So you and a few friends are serious about starting up a charity or non-profit organization. For the last few years you've been going to some trade shows, raising some money at local malls, and getting the word out about your worthwhile cause.
Eventually every organization will soon be faced with the same challenges. Do you seek a grant from the government? Do you incorporate? Is there a commitment from your board to take things to the next level?
If your answer to any of these is yes, your organization must take the next steps to review the availability of insurance products. If you seek a grant from the government, you need insurance. If you incorporate, your by-laws mandate some level of protection. If your NPO is growing and entering into contracts, you need insurance. Given your organization's limited budget what do you need first?
The knee jerk reaction is to purchase a Commercial General Liability (CGL) policy. Why? Because chances are you are asked by a third party to present them with evidence of a CGL policy in order to contract. Your initial thoughts are - "What happens if someone is injured at our event?" or "what happens if the organization is sued?". These are both legitimate concerns.
But wait. If you are contracting with a third party are you contracting as an individual or as an organization? If you are entering into a contract with a third party, you are making decisions on behalf of your NPO. What if you void any or all of the terms of the agreement? What if it adversely affects the operations of the NPO? For these reasons it is imperative that you protect the NPO by FIRST purchasing a D&O policy.
Here's the conundrum. The chances that a director or officer will be sued is far less then the changes the organization is sued under a CGL policy. Often times a CGL policy can be purchased for an event that would leave the organization unprotected for the remainder of the year. Is that an exposure? Perhaps. What is vitally important is that you work together with your broker to "time" the purchase of each policy. What does this mean?
It means finding the right coverage based on the size and complexity of your organization. Any product that appears to be a one size fits all, will end up being to big (and too expensive) or to small (not enough coverage). No two NPO's are the same. Period. Find a broker who specialized in D&O policies and you will be rewarded with cost savings and proper coverage for you and your board.