouth, via your company website or enrollment programs), it is imperative that you establish a stringent screening process. This incredibly effective risk management tool will lend a hand in preventing any unnecessary harm. Furthermore, screening volunteers will allow your organization to select the best person for the position.
The ultimate goal at the end of the screening process is to answer the following questions:
v Does the individual pose a risk of harm to the community members the organization serves?
v Does the individual pose a risk of harm to staff members, supervisors and the Board of Directors at the organization?
v Does the position pose a risk to the individual applying?
v Does the individual understand the responsibilities involved in the position and the expectations of the organization?
Types of Risks
There are four types of risks that an individual can pose to the organization, the staff and the community. The screening process established by the organization should identify those risks and eliminate individuals who pose them.
v Physical Harm: Physical or sexual assault, child abuse, injuries inflicted from the misuse of vehicles and using poor judgment resulting in injury.
v Emotional Harm: Sexual harassment, racist slurs, religious discrimination, gendered remarks, name calling and insults about disabilities.
v Theft or Damage to Property: Stealing money from community members and staff, embezzling funds, vehicle crashes and reckless behavior leading to the destruction of property.
v Violations of Privacy: Discussing confidential information without permission.
The use of drugs and/or alcohol may also cause volunteers to inflict harm. The screening process should also address substance abuse issues.
The primary rule when developing screening guidelines is that they must be tailored to the position your organization is seeking to fill. Each position requires different skills, interaction with different types of people and different life experiences. Therefore, your organization must develop multiple guidelines for all the positions available.
Before beginning to screen individuals, establish a description for the position and assess the risks involved. Identify the core responsibilities, special skills needed and an idea of the ideal candidate. Then, select the appropriate tools to best assess the individual.
Regardless of the position, each individual should fill out an application, sit down for an interview with a supervisory staff member and have his/her references checked. The only exception to this involves volunteers who have a one-time exposure to a low-risk group of individuals in an extremely controlled situation. Positions in which the volunteer works closely with children or the elderly or handles funds should have more extensive background checks.
Instruct all staff members who hire volunteers to abide by the following background check guidelines:
· Conduct a criminal background checks on all individuals who will have contact with children, the elderly and/or vulnerable members of the community.
· Require multiple forms of identification and verify their authenticity.
· Utilize both local and national resources for background checks.
· Attain Department of Motor Vehicle (DMV) records, sex offender registries and child abuse case logs for all individuals who are driving or have contact with children.
The best policy your organization can adopt is to exercise extreme caution while screening individuals. If in doubt, conduct additional checks before accepting the individual as a volunteer. If a supervisor notices an alerting red flag during the screening process, do not continue. The main objective is to uncover these red flags and weed out individuals who pose a risk. By neglecting to fully screen potential volunteers, your organization may inflict unnecessary harm onto itself, staff members and the public; thus contradicting your mission to assist.
Our team of P&C experts is here to help. If you need assistance with establishing policies for volunteers, please contact us today!