Nonprofit Insurance 101: Employment Practices Liability

Nonprofit Insurance 101 - Employment Related Practices



Your Employees, Volunteers and the third parties you work with all have certain rights under Federal, State, and local laws.  Specifically, they have the right to be treated fairly and equitably.  Your nonprofit could be subject to a claim or lawsuit if someone in your organization violates these protected rights. 




Common Types of Violations:

  • Breach of Employment Contract

  • Sexual Harassment

  • Wrongful Termination

  • Discrimination (age, sex, race, religion, sexual orientation, & other protected classes)

  • Failure to Employ or Promote

  • Wrongful Infliction of Emotional Distress

  • Negligent Evaluation

  • Invasion of Privacy

  • Violation of the Family Medial Leave Act and other similar laws


Proper risk management and training are the best way to prevent these claims.  Some key steps your organization can take are:

  • Create effective hiring and volunteer screening programs

  • Discuss and post employment related policies so that employees and volunteers are clear what the accepted and non-accepted behaviors are

  • Verify that employees and volunteers understand the steps to take if they are the object of sexual harassment or discrimination

  • Document everything that occurs and the steps your organization is taking to prevent and solve employee and volunteer disputes

It’s also important that your organization consider purchasing an Employment Practices Liability Insurance Policy for Nonprofits.   This coverage is specifically excluded from your General Liability coverage.  However, it is easily included with the Directors & Officers Liability policy. 

These policies provide the following protection:

Defense and Defense Costs:  in the event of a claim or lawsuit, your insurance company will provide attorneys to give you legal counsel and they will also pay the cost of your defense

Indemnity Payment:  in the even to a judgment against you, your insurance company will pay the settle to the plaintiff (punitive damages or civil or criminal fines are never paid by the insurance company)

Legal Assistance:  often there are legal assistance programs available through your nonprofit insurance company to help you legally terminate an employee, advise you about possible issues and review your employee and volunteer handbooks


Note that the name of the coverage, “Employment Practices Liability,” is somewhat misleading as the coverage applies to more than just employees.  Who can bring a claim against you for Employment Practices violations?

  • Current & Former Employees

  • Current & Former Volunteers (including all current & former Directors & Officers)

  • Third Parties (e.g. subcontractors, members, students, delivery people, project partners, etc.)


The last five years have shown a significant increase in Employment Related Practices Claims both in terms of frequency of claims (up 32%) and dollar cost of claims (up 125%).  We attribute this to:

  • Changing economic conditions

  • Changing legal environment

  • General increase in awareness of employment laws

  • Increased news coverage and publicity about employment related law suits

  • More diverse workforce


An Employment Related Practices claim could result in serious financial consequences for your organization.  Even if you have done nothing wrong, and/or a groundless lawsuit is brought against your organization you will still need to defend yourself in the event of a claim.  The defense costs alone can be enormous.  According to a 2014 study, defense costs average $300,000 and it is not uncommon  for claims to take 18-24 months to settle.  Therefore it is vital to include a discussion of the coverage in your nonprofit insurance review.


Consider the following examples of real claims and how something similar might happen in your organization.

TOTAL CLAIM – $397,000

A volunteer sued a nonprofit organization claiming that the employees of the nonprofit discriminated against him by ridiculing his sexual orientation.  The employees regularly made slurs against this individual in his presence and made inappropriate jokes.  Defense Costs = $147,000 Award to Plaintiff  $250,000

TOTAL CLAIM – $406,000

The Executive Director of a cultural organization filed an administrative charge with the EEOC claiming a violation of the Family Medical Leave Act based on her pregnancy.  She claimed that she was discriminated against due to her pregnancy.  Defense Costs = $92,000  Award to plaintiff = $314,000

TOTAL CLAIM – $853,000

A former employee of a YMCA filed a suit for sexual harassment.  She claimed that over several years the Executive Director forced her to engage in sexual relations with him under the threat of termination.  Defense Costs = $450,000  Award to plaintiff = $403,000


The bottom line is that Employment Related Practices is an essential part of your Nonprofit Insurance coverage. But, what is the cost of the coverage?  Premiums start at a a minimum of $500 (in addition to the premium for your Directors & Officers Liability).

The premium is based on:

  • Total Number of Employees

  • Total Number of Volunteers

  • The Deductible (amount of a claim & defense costs your organization is willing to pay)

So, your next step is to ask your broker if you have the coverage and if not, what do you need to do to get it added.


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