Association Chapter Insurance Policies: What Coverage Do You Need?
Reprinted with permission. Copyright, ASAE: The Center for Association Leadership, January 2014, Washington, DC.
Co-Author: Jennifer Kirkpatrick Howard, a producer at Lockton Companies and a risk management consultant and insurance broker, jkhoward@lockton.com.
Summary: Choosing insurance coverage for a chapter or affiliate can be overwhelming. Here are a few tips to help you get started in figuring out what coverage is right for your chapters.
All too often chapters or affiliates of trade and professional associations struggle with the idea and cost of insurance. Typical questions surface: What are the risks? What are the requirements? How much coverage is needed? It can be an overwhelming endeavor for any organization, but particularly for a nonprofit chapter or affiliate with a small budget and even smaller staff (if any).
Volunteers also are very concerned about their own potential personal liability when volunteering for an association or chapter, so it is important to have insurance to protect volunteers as well as staff. The intent of this article is to demystify insurance coverage for association chapters.
Associations and their chapters usually buy insurance for two main reasons:
- A contract or law requires insurance.
- The organization needs financial protection in the event of a loss.
A good place to start is by looking at what is required by any contracts. If a chapter affiliation agreement is in place, there are often insurance requirements listed in that document.
The national association has an interest in ensuring that its affiliates are protected from unanticipated loss resulting from legal claims or lawsuits, so it is reasonable to require chapters to have a certain amount of insurance coverage. The affiliation agreement often provides a basic outline of the insurance type and limits needed.
Of course, associations and their chapters vary significantly in size, scope, and activities, so the insurance requirements should match the risk factors. Chapters should also look to their leases and contracts with vendors and other third parties for insurance requirements. In particular, leases come in all shapes and sizes. Some require that the tenant cover the building itself, while others ask the tenant to simply have insurance for its furniture and equipment.
In addition, associations and chapters that hold educational and member meetings will usually have some insurance requirements under a hotel contract, convention center or other facility agreement, or meeting-vendor agreement. It is important to obtain the types and amounts of coverage required in these agreements.
Statutory requirements, such as workers compensation, unemployment, and health insurance, should be considered. If the organization has employees, there is often a legal requirement under state law to obtain these types of insurance. These coverages vary from state to state, and an insurance advisor can help determine if your organization is required to purchase such coverage and in what state.
When an organization needs financial protection in the event of a loss, the decision to buy insurance can be a much more difficult evaluation. Organizations often rely on the advice of their insurance broker or agent and legal advisors to determine appropriate insurance limits, deductibles, and coverages. Their experience with similar organizations can help navigate the underwriting process for placing insurance and assist in the event of a claim.
A number of potential legal claims may be brought that are addressed by insurance. First, it is advisable to have insurance that will cover the association or chapter for any personal/bodily injury or property damage. Sometimes this type of general liability insurance is thought of as "slip-and-fall" coverage to protect visitors and guests at the association or chapter offices and events.
Next, to protect volunteers and staff, coverage is generally advisable to protect them against claims of negligence, breach of duty, or other wrongful acts in performing their obligations for the organization. As with many policies, the insurance will cover not only losses or damages but also, very importantly, any attorneys' fees necessary to defend claims, which can sometimes be significant amounts. These directors and officers (D&O) policies, as they are commonly known, will often be packaged with other policies as discussed below.
Associations and their chapters should also have coverage to protect against claims made by employees or volunteers for wrongful termination or harassment, intellectual property infringement, embezzlement, theft, cyber liability, certification or credentialing related claims, publishers' liability, and other legal claims. Often, these coverages will be packaged with the general liability policy or the D&O policy.
Chapters and their boards should conduct their own risk assessment and create a strategic plan for potential loss scenarios. Some basic questions to explore in a risk assessment include:
- What property do I own or lease and what is its value?
- What could my organization be sued for?
- How much would it cost to defend a lawsuit?
Below is a list of common insurance policies. This list is certainly not exhaustive nor specific to a particular industry, association, or business:
- Property insurance is first-party insurance that provides coverage to the organization for damage to its own physical assets (e.g., buildings, computers, furniture, and equipment).
- Employment practices liability is important for any organization with employees, because employment related claims for termination, harassment, and discrimination, are some of the most common types of claims.
- Workers compensation covers employers for work-related employee injuries and unemployment compensation covers terminated employees.
- Commercial general liability protects the organization from claims made by third parties claiming a loss resulting in property damage, bodily injury, and personal and advertising injury.
- Business automobile is similar to personal automobile. This insurance provides coverage for damage to the organization's owned, rented, or hired autos, as well as liability coverage for third parties.
- Umbrella/excess liability provides additional insurance coverage above primary policies such as general liability and automobile liability.
- Professional liability is also called Errors & Omissions coverage. This type of insurance varies widely based on the operations of the organization but is intended to respond to specific activities, such as certification or accreditation, for example.
- Directors & Officers Liability insures that the directors and officers, as well as employees, committee members, staff, and the organization itself, are protected against claims alleging wrongful acts occurred while performing their duties for the organization.
There are other insurance coverages to consider, such as crime, fidelity, fiduciary liability, and cyber liability. All coverage should be discussed by the management team and board along with other advisors to determine the need and applicability to the chapter. Different insurers will package various policies in different ways, so it is important to actually read the specimen policies and particularly any exclusions or endorsements.
Many associations have created association insurance programs, like affinity programs, for their chapters. There are pros and cons to this approach. Within affinity programs, associations typically pre-negotiate insurance coverage terms and rates with a preferred insurance company on behalf of its chapters. Chapters then have a single access point to obtain insurance that is in compliance with its chapter affiliation agreement. Often, the group rates obtained by the national association can be inexpensive, therefore very favorable to the chapters. Some national associations are able to obtain coverage for their chapters as "additional named insureds" under the association's policy, which can also be beneficial for the association.
The potential downside of such an association insurance program is that it may not take into consideration the unique characteristics of the individual chapter or its jurisdiction. Sometimes, better rates and more comprehensive coverage terms can be found outside of the association's program. It is advisable for chapters to seek options within the association's insurance program and outside to determine the best insurance coverage, insurance company, and cost to the chapter.
While purchasing insurance can be a daunting experience for many chapters, taking time to understand the risks of the organization, determine the types of insurance needed, and seeking the advice of trusted legal and insurance advisors will decode the mystery of this business necessity.