Foundation Liability Insurance Overview & General Liability Discussion
All foundations need general liability insurance. This article provides a brief overview of the different types of liability insurance and then focuses on key elements and exclusions of typical general liability policies. Most foundations will need the following types of liability insurance: 1. Workers’ compensation insurance to cover claims for (work-related?) injuries made by regular employees, temporary employees, or employees of uninsured contractors used by the foundation. 2. Automobile liability insurance for bodily injury or property damage arising out of the use of automobiles. Even if the foundation has no owned or long-term leased automobiles, the foundation needs hired and non-owned automobile liability insurance to cover itself against claims arising out of the use of automobiles by employees, volunteers and others working on behalf of the foundation. 3. General liability insurance covering liability for bodily injury to others, property damage to non-owned property, loss of use of that property, and listed personal injuries such as libel, slander, defamation, and invasion of privacy. 4. Umbrella or excess liability policy or coverage providing increased coverage beyond the limits of the aforementioned policies. 5. Professional liability insurance covering financial losses to members of the public arising out of errors or omissions made by the foundation in day-to-day operations. This policy or coverage specifically excludes bodily injury, property damage, or personal injury covered by the general liability policy. Professional liability insurance may be purchased as a stand-alone policy or as part of a nonprofit management liability policy. Development and endowment management activities are typically covered. 6. Employment-related practices liability insurance for mental or financial injury to employees typically including, but not limited to, discrimination, wrongful termination, and sexual harassment. This may be included in a nonprofit management liability policy. 7. Directors’ and officer’s liability insurance covering trustees’ responsibilities for financial loss to foundation stakeholders arising out of mismanagement of the foundation itself. This is usually the core coverage provided by nonprofit management liability policies.
1
8. Internet liability and crime policy to cover risks arising from online technology and may require separate policies.
General Liability Insurance
Foundation managers should bear the following six points in mind when reviewing general liability coverage: 1. General liability policies typically cover four types of claims: a. Physical injury to a person b. Destruction of non-owned tangible property and its loss of use c. Listed personal injuries such as false arrest, detention or imprisonment, malicious prosecution, limited wrongful eviction, libel and slander, and infractions of the right of privacy d. Listed advertising injuries such as use of another’s advertising idea or infringement on another’s copyright, trade, dress or slogan in one’s advertising. 2. General liability policies only cover civil damages. There is no coverage if only injunctive relief is sought. There is also no coverage for government investigation unless it involves one of the claims listed above. Finally, fines, penalties, extraordinary damages, and in some cases, punitive damages may not be insurable. 3. The standard liability policy only covers the organization named on the policy and all organizations owned or administratively controlled by the named insured. Administrative control usually means majority joint board membership. The policy will not cover the activities of any affiliated or related clubs or associations that are not owned or controlled by the foundation unless they are specifically listed on the policy. 4. Liability insurance should cover all of the premises and all of the operations of the foundation without limitation. Avoid endorsements that limit coverage to specified locations or do not cover special events sponsored by the foundation but conducted on premises not owned or leased by the foundation. 5. Make sure your policy covers product liability. Any tangible object sold or given away by the foundation is considered a “product.” A general liability policy should cover product-related claims even if product-related injuries take place off of foundation-owned or leased property. 6. Foundations that construct buildings for their affiliated institution may have completed operations risk. Completed operations coverage is typically addressed in the products liability section of policies and insures against situations like the
2
partial collapse of a completed building resulting in bodily injury or damage to property not owned by the foundation. This coverage is usually located in the products liability section of the policy.
Exclusions
Coverage exclusions and limitations can be found throughout the terms, conditions, and definitions of insurance policies, not just in the sections labeled “exclusions”. For example, a policy may cover “bodily injury,” but “bodily injury” may by definition exclude claims for mental anguish or injury resulting from injury to a person. Similarly a policy may list insured parties including the organization’s trustees, directors, officers, and employees. By omission, such a policy does not insure claims against volunteers (other than trustees) and independent contractors working for the foundation. The following exclusions are typically addressed in the “exclusions” section of general liability policies: 1. Liquor liability: All general liability policies have exclusion for bodily injury and property damage resulting from the sale or service of alcoholic beverages. The standard general liability policy form excludes liquor liability only if you are in the business of selling, serving, or distributing alcohol. The definition of “business” can lead to problems. The foundation may be interpreted as temporarily being in the business of selling drinks if it operates cash bars at fundraising events. Some insurers include a liquor liability exclusion endorsement that excludes all activities not specifically listed as covered. Such exclusions may be broader than the standard liquor liability but have the advantage of greater clarity. 2. Pollution liability: The standard general liability policy provides limited pollution liability coverage which is probably adequate for most foundations. Absolute pollution exclusions, added by many insurers, should be avoided. A general liability policy should, at a minimum, cover bodily injury associated with smoke inhalation from a fire on foundation property and claims resulting from illmaintained heating or air conditioning systems. 3. Aircraft liability: The standard general liability policy excludes liability arising from the use of aircraft that are owned or operated by the insured. While most foundations do not own or operate aircraft, they may incur liability if they charter aircraft for special events or meetings. (So should this be negotiated along with the charter contract or would they need to get a special policy to cover such circumstances?) 4. Watercraft liability: Chartering boats for fundraising events may also create liability. (Again wouldn’t the charter contract address this?)
3
5. Property leased or rented by the foundation: General liability policies exclude liability for damage to property not owned by the foundation but in its care, custody, or control. This can be a far-reaching exclusion. Foundations should make sure that their property insurance covers damage to leased or rented equipment. 6. Parking: If the foundation provides valet parking or charges for parking at special events, it may incur liability for vehicles in its care which would not be covered by general liability policies. 7. Rental property: General liability policies only provide limited coverage for damage to real property that the foundation rents or leases (to others?) or is this talking about real property the foundation rents or leases from others? Other general liability exclusions may include claims for violations of anti-spam laws, do-not-call rules, or charitable solicitation laws (?); liability of others assumed by the foundation under contract (example?); and claims for violation of privacy other than civil damages (example?) This article highlights some of the potential gaps in coverage faced by typical foundations, but each foundation will need to conduct an internal review of its activities and related insurance coverage. Thomas Atkins is a principal at Albert Risk Management.
4