FREQUENTLY ASKED QUESTIONS:
RISK MANAGEMENT AND INSURANCE
do I need to know about risk management and insurance?
There is liability in operating any nonprofit organization. Opportunities
for liability can range from activities in which volunteers are
engaged, to actions by the board of directors, to client/customer
reactions to services...and many more. So the first issue is that
of managing risk so as to minimize potential loss.
Bruce Hopkins, a noted nonprofit attorney and author, addresses
risk management from a legal perspective with "The Four I's"1
is usually provided for in bylaws where the organization agrees to
pay the judgments and related expenses for those covered by the indemnity
should these expenses result from a misdeed by those persons while
in service to the organization.
Insurance shifts the risk of liability to an independent
third party - the insurance company. However, risk from certain
acts such as criminal acts, libel and slander, employee discrimination
and antitrust matters is usually excluded from insurance protection.
Immunity is provided by laws that protect persons while
acting in specific capacities. In Arizona, a volunteer is immune
from civil liability in any action based on an act or omission resulting
in damage or injury if the volunteer acted in good faith and within
the scope of the volunteer's official functions and duties for a
nonprofit corporation or nonprofit organization, hospital or governmental
entity and the damage or injury was not caused by willful, wanton
or grossly negligent misconduct by the volunteer.2
Incorporation is a primary line of defense in that this
generally protects officers and directors from personal liability.
"A corporation is a separate legal entity. Liability is generally
confined to the organization and does not normally extend to those
who manage it."3 However, this protection does not extend to
fraudulent or illegal actions on the part of individuals. Nor does
this protect the organization from being the subject of a lawsuit.
There are several organizations dedicated to the research and reporting
of risk management concerns. Although there are others, we encourage
you to reference the links below to begin your search for what is
appropriate for your nonprofit:
Risk Management Center (www.nonprofitrisk.org) offers risk
management information and tools. It also provides a program to
help you "evaluate your risks, safeguard your assets, and protect
clients and staff from harm." This nine-module program addresses
employment practices, technology, contracts, internal controls and
other basic matters. It is free to use, but a modest fee is charged
to print out the report with specific recommendations.
Entity Risk Institute (www.riskinstitute.org) serves the
risk management needs of local governments, small business, and
small nonprofit entities. It offers numerous helpful articles on
topics such as what happens in times of natural disasters, and risk
identification and analysis for small organizations.
Management Assistance Program for Nonprofits (www.mapnp.org/library/risk_mng/)
has posted a very complete series by Carter McNamara, Ph.D. that
covers a broad spectrum of topics ranging from the definition of
risk management to risk management assessment, to the management
of risk in finances, volunteers, and fund raising. These are printable,
short, easy to read and are excellent materials for the orientation
of board members and staff to the topic of risk management.
do I know what kind of insurances our nonprofit should carry?"
Primary protection emanates from good management, personnel policies,
and the regular assessment of your risks, a regularly updated risk
management plan, and organizational policies and insurance coverages
that address the needs identified by these processes. These processes
will help you identify what types of insurance you need; among them
may be Directors and Officers' Insurance (D & O) Property, Office
Contents, Automobile, Business Interruption, Financial Bonds, Workers'
Compensation Insurance - and any number of others.
we really need to have insurance and is it expensive?"
Insurance premiums can be expensive. Loss from not having this protection
can be even more expensive. Thus, it is prudent business management
to assure an appropriate level of coverage and to budget for the
costs as part of the annual operations of the organization.
do I find insurance providers?"
Most insurance brokers in any community can provide you information
about various insurance companies that provide coverage for nonprofit
organizations. A valuable exercise is to include a selected broker
in the analysis of the assessment of your risks and the development
of your risk management plan. It is also advisable to ask an attorney
who practices nonprofit law to review these; there can be gaps about
which you may not be aware.
The following web sites provide information about organizations
that offer insurance developed for nonprofit organizations. Although
neither organization currently writes insurance in Arizona, the
sites provide very helpful information as you search for your own
of Nonprofits for Insurance, Risk Retention Group (ANI-RRG) (www.ani-rrg.org)
is a 501(c)(3) tax-exempt nonprofit insurance company whose mission
is to be a stable source of reasonably priced liability insurance
for 501(c)(3) nonprofits. Although not currently writing insurance
in Arizona, its web site includes information of significance to
those seeking to purchase it.
CANPO ASI (http://www.canpoasi.org)
a provider of nonprofit insurance in Colorado. This web site provides
a full listing of the types of insurance nonprofit organizations
may wish to consider.
boards of directors be sued?"
Yes, boards of directors can be sued. Provided the actions that
generated the suit are not found to be criminal acts, libel and
slander, employee discrimination and antitrust matters (these are
usually excluded from insurance protection) directors and officers
liability insurance provides legal representation including related
does Directors and Officers' Insurance (D & O) protect them?"
Individual members of a board and individual officers of the corporation
may also be sued. Those who serve as directors or officers of a
nonprofit might also consider additional liability coverage for
their own personal protection. These policies can be add-ons to
homeowner and tenant insurance, are usually modest in price, and
can offer additional financial protection.
Back to top
For a complete list of additional
resources click here...
- Hopkins, Bruce. Starting and Managing a Nonprofit
Organization: A Legal Guide, 3rd ed., Wiley Nonprofit Series,
John Wiley & Sons. 2001.
- Arizona Revised Statutes, 12-982. Qualified immunity; insurance coverage.
Training & Assistance:
Alliance of Nonprofits for Insurance, Risk Retention Group (ANI-RRG). A
501(c)(3) tax-exempt nonprofit insurance company whose
mission is to be a stable source of reasonably priced liability
insurance for 501(c)(3) nonprofits.
State Legislature, ARS 12-982. Gives the wording
for state law 12-982.
ASI. CANPO (Colorado Association of Nonprofit
Organizations) ASI is a provider of nonprofit insurance
in Colorado. This web site provides a full listing
of the types of insurance nonprofit organizations may
wish to consider.
McNamara's Risk Management Site. Carter
McNamara has authored several very useful writings
on risk management that are located on this site.
Kramer's Nonprofit Issues. Provides an
excellent list, with links, of organizations
offering information about how to assess and
plan for risk management.
National Service-Learning Clearinghouse. The
National Service-Learning Clearinghouse is
part of the Corporation for National and Community
Service. A search of the site for "risk management" locates
several very helpful articles.
Nonprofit Risk Management Center. This
site offers risk management information and
tools. It also provides a program to help
you "evaluate your risks, safeguard
your assets, and protect clients and staff from harm." This
nine module program addresses employment practices,
technology, contracts, internal controls and other
basic matters. It is free to use, but a modest fee
is charged to print out the report with specific
Entity Risk Institute. Offers multiple resources
on risk management, especially for small organizations
-- both nonprofit and public.
Please note that websites frequently change
and while we endeavor to keep links current, some might not
work. When you encounter such a problem you can help us by
sending an e-mail to [email protected] so that we might
investigate and make changes to our information and links.
Copyright © 2010
Arizona Board of Regents for and on behalf of the ASU Lodestar
Center for Philanthropy and Nonprofit Innovation, College
of Public Programs, Arizona State University. All rights
reserved. No part of this publication may be reproduced,
stored in a retrieval system, or transmitted in any form
or by any means, electronic, mechanical, photocopying,
recording or otherwise, without the express written permission
of the ASU Lodestar Center, except for brief quotations in
Last updated: 05/10/2010
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