Four Often Unanticipated Reasons People Sue Nonprofits

Nonprofit leaders often invest in insurance as a means to mitigate risk, but this is not quite an accurate assessment. Insurance policies help manage the financial fallout following exposure to certain risks—it does, however, prevent them. Although combing through the numerous scenarios that can affect a charitable association can make nonprofit managers’ heads swim, it is vital to maintaining a thriving organization. Failing to understand and address the risks can mean the difference between survival and decimation following an incident.

Risk Management Combined with Liability Insurance is the Best Defense

This does not mean insurance is not a necessary part of risk management strategies. Effective policies can help compensate injured customers or employees, repair or replace damaged property, or cover legal costs in the event of a lawsuit. It may surprise nonprofits to learn that most individuals file claims for ordinary reasons. The following are examples of the most common yet surprising situations that result in lawsuits:

  1. A former employee alleges discrimination after being terminated
  2. A senior patron trips over a loose rug and breaks a wrist, hip, or other bone on the nonprofit’s property
  3. A volunteer threatens to sue after being let go for comments made on his or her personal blog
  4. A local resident files a claim after a nonprofit’s vehicle backs into his or her car, causing thousands of dollars in damage

Thankfully, most claims filed against nonprofits are not cataclysmic. It is rare that an individual will file a suit seeking hundreds of thousands or even millions of dollars. Even so, claims add up over time and failing to invest in adequate insurance can bankrupt a nonprofit in short order.

Why Nonprofits Need Insurance

Even the best risk management strategy can fall apart at the seams without insurance to back it. Most states have minimal insurance requirements for that reason, but not every policy offers the same coverage. Nonprofits need to ensure their coverage allows them to compensate injured patrons, employees, and even participants who attend nonprofit-sponsored events. They also need coverage to protect board members, employees, and volunteers from personal liability.

While some nonprofit leaders view purchasing insurance as the equivalent of inviting lawsuits, this is an erroneous comparison. A nonprofit’s risks do not increase by investing in insurance. However, failing to insure against risks decimates a nonprofit’s ability to recover from an incident. SteelBridge can help your nonprofit identify its unique risks and develop strategies to address them. Contact us today to learn more.

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