Not-for-profit groups need liability coverage for boards, events

Tax free doesn't mean liability free. Not-for-profit organization board members and officers must have the proper insurance in case of liability claims for damages incurred because an action or event held by the organization.

"We're a sue-happy society," said Sean Crayton, agent with Nixon & Lindstrom Insurance.

Most not-for-profit organizations carry some kind of liability insurance, Crayton said. In addition to general liability, extra coverage may need to be purchased to protect personal assets of the officers and/or board members should there be an accident that damages an attendee's property or causes personal injury at fund-raising events.

Most larger clubs carry general liability policies, and some even have extended coverage to protect boards of directors and officers, Crayton said. But there are some situations that may require coverage in addition to the umbrella policy, he said.

Crayton, chairman of the board and past president of Springfield Sertoma Club, said Sertoma is an international organization which carries liability insurance coverage both globally and locally for its members.

"If you are doing what you normally do, you are covered," he said.

Special liability coverage often is needed if the events serve alcohol or provide entertainment, such as amusement rides. General liability does not always cover these situations, Crayton said.

"If they serve alcohol, they'll have to have a liquor liability policy," he said.

If an organization knows it will have special events throughout the year where it will serve alcohol or have amusement rides, it can build the coverage for these events into its general liability policy, according to Richard Jackson, president and CEO of Barker Phillips Jackson.

"My professional advice would be that any not-for-profit organization should have an insurance broker examine their liability exposures and provide coverage against those exposures for their directors and officers," Jackson said.

Special event coverage varies greatly, depending upon attendance expected and the number of days scheduled for the event. The cost generally ranges from $500 to $5,000, Crayton said.

Liability coverage is important for officers and board members because they are making decisions that affect other people. Annual liability coverage for a smaller organization can run from $500 to $1,500 per year, and for larger groups possibly higher, Crayton said. The club usually purchases the coverage for board members and officers, although some smaller clubs don't have the funding to offer such protection. Private individual coverage can run $100 to $150 per year in conjunction with their own liability policy, he added.

"Some board members buy extra coverage to protect themselves if the club can't afford it," Crayton said.

Jackson said he has such coverage built into his homeowners policy because he routinely does volunteer work for a number of not-for-profit organizations. The coverage would pick up any excess above the club's liability insurance. If the club has no insurance, his personal policy becomes the primary coverage.

Other than cost, the type of directors and officers liability insurance organizations buy is no different than what businesses carry.

While the price of liability insurance has gone up significantly for businesses, Jackson said, costs for organizations and associations haven't increased as much.

Charitable orgnaztions are not alone in facing liability issues. Homeowners associations are prime examples of entities that could incur liability because of a board decision.

Craytongave an example in which board members of a homeowners association may decide to build a fence around a pool a certain height, and a child gets into the area and drowns in the pool. The board could be held liable. Associations usually carry liability to cover common areas including a pool, pavilion or other structures, but they should also provide protection for the decision makers of the group.

Carlana Fitch, executive director of the Springfield Symphony, said the organization does not have directors and officers coverage. But she added, "I think (directors and officers) coverage is something that is very important" and she plans on bringing it up with the board.

She said the Springfield Symphony adds a rider to its general liability policy or takes out special coverage for certain annual events.