4 Trends in Nonprofit Liability, Claims, and Lawsuits

Employees, former employees, donors, grantors, third parties, and fellow board members actually all can be liability risks to your nonprofit organization and can easily create a nonprofit lawsuit. These lawsuits may become financially devastating and without proper coverage, could potentially cause an organization to eventually go under.

The Nonprofit Risk Management Center recently identified several key areas of liability for nonprofit organizations that could potentially lead to lawsuits. Below are some of the biggest trends in nonprofit liability today.

1. Employment Practices 

Concerns over employment practices liability claims are the largest liability issues facing nonprofit organizations. Claims fluctuate each year but commonly employment practices claims involve:

  • Allegations of race discrimination and/or harassment 
  • Alleging sexual harassment
  • Disability discrimination
  • Age discrimination
  • Retaliation

Retaliation claims are especially dangerous because a jury that may not be too impressed by one claim, may still be appalled at retaliatory action and award the plaintiff.

It seems these claims will continue to rise. Employment issues are very difficult to resolve. Individuals become emotionally involved and are likely to have to go to trial.

2. Sources of Funds

Donors commonly sue nonprofit organizations over how funds are used. In today’s increasingly litigious society, nonprofits must carefully account for how they spend their funds, especially if private donations make up a significant portion of their revenue. With increasing amounts of media reports of nonprofit fraud, and more interest shown by consumer advocacy groups in the percentage of funds spent by nonprofits on administrative activities, donors seem more sensitive about how their gifts are allocated.

“Intermediate sanctions” are also an area of growing risk for nonprofit organizations.  Congress has expressed concern over improper transactions that benefited nonprofit “insiders” and has empowered the IRS to assess a stiff monetary penalty — an “excess benefit transaction excise tax” — on both those who authorized the transaction and the insider(s) who benefited from it.

3. The Internet

Your nonprofit most likely has a website offering information, services, email access, and hot links to other websites. Since sites disseminate information to the public, the organizations responsible for them are publishers. Recognize that this opens up a whole world of exposures that traditional publishers face: defamation, copyright and trademark infringement, and invasion of privacy. Simply creating and maintaining a website increases the possibility of data theft or loss by hackers and computer viruses, or lawsuits seeking injunctions to prevent the alleged misuse of a trademark. As with other professional liability risks, you don’t have to do anything wrong on your website to be sued for a wide variety of claims and face a nasty nonprofit lawsuit.

4. Insurance Coverage Trends

Nonprofit organizations have become much more sophisticated in acquiring liability insurance coverage. Not long ago, there was a general belief that “one size fits all,” but now nonprofits and their insurers are taking advantage of the increasingly competitive marketplace by encompassing tailored insurance policies.

Insureds are seeking higher policy limits and brokers for nonprofit organizations are also demanding coverage for punitive damages; defense expenses outside of policy limits; claims by independent contractors, third parties, leased employees, and professional employer organizations; fiduciary duties; ERISA compliance issues; and excess benefits. Nonprofits are facing a rising tide of liability risks, emphasizing the importance of staying prepared for a nonprofit lawsuit. 

About David G. Sayles Insurance Services

At David G. Sayles Insurance Services, we strive to protect the investments of business owners like you. Our comprehensive policies are customized for you to provide the exact coverage you need. For more information, contact us today at (800) 439-0292.