Four of the most common insurance claims against nonprofits and how to protect yourself

About this article

Text Size: A A

Think your nonprofit is safe from lawsuits? Think again.

Legally speaking, your good deeds can go punished. While you can’t predict everything, you can certainly be mindful of the most common sources of lawsuits and how to protect yourself against them.

1. Claims from current or former employees

Your employees are your greatest asset. They can also be your biggest liability.

Over 52 percent of claims made against nonprofit organizations come from current or former employees. These claims can stem from allegations of wrongful dismissal, discrimination, harassment, and more. This is both a legal and PR nightmare.

So what can you do to avoid this unhappy situation?

Provide employees with sufficient notice. Contrary to popular belief, wrongful dismissal suits aren’t usually about why an employee was dismissed, but how much notice they received. Employers have the right to dismiss employees for legal reasons like performance issues, slow business, or simply a reorganization, but failing to give your employees enough notice is a quick recipe for an (avoidable) headache.

The specific amount of notice varies and can range from one to eight weeks. Be sure to check the employment standards legislation in your province to ensure you are complying with your legal requirements.

Set up formal reporting systems and monitor them regularly. Establish a formal process for employees to report incidents of harassment or discrimination in the workplace. But don’t stop there. Regularly monitor these processes to check their effectiveness and ensure individuals feel comfortable using them. If your employees feel uncomfortable reporting harassment, they may only speak up after they’ve left the company. Ignorance of the issue is not a strong excuse.

Maintain a healthy work environment by following these recommendations by the Ontario Human Rights Commission (OHRC):

  • Create a corporate awareness of what constitutes discrimination
  • Investigate complaints seriously and through formal processes
  • Address the matter promptly
  • Ensure the complainant has a healthy work environment
  • Communicate what actions have been taken clearly to the complainant

The OHRC also suggests looking out for the following as signs that there are unspoken issues in the workplace:

  • Inequities and misuses of power
  • High turnover within a certain group (i.e. women, racialized individuals)
  • High rates of absences or turnovers by people under a specific manager

Preventing these sorts of employee issues comes down to establishing formal processes for complaints, encouraging a healthy workplace environment, and above all, having a solid understanding of employee rights.

2. Suits from dissatisfied donors

People are highly selective about which organizations they financially support, so it’s no surprise that they take changes to a nonprofit’s mandate personally. The best outcome is they quietly stop supporting your organization. The worst case scenario is they ask for their money back, like in the famous Robertson v. Princeton case in the US which involved multiple generations and millions of dollars.

But even if your organization does not receive huge monetary gifts, donor lawsuits can cause harm to your nonprofit’s fundraising efforts and goals. From a legal standpoint, drafting precise agreements can protect you if matters take an unfortunate turn. But a more proactive approach is effective stewardship.

Organizations can practice good stewardship by doing the following:

Understanding their different categories of donors. Some donors give because of a personal connection. Others give because they’re impressed by an organization’s track record. Then there are those who give for the social prestige. Knowing who your donors are helps you give the right information to the right audience. For instance, the first category of donors may be interested in individual stories, the second may prefer reports and hard data, and the third may be more interested in high profile events.

Being diligent about saying thank you. Personalize thank you messages with the available donor information to make supporters feel appreciated. At the same time, respect donor wishes. If a donor explicitly states that they want their donation to remain anonymous, do not publish their name in your annual list of supporters. Finally, match thank you message to the size of the gift. A significant financial donation warrants a thank you from the director.

Communicate regularly. Use newsletters and other publications to keep donors in the loop about what’s happening with the organization. These sorts of monthly or quarterly magazines are a fantastic way to recognize donors, keep the community updated, and control the narrative if a change is necessary.

3. Injuries at events organized by the nonprofit

It’s all fun and games until a volunteer gets badly burned at the community barbeque.

Keep in mind that these kinds of claims aren’t limited to physical injuries. Your organization can face lawsuits for emotional distress, damage to a person’s reputation, or property damage.

Prepare yourself by:

Analyzing potential risks. Does your organization provide space for members of the public? Does your staff make house calls? The organization can be liable for any injuries sustained while interacting with the public or hosting visitors.

Carefully choosing your public words. Do not publish any statements on behalf of the organization without verifying the information. Making damaging claims about a person or business that are later proven false is defamation.

Consider events liability insurance. If you’re planning an event and expecting a lot of attendees, consider purchasing events liability insurance. Depending on your policy, you can be covered for bodily injuries, property damage, issues with your employees or volunteers for the event, and more.

4. Improper financial reporting or fraud

If a statute requires directors to meet certain reporting standards and they fail to do so, they can be held liable under that statute. Even if the oversight is unintentional, a director’s failure to meet one of their three basic duties (i.e. their Duty of Diligence, Duty of Loyalty, or Duty of Obedience) can expose them to liabilities.

The Insurance Bureau of Canada (IBC) makes the following recommendations for avoiding this scenario:

  • Train your directors so that they’re aware of what constitutes negligence or a possible liability
  • Clearly outline and communicate director obligations
  • Ensure directors are aware of the organization’s finances and bylaws
  • Establish a financial management policy and a clear reporting process
  • Give directors access to legal representatives so that they can demonstrate their duty of care by seeking proper counsel for important decisions

Directors and officers liability insurance (D&O) is an option for organizations that seek additional protection.

Most of these recommendations - whether they are for employees, events, donors, or directors - are preventative measures. If those fail, your safety net is insurance. While it isn’t possible to cover everything, strategically purchasing insurance to address your non-profit organization’s biggest risks is a smart move that gives you the peace of mind to focus on your good work.

Danish Yusuf is the CEO and co-founder of Zensurance, a digital liability insurance provider to nonprofits and small businesses. Zensurance was rated the most innovative company of 2016 by Canadian Innovation Exchange, and has also been recognized for driving significant change in the Canadian insurance industry. Connect with Danish via email or visit Zensurance for more details.

Go To Top