If you ever fall and hurt yourself, make sure to take meticulous notes. So said the Michigan Supreme Court regarding a lawsuit against the city of Hamtramck.
First, I’d love to live in a city called ‘Hamtramck.’ Second, I feel a little sorry for Ms. Jakupovic. She reported that the crack on the sidewalk that caused her fall was at 9477 Mitchell. It was actually at 9465.
The lessons here?
- Watch where you walk.
- Be meticulous when you report claims
- If you’re an insurance agent, be meticulous with street numbers, locations, etc.
- If you’re a consumer, make sure that your policies are accurate. Typos, at the very least, often happen.
I still think the city should pony up a few dollars. Maybe they have by now. This happened a long time ago.
A couple days ago I discussed who is insured under a nonprofit Directors and Officers (D&O) Liability policy.
Today’s Topic: What types of claims is a nonprofit D&O policy supposed to address?
One of the common misconceptions is that D&O coverage covers Ds and Os for anything that could possibly go wrong. A client gets hurt and sues the Ds: D&O policy. A counseling organization provides horrible advice and the patient sues the Ds: D&O policy.
The misconception is dangerous. Ds and Os have coverage under other policies for those items.
So then, what is a D&O policy for?
It addresses claims related to wrongful acts committed through the management decisions of the board and management. MOST nonprofit D&O policies include in some form or fashion a line item for Employment Practices Liability (EPL). Therefore, a nonprofit D&O policy also addresses EPL issues such as wrongful termination, discrimination, etc.
Let me bullet point some coverage provisions and some other items to consider when constructing an insurance program for your nonprofit:
First, what does a D&O with EPL policy normally address (Remember you MUST check your own policy and discuss with your agent):
- Wrongful act suits against the board and leadership: Did they mismanage a donation? Did they violate some kind of verbal agreement? (honestly, this is a tough one to nail down which makes it important—you’re insuring for unexpected situations, so can’t always develop hypotheticals).
- Employment Practices Issues: Wrongful termination, discrimination, sexual harassment, etc.
- Third Party Suits: Different from many for profit EPL policies, nonprofit policies address discrimination and/or sexual harassment suits brought by third parties (i.e. I sue you because I think you didn’t provide service because of discrimination against 40 year old white males).
Second, where to look in your policy to find what it addresses:
- Definition of Wrongful Act: Find this definitio and read it. It will clue you in on what types of occurrences or actions the policy addresses.
- Exclusions: VERY IMPORTANT. Review the exclusions and see if any of these cause alarm. More than likely, the coverage is addressed elsewhere, whether General Liability, Professional Liability, or another policy. Note the exclusions. If any alarm you, consult with your insurance pro to find where the coverage could be picked up in a different type of policy.
Remember that unlike many common business policy types, D&O and EPL insurance policies vary greatly from company to company. Get familiar with yours.
I get calls all the time from clients needing Directors and Officers (D&O) insurance. While I’ve addressed before the fact that D&O is NOT the only coverage needed for a nonprofit organization, I haven’t provided a thorough analysis of why D&O is vital to a nonprofit.
The next few posts will address the topic of Directors and Officers insurance (which in the nonprofit realm normally includes Employment Practices Liability–a misnamed coverage if ever there were one, in my opinion).
First up: Who Is An Insured?
If you’re a relatively green nonprofit manager with no familiarity with crazy terms like ‘insured’, I’ll start there.
An ‘Insured’ is an entity or person who has coverage under a policy. For example, on your auto policy, you as owner of the vehicle are an ‘insured’ because the policy will cover your liability if you cause an accident.
It would make sense that on a D&O policy, that the Directors and Officers of the organization would have coverage. They do–don’t stress there. But you’ll be pleased to know that a bunch of other folks are included as insureds on most available D&O policies.
Who else besides the Ds and Os has coverage under the policy?
To put it another way, if _________ was named in the lawsuit, would he, she, or it have coverage under your D&O policy? Each policy is different, so check your own. The following are possible insureds on many standard nonprofit D&O policies:
1. The Organization: The entity itself would have coverage and defense for a covered loss under a D&O policy.
2. Directors, Trustees, Officers: These are the main individuals that are concerned with the policy. One feature some companies have is that they address past, present, and future individuals in these roles–check for this handy inclusion.
3. Employees: Did you know that one of your employees could be named in a suit that might be covered under this policy? Some insurance companies clarify full time, part time, temporary and seasonal.
4. Volunteers: Many nonprofits are solely volunteer led. Some of these volunteers do virtually the same work as a paid executive director, including major decision making and fund use choices. Volunteers are typically included under the definition of ‘insured’ in nonprofit D&O policies. An important note here: volunteers might be listed separately under the ‘insured’ definition or included under the definition of ’employee’.
5. Et cetera: Different companies include in their lists items like committee members, heirs, estates, independent contractors, staff, legal representatives, and so on.
Part of D&O providers’ attempts to differentiate themselves from one another is the inclusiveness of their definition of who is insured. When you get options and there are big price differences, you might want to spend a bit more if it means having a broader definition.
The Upshot: Focus on finding the definitions of ‘Insured’, ‘Organization’, ‘Employee’, and anything that is kind of like that. It will show you who might be covered by the policy if there’s a claim to which the D&O policy applies. Typically, broader definition=better.
You might be happy to know the group that is included is much larger than you realized.
*Disclaimer: This is intended as information only. ALWAYS discuss your policies and insurance needs with a licensed insurance agent. Each organization is different and should be addressed by its particular needs.
Over the weekend, no doubt you saw one of many news media outlets’ story about the bounce house that took flight. Apparently there were three that took flight in a kind of domino chain reaction.
In addition to loathing bounce houses because I’m an insurance agent, I also prefer they be outlawed because I’m a father of three: a four year old little girl and two and a half year old twin boys. It’s nearly impossible to drive by a fall, spring, or summer festival and not have your kids whining to stop and jump around in one of those monstrosities.
They’re so beautiful and sweet and fun looking, yet they each should have a sign outside of them listing the dates and types of bones broken by unfortunate lads and lasses who dared shed shoes to climb in.
Normally, I just assume the following as being major risks of hopping around in a bouncy castle:
- Basic head-butts
- Head to knees
- Knee to elbow
- Elbow to face.
- 11 yr old jumping around with 2 yr olds.
- 11 yr olds having imbibed 4 Mountain Dews, then jumping around with 3 more 11 yr olds while my twin boys try to get out but can’t find their balance.
Now we have to add:
- Tethers not staked into the ground well enough.
- Tethers staked per requirements, but mother nature can blow some serious wind.
- Bounce houses flying through the air knocking other houses of tethers and also flying through air.
- Not even playing in bounce house while a bounce house flies through the air and plows over your picnic basket and camping chairs.
If you are a nonprofit or social service that has fundraisers that include bouncehouses, make sure to confirm with your insurance carrier whether your liability insurance will cover you for accidents that take place as a result of the operation of the inflatables.
Policies respond in different ways:
- They explicitly exclude bounce houses and other inflatables.
- They require you to use an insured bounce house provider with appropriate supervision, naming your organization as additional insured.
- They might need to rate your policy and charge per bounce house.
- You might end up just having to assume the risk.
The most disconcerting thing about these devices is that they often have no supervision. As I alluded to above, I’ve allowed my kids to get in those things, and five minutes later, sugar-highed tweens pile in and endanger themselves and others.
Since many of these festivals take place in the fall, you know, when it’s blustery, it’s a good thing to remember that the bounce houses can blow away like Pooh and Piglet
- Does your organization want to add the exposure?
- How does your insurance respond to this risk?
- What kind of provider are you using? (a dude with a rolled up inflatable in his basement or an insured, professional outfit that can provide supervision)
Sorry to be such a downer, but I couldn’t help but bring it up in light of the media exposure.
Enjoy your festivals, but please be careful!
One of the most important coverages a nonprofit organization can have is employee dishonesty (also known as a crime bond or fidelity bond). It addresses theft of funds or other items by an employee or volunteer (some insurance forms will address contractors by endorsement).
And these days when cash is hard to come by, it’s even more important.
As it is with a lot of coverages that clients don’t readily understand, it sometimes takes a claim to show you that you need to have it. Let’s let someone else’s claim be a warning to you. Recently, Kansas Athletics Inc. was reimbursed $250,000 by its carrier for a multi-million dollar ticket scam. While $250,000 is a pretty healthy amount for a employee dishonesty claim (the article isn’t very specific on which of the organization’s policy actually paid out), the actual loss was $2,000,000.
Depending on the nature of operations and the stipulations of a policy, I’ve sold policies for up to $1,000,000 in employee dishonesty for around $2,500. Not a bad deal if something went awry and your administrative assistant got the sticky fingers.
As always with insurance, our decisions should be driven less by the likelihood of a claim, and more by the assets–both human and inanimate–that are at stake. Discuss with your agent what’s available. Find an agent that works in your world and pepper her with questions. And with something like employee dishonesty coverage, hear her out. Don’t assume she’s just padding her commission check.
This stuff is important. Two of the biggest claims in the last 4 years that I’m familiar with would have been better addressed with more substantial employee dishonesty coverage. We’re talking hundreds of thousands of dollars.
Think about it!
Most of my clients aren’t hospitals or medical facilities, but all organizations have exposures to risk. And many organizations have simple routines they could put into place to greatly reduce the potential for claims. A checklist might have helped prevent a recent tragedy on a children’s train ride in South Carolina.
Officer Keefer in Herman Wouk’s classic The Caine Mutiny expressed it a little roughly regarding the Navy and it’s breaking down every action into simple, easy steps: “The geniuses dumb it down for any moron to do.”
Even we in the insurance business have checklists to review with our clients: a list of coverages that might pertain to the client’s business. It would save insurance agents a world of hurt to go through these with each and every client.
Regarding nonprofit risk management, what kind of checklists might be good to have in place? Let me make some suggestions (most of which are obvious). I’ll leave the details up to you:
- Client intake procedures
- Night time bed check for a group or care home
- Daily maintenance checklist, to confirm site safety
- Vehicle maintenance checklist
- Continuing education for your staff and volunteers
- Administrative/accounting checklists
- Special event and fundraiser to-do lists.
- Donor relations follow up items
Those are just a few to get your mind going. Just know that with potential for high turnover or high volunteer participation, dumbed down checklists could be the most vital element to insuring that your tasks get done well and safely.
What other lists have you implemented in your organization? How have they helped?
*Since starting this article, I’ve picked up The Checklist Manifesto by Atul Gawande. His book’s first chapter handles the creation of the checklist that the Johns Hopkins story is based on.
A day after Forrest Gump was voted the most memorable film character, Popeater.com posted an article about some of the finer elements of the insurance industry.
Apparently, there is an allegation that perhaps an insurance agency decided Tom Hanks was as naive as his lovable character. Hanks and his wife Rita Wilson have filed a lawsuit claiming that their broker overcharged them in a ‘predatory embezzlement scheme.’
The alleged errors (or fraudulent acts) were discovered when Hanks and family switched insurance brokers. The new broker apparently noticed what appeared to be multiple coverages on the same items and over-charges on certain policies.
If the allegations are true, then it appears to be a case of a broker that might have seen Hanks and Wilson as walking money signs. (In the back of my mind, I’m wondering why the couple didn’t have folks on their payroll to handle annoyances such as insurance, but apparently I over-estimate the staff of major Hollywood figures).
The lessons here:
1. Know Your Stuff: What are the items you need to insure? Do you have 3 cars, 1 boat, a main residence, and a vacation home? What about a business? What are your assets and exposures there?
2. Know Your Policies: Occasionally review the policies you have in place. Know where they are in your house. Scan them and put them in a secure place on your computer (or download them from your carrier’s website).
3. Play the Matching Game: Once you know the stuff you have to insure and have a handle on your policies. Spreadsheet it. Match the stuff to the policies. If there’s a hole, talk to your agent about filling it. If you see more than one policy on an item, talk to your agent about what happened to Mr. Hanks and that maybe he better fix the problem and remove the double coverage.
You can apply these ideas to your personal lines coverages and your business coverages. More than likely, Mr. Hanks has a heck of a portfolio and multiple business ventures to insure. Some of you might also have complicated personal and business insurance needs.
Make sure to have a trusted adviser or two in addition to your (hopefully) trusted broker to help sift through everything. Definitely review when major changes take place. Other than that, a good every third year full evaluation is a solid idea.