Risky Biz - Nonprofit Board Service

You are exposed to risk in everything you do. From the moment you get up in the morning until you go to bed, everything has the potential for risk. Any time your actions could cause injury or loss to someone else, you're exposed to the possibility of a lawsuit. The nature of your actions determines what type of insurance you need to cover the exposure.

Your personal liability insurance (part of your homeowner's policy) excludes business liability. Your work for your church, the Boy Scouts, or with your local Rotary Club is not a business activity. Therefore, most homeowner's insurance policies (and umbrella insurance) will provide protection—as long as the allegation is within the scope of the policy.

If you're working with a Girl Scout group and accidentally injure another volunteer you'll be covered under the "bodily injury" protection in most homeowner's policies. However, if you were sued for discrimination as a member of the board of the local Girl Scout council, you'll have no coverage: discrimination isn't included in most homeowner insurance policies. The solution is a policy purchased by the organization you're volunteering for, directors' and officers' insurance.

I won't serve on volunteer boards of directors unless the organization buys directors' and officers' insurance. The policy pays for wrongful acts including poor decisions, employment issues (discrimination, harassment, wrongful discharge), and other events that don't result in bodily injury or property damage.

Download my white paper on directors and officers insurance for non-profits.

Extra Extra Liablity Protection

Umbrella liability insurance provides protection above and beyond what's offered by your general liability, auto liability, and employer's liability insurance. It's an inexpensive way to increase your level of protection against someone suing you. Premiums can be as low as $750 per $1,000,000 of coverage.

Consider $1,000,000 a minimum. Think about $2,000,000 - $3,000,000, or more. Review your liability limits as compared to your annual sales and total business value. Think of the daily activities of your business and the accidents or losses that can occur.

Recall that most liability policies have total aggregate limits of coverage so you can use up your insurance if you have multiple claims.

Contractors should be very careful of their liability limits. Look at your exposure to loss. A careless employee with a cigarette burned down a church in my town a few years ago. The total cost of that cigarette was many millions of dollars. It isn't just the "big boys" who cause big losses!

If you manufacture, bottle, or sell booze, try to get your liquor liability insurance included in the umbrella coverage.

Monogamy

Having multiple wives may appear to have advantages. The reality is probably different. It's the same with having multiple insurance agents.

You'll get a better insurance program if one agent handles your entire insurance account. This is true of both your business and personal insurance. You may even want your business and personal insurance with the same agent.

Having one agent will save you both time and aggravation. Having one agent means that you make one call when you have a problem or a change in your life or business. Having one agent helps to prevent gaps and overlaps in coverage.

If you follow the advice in the previous section, one agent means only one review meeting, saving you time.

I've worked with several insurance buyers who thought that it was best to split the business up. Their idea was to let the two (or three) agents fight it out, scrapping for the business. I have never found that this works very well. Come claim time, it can be a nightmare when each points to the other for coverage.

If you currently have two agents, you know which one is the better service provider. Pick that agent and have him or her handle your entire insurance account.

Insurers Go Belly Up

Each year, insurance companies go out of business. In the last ten years 400 insurers became insolvent. Their clients were severely impacted. Claims went unpaid, cash values were lost, and annuity payments were reduced or cut off. Policies had to be replaced in a rush, resulting in lower coverage and higher premiums. Not a fun time.

Several organizations analyze insurance companies for soundness. The best known is the AM Best Company (www.ambest.com). Standard & Poor's also rates insurers. I rely on Weiss Ratings (www.weissratings.com) as a tough, unbiased source of information. They never accept fees from insurers. They utilize industry and regulator's filings in their analysis. They're tough graders; a B- is still considered good in their system.

A recent review of AM Best Ratings revealed that almost 90% of insurance companies receive a rating of "Very Good" or higher. Only 29% of insurers received a Weiss Rating of "Good" or higher. Weiss has a higher standard. When working with my client's money I want objective, tough, and accurate ratings.

Business Liability Insurance Overview

Business liability is also called "General Liability" or "Commercial General Liability Insurance." Abbreviations include CGL and GL.

The policy provides protection against legal action based on negligence for bodily injury and property damage. Includes coverage for products liability, completed operations, premises liability and personal injury.

Tips and Advice -

--Usually excludes damage caused by pollution.

--Review your list of exposures. Does the policy list describe all operations?

--Consider increasing your limit of umbrella liability insurance.

--Most policies exclude pollution. Liability from mold and mildew is also limited by most policies.

--Coverage for libel and slander is limited if you are in the advertising or publishing business. Some policies limit coverage for web developers too.

--Damage to data is excluded by most policies. If you cause a client's computer to crash, the general liability policy will not protect you.

--Malpractice and professional liability issues are excluded, as are "professional services." Doctors, lawyers, consultants, engineers, beauticians, funeral directors, technology service companies, property management, construction managers and travel agents all should consider professional liability insurance.

Insurance Terms-Earned Premium

Premium used in an insurance policy as the policy term progresses.

An annual policy that has run for 5 months has five-twelfths of its premium earned. In workers' compensation, premium is earned as the employer incurs payroll expense. Liability insurance may also be rated on a payroll or sales basis.

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Have The Will To Have A Will

Yes, I know, a will is not insurance. However, it certainly is a risk management tool.

Depending on your state law, dying without a will could lead to a delay in the settlement of your estate or forfeiture of part of your assets to the state.

If your will is more than five years old, get it revised. Failure to have a current, valid will means your estate won't be handled according to your wishes, but those of the courts or the state.

Check your life insurance too.