Because many nonprofit businesses exist to fulfill a specific charitable mission, they face unique risks pertaining to their perceived ethical standards and donor accountability. Nonprofit insurance is an invaluable tool to prevent financial losses, but proactive risk management for nonprofits can help avoid the hassle of filing claims. Here are some of the primary legal risks facing nonprofits.
Every organization runs the risk of lawsuits, even those that deal with the public in only an indirect way. Whether claims are legitimate or frivolous, it is necessary to anticipate the following types of claims:
- Personal injury by members of the public while on the organization’s property
- Property damage by an employee or volunteer
- Copyright infringement
- False advertising
Nonprofit insurance covers medical bills, the repair or replacement of damaged property, and the cost of legal expenses.
Claims of misconduct can be devastating to a nonprofit, especially when its mission statement claims it operates according to high moral standards. Organizations that provide direct care to people are especially vulnerable to accusations, but none are free from the risk of misconduct lawsuits. Even when someone falsely accuses employees or volunteers of abuse or neglect, the legal costs of defending them in court are substantial. Even if the charges are dismissed, they can still affect the company’s image.
Every business is vulnerable to theft of goods and digital information, making property and cyber insurance essential. Theft from within can also occur when trusted staff use their positions to remove property or steal money from the organization. Because of the inside information on company procedures these individuals possess, their dishonest behavior sometimes goes unnoticed for years. Besides material losses, businesses victimized by internal theft can suffer damage to their reputations if the perpetrator was in a leadership position.
Mismanagement of Funds
CEOs of nonprofits have the same responsibilities as those in other kinds of businesses, but are often subject to closer scrutiny. This increased level of accountability exists because many charitable organizations receive their operating budgets from donors. Nonprofits with active board members have built-in checks and balances, but those without this type of management are vulnerable to accusations that the CEO made inappropriate financial decisions.
A special case of financial mismanagement is that of making bad investments. Companies often invest in good faith and only realize the error of their decisions after their money is gone. In other cases, investments prove lucrative but elicit outcry from investors when someone discovers the profit came from illegal or immoral activities.
By being aware of the above five risks, decision-makers in nonprofit organizations can create a strategy to lower them. They can also consider them when choosing options on their nonprofit insurance policies.
About The Hilb Group
Deciding what coverage you need and what limits and deductibles make the most sense can be tricky. Founded in 2009, the Hilb Group has been helping clients to make sense of their options and make the smartest choices for their circumstances. Whether you need Warehouse Insurance or any other type of business or personal coverage, we encourage you to contact our friendly, experienced, and capable team today. Call us at (800) 776-3078 for a consultation.