The Refuge Friends volunteer group movement has rapidly grown in recent years to include 230 friends groups with 30,000 to 40,000 members. This energetic and enthusiastic collection of refuge supporters have had a tremendous impact on the continued strength and viability of the National Wildlife Refuge System they so willingly serve with their time, talents and resources. There are currently friends groups in all stages of organizational growth, from beginning groups working to harness their energies to form a stable organization, to well-established groups, raising hundreds of thousands of dollars and donating hundreds of hours annually to benefit their local refuge and the entire Refuge System. With this wide range of organizational sizes and activity levels comes a range of practical management concerns.

In recent years, the National Wildlife Refuge Association (NWRA) has received more and more requests for information regarding the particular needs and concerns of friends groups, including guidelines on insurance coverage. Drawn from a range of sources, the following is intended to outline the types of insurance available to protect against the various risks confronting the friends group community and to serve as a starting point for exploring and answering those questions.

Insurance is a complicated topic, too complicated to allow the NWRA to give definitive solutions or advice. This summary deals primarily with liability insurance and directors and officers insurance (D&O) since these generate the most confusion and uncertainty for friends groups. At the end of the article is a list of websites used to compile this information; there are many similar websites with further detail and insight and additional references for further study. Nothing can substitute for consulting with an insurance professional knowledgeable in nonprofit management. But studying ahead will help you better understand the topic, have a more productive discussion, and finally, make a better-informed decision.

Start with a Thorough Review

Insurance is designed to protect the insured individual or group against loss. Refuge Friends groups risk potential losses from the activities of their members, their board of directors, employees (if any), and the general public. Protection from loss begins with risk reduction through conscientious execution of organization and board member responsibilities.

A careful and thorough analysis enables the group to then consider how to most effectively protect itself and its members and make responsible insurance purchase decisions.

The basic types of insurance for friends groups to consider are

to cover damages suffered by the members or the property of the friends group

Value and Limitations of the Volunteer Protection Act

The Volunteer Protection Act of 1997 provides that a volunteer meeting certain criteria shall not be liable for damage resulting from "simple negligence" while performing authorized volunteer activities for a 501(c)(3) type organization. The definition of a volunteer as an "individual performing services without receipt of compensation (other than reasonable expense reimbursement), or any other thing of value in lieu of compensation in excess of $500 per year" also includes directors and officers.

Although the Volunteer Protection Act does protect volunteers from being held liable for damage caused by their acts of "simple negligence," the Act does not protect against liability for damage caused by "gross negligence" -- an often-difficult differentiation, practically and legally. Other aspects the Act’s provisions, including the concept of "authorized" activities and "things of value in lieu of compensation" are also somewhat open to interpretation. In addition, the Act does not actually prohibit lawsuits against volunteers, but was primarily intended to protect the assets of directors, officers, and volunteers by making the nonprofit sponsor the one held accountable for damage resulting from a volunteer’s simple negligence.

General Liability Insurance covers claims of physical damage

General Liability Insurance provides protection from claims arising from bodily or property damage considered to result from simple negligence. Every friends group is at risk of such claims. For example, a friend’s actions could injure or damage the person or property of a refuge visitor, or a participant could be hurt or experience property damage during a friends-sponsored event. The injured party might claim negligence or recklessness by the friends group or by an individual member. Liability insurance will pay for legal defense and any financial judgment incurred. In fact, the Cooperating Association Agreement between friends groups and the US Fish and Wildlife Service requires that any friends group with a refuge bookstore carry a general liability policy; the refuge is thus guaranteed that the friends group is covered for any damages resulting from the group’s use of refuge property. To protect assets belonging to the friends group itself, such as equipment and merchandise inventory, the group would need to buy Personal property or Physical damage insurance coverage.

Most general liability policies have clauses that exclude suits between two parties covered by the same policy. An excluded "insured vs. insured" claim would be one brought by a friends member injured while volunteering for the group. A friends group can purchase Volunteer Accident Insurance to provide accident medical insurance directly to a volunteer injured while traveling directly back and forth to, or participating in, volunteer activities.

Directors and Officers Insurance covers claims of damage from wrongful acts

Directors and Officers (D&O) Insurance protects friends groups and other non-profits when claims arise from allegations that non-bodily damage resulted from policy decisions made by the board of directors or from actions by the board and volunteers based on those policies. These damages are considered to be the result of wrongful "intentional" acts rather than mere negligence since a friends group is expected to make deliberate decisions guiding its governance and management practices.

About 90% of D&O suits against non-profit organizations are employment-related and include wrongful termination, sexual harassment, and age, sex or race discrimination. But to have employment-related claims a non-profit must have employees. Most of the remaining 10% of D&O suits deal with allegations that the board of directors committed a breach of their fiduciary duty to appropriately use and protect the organization’s assets and resources, and friends groups do need to carefully consider their exposure to this particular risk. The accusations may be directed against the entire group or against individual members of the group and may come from donors, concerned citizens, or government officials.

Such claims could include:

An actual breach of fiduciary duty lawsuit brought against a non-profit organization alleged that the board of directors and the organization had failed to adequately monitor their for-profit fundraiser. The suit demonstrated that the hired fundraiser had kept 90% of the funds supposedly raised to support the nonprofit’s charitable projects. The board of directors was held liable for not sufficiently reviewing their contract with the fundraiser and not adequately monitoring the fundraiser’s activities on the board’s behalf.

Friends groups handling large quantities of money might decide to purchase fidelity insurance coverage or a fidelity bond to protect the organization itself from losses caused by dishonest acts of a member involving organizational funds.

Indemnity Clause Protection

Many nonprofits have bylaws stating that the organization will cover its officers, directors, employees, and volunteers for defense and settlement expenses resulting from lawsuits related to service for the organization, provided that the covered member was not guilty of criminal activity. Friends groups with such an "indemnity clause" in their bylaws need to consider how these legal fees will be paid by the group should the need ever arise; the clause obligates the group to pay legal fees whether or not the case actually makes it to court. D&O insurance is one way to provide the funds to support these indemnity clause payments. Many candidate and currently serving board members, knowing that the indemnity clause provides only as much protection as the friends group is financially able to provide, may expect the friends group to carry D&O insurance for this reason.

Reviewing and purchasing insurance policies

Most people have some familiarity with automobile and homeowner insurance policies, which are fairly standard and list the specific types of covered claims. General liability policies, including volunteer accident coverage, are basically commodities and the friends group can readily comparison shop by comparing prices and lists of coverages. Policies covering property owned by friends groups, including fidelity insurance coverage, are similar in many respects to property coverage in homeowner insurance. Some individual board members and volunteers may even have riders to their homeowner insurance policies that provide coverage for the policyholder's non-remunerated participation in registered 501(c)(3) non-profit organizations.

By contrast, directors and officers policies are called "manuscript forms" because there is not yet standardized off-the-shelf coverage for such "wrongful acts" as actual or alleged errors and neglect or breach of duty. Each insurance company must write its own specialized version for non-profits, often by adapting policies developed to protect for-profit companies. Since directors and officers policies cover damage caused by intentional acts, the policy lists limitations and exclusions narrowing the types of "wrongful acts" covered rather than simply listing specific types of covered claims. This language makes it difficult for the customer to tell exactly what coverage is provided and what is omitted. Each exclusion must be read carefully to determine its specific impact.

The information that insurance companies require for underwriting D&O insurance varies but will probably include

Key Policy Provisions

Important and desirable provisions for friends groups considering D&O coverage:

One significant but complicated aspect of any D&O policy is the coverage trigger:

Cost of Insurance

Combination policies offering general liability and personal property coverage are likely to cost around $1000. Even though Cooperating Association agreements only require a $250,000 general liability limit, a higher limit should not cost much more and will provide much practical coverage for some groups. Volunteer accident insurance is often priced according to the number of volunteers covered.

Cost of Directors and Officers Insurance

The expense of buying D&O insurance is a major financial consideration for most friends groups. Supply, demand, and other market pressures keep premiums costly. Recent high profile for-profit cases involving Enron and WorldCom have increased both the perceived probability of being subject to wrongful action suits and the reserve resources needed by the insurance carrier to resolve the resulting claims.

A $1 million limit is the most common for community-based nonprofits. A small nonprofit with no employees may be able to purchase a $1 million policy for $1000, but the premium increases rapidly to cover nonprofits exposed to additional risks through a large membership, sizeable assets, high visibility or a greater level of activity. A large deductible may help reduce premiums, but friends groups do not have many options for lowering the expense.

Not many insurance carriers provide D&O coverage, relatively speaking, and as noted above, each company must develop its own policy. Often these policies are not particularly adapted to the special needs of friends groups. The customer base is not large enough, even considering the entire non-profit community, to exercise much market.

Reducing Risk

A Friends group should seek to minimize the risk to the organization and its board members by creating adequate operating policies and controls and taking them seriously. It is impossible to purchase a guarantee that no one will ever bring suit against the group. Deliberate risk management is essential. The law does not mandate that the friends group always make irrefutably perfect decisions -- but it does require that the group follow appropriate guidelines for making the decision.

The Friends group should clearly state expectations of the conduct of any group member while representing the group. Every nonprofit must make it a high priority to recruit and retain effective board leaders who accept their responsibility to do a conscientious job.

The Board should establish and diligently follow rules and procedures governing its operations. Board meeting minutes should demonstrate that the board consistently exercises due diligence and seriously considers in advance the consequences of important actions. These minutes and other important organizational documents should be organized and kept readily available for periodic reviews and updates.

To reduce risk of lawsuit, each board member must

Conclusion

A friends group’s evaluation of appropriate risk reduction measures and insurance needs is an ongoing responsibility, not a one-time exercise. Each refuge friends group needs to periodically review its growth and accomplishments and reconsider its obligation and ability to protect the organization and its members.

A new friends group with few members, limited property, no public events, and minimal funds may get by with very little insurance. But as a group expands its membership and public visibility or broadens the scope of its activities, the organization and its members are exposed to increased risk and should consider expanding its insurance accordingly. A board of directors may decide to chip in their own funds to provide adequate directors and officers insurance protection for the organization and themselves as an intermediate step until such time as the group is sufficiently established financially to include the D&O expense in the annual budget.

A refuge friends group owes the organization and its members the duty of making a deliberate and considered insurance purchase decision and conducting periodic update reviews. Ignoring the risks does not lessen or eliminate them. Whatever decisions a friends group makes regarding insurance, the process of weighing the options and reaching the decision requires careful and deliberative thought.

Additional research

This summary is intended for informational purposes only. Most of this information was drawn from the following sources. You can use this list as a starting point to do additional internet research for more details in your area of particular concern. If you have additional questions, please contact Debbie Harwood at the NWRA: dharwood@refugenet.org

Note that many of these web pages, especially those dealing directly with D&O insurance, are maintained by insurance companies.

Overview

http://hahnline.com/D&O.htm

http://www.njnonprofits.org/ins_overview.html

http://www.tacs.org/qa/topic.asp

D&O Insurance

http://www.cwilson.com/pubs/insurance/alb1/D&Oliab.htm

http://www.nonprofitrisk.org/nwsltr/archive/nla2.htm

http://charitychannel.com/article_1907.shtml

http://charitychannel.com/article_2300.shtml

http://www.bria.com/director.html

http://www.niac.org/Coverages/List.cfm?action=answer&q_ID=7

http://www.piainc.com/dirandoffterms.htm

http://www.tropp.com/nonprofits/daoinfo.htm

http://search.genie.org/genie/ans_result.lasso?cat=Insurance

http://www.cimaworld.com/htdocs/d&o.cfm

http://www.cimaworld.com/htdocs/faq.cfm#DO

http://www.mapnp.org/library/legal/np_genrl/np_genrl.htm

http://www.mapnp.org/library/legal/lia_inrs.htm

http://www.nonprofitrisk.org/nwsltr/archive/nla2.htm

Volunteer Protection Act

http://www.runquist.com/article_vol_protect.htm

http://www.asaenet.org/sections/finance/article/1,2261,3357,00.html?headername=Dollars+%26+Cents&searchstring

Risk Management

http://www.allianceonline.org/faqs/rm_main.html

http://www.nonprofitrisk.org/nwsltr/archive/nl199_1.htm

http://www.mapnp.org/library/legal/lgl_thot.htm

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