ACC Nonprofit Organizations Committee

Transcription

1 ACC Nonprofit Organizations Committee Nonprofit Insurance in the USA Overview and Tips May 9, Willis Towers Watson. All rights reserved.

2 Disclaimer Willis Towers Watson and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction. 2

3 Nonprofit Greatest Threat The greatest threat to the [not-for-profit] sector is the betrayal of public trust. Joel Fleishman, Scholar, Author, Professor of Law and Public Policy, and Director of the Heyman Center on Ethics, Public Policy and the Professions, Duke University 3

4 Risks Facing a Non-Profit Exposure to Social Media Third Party Sexual Harassment Unhappy Staff and Volunteers Tax Exempt Status Copyrights and Trademarks Lobbying & Political Activity Regulatory Actions / Violation of Law Conflicts between the board s policies and practice Contracting authority limitations Failure to manage conflicts of interest Reliance on the goodwill of others Source: The Top 10 Legal Risks Facing Nonprofit Boards by Melanie Lockwood Herman, Esq., Jeffrey S. Tenenbaum, Esq., and Kristen E. Sitchler, Esq. 4

5 Understand What Insurance Is and Is Not a practice or arrangement by which a company or government agency provides a guarantee of compensation for specified future loss, damage, illness, or death in return for payment of a premium Insurance is not a mechanism to prevent a loss, it is a mechanism to provide financial assistance/ capital to you after you have suffered a loss 5

6 Minimum Coverages Needed Financials & Executive Risk D&O, EPL, Cyber, Fiduciary, Crime, Professional (Employed Lawyers), Cyber Employee Benefits Workers Compensation Medical Disability General Liability CGL, Liquor, Umbrella, Excess, Foreign Liability, Special Events Property Auto Hired & Non-Owned 6

7 Financial & Executive Risk (FINEX) Coverages Directors & Officers Liability Covers individual Directors and Officers from personal liability and the Organization from liability for Wrongful Acts arising out of the management of the Organization Fiduciary Liability Covers the Organization, any Sponsored Plan (including employee benefit plan, pension benefit plan, and welfare benefit plan), employees, and natural person trustees and fiduciaries of a Sponsored Plan from liability arising out of ERISA violations and negligent acts in the administration of any Sponsored Plan Employment Practices Liability Covers the Organization and its employees from liability from Employment Related Wrongful Acts. Wrongful Acts include wrongful termination, discrimination, workplace harassment, and retaliation Professional ( Errors & Omissions ) Covers the Organization and its employees for Wrongful Acts in the rendering of (or failure to render) Professional Services Fidelity Bond / Crime Covers the Organization against loss from employee theft and various crimination acts carried out by third parties Cyber Liability Covers the Organization and its employees from liability and expenses arising out of a data security breach, privacy event or cyber related business interruption 7

8 FINEX Coverage Overview Policy Basics All Coverages are Aggregate Limits of Liability (except Fidelity) Policies are Generally Structured on a Claims Made and Reported Basis The in-force policy responds to the claim regardless of when the wrongful act is alleged to have occurred Fidelity policies are generally loss-discovered or sustained basis Coverage Can Be Blended Common Examples Include; D&O / Fiduciary D&O / EPL (Private Companies) E&O / Cyber / Media Packages for Small Accounts Loss Typically Includes Judgments, Settlements and Defense Costs Defense costs are part of, and not in addition to, the limits of liability Claim Frequency is Low, but Severity is High EPL claim frequency is highest Certain Exclusions Apply to Each Coverage (such as illegal conduct) 2016 Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson client use only. 8

9 Recourse for Directors and Officers How are my personal assets protected? Corporate Indemnification Bylaws How strong are the indemnification provisions? To what degree are costs advanced? What circumstance would prevent indemnification? What burden of evidence must there be to withhold? Employment Contract Are there supplemental / broader indemnification provisions provided in employment contracts? State of Incorporation Certain states of incorporation legally provide broader indemnification capabilities Insurance Market D&O Policies Not all contracts are created equal... Personal Asset Protection vs. Balance Sheet Protection Limit Adequacy / Terms & Conditions 12

10 Managing Cyber Risk: A Risk Management Framework 10

11 Where will the breach come from? 2% 9% Percentage of Claims by Breach 3% 2% Employee Negligence or Malfeasance External Threat 18% Social Engineering Network Business Interruption 66% Cyber Extortion Other Source: Willis Towers Watson claim data [yyyy] Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only. 11

12 Contracts: And their impact on Insurance Insurance will follow the allocation of risk via the contract Party A agrees to build Party B a house Party B signs the contract absolving Party A of all liability Party B is injured and sues Party B Ignoring the legal hornet s nest this simple example creates, Party A s insurer has every right to deny the Party B s claim under Party A s coverage because there is no legal liability Moral of the story be careful how the insurance clauses are worded 12

13 Contracts: What are the minimum insurance provisions Indemnification provisions Be careful of anti-indemnity statutes Aim to be fair Clearly identify who is at risk Specify minimum insurance requirements, and order as follows: i. Commercial General Liability Liquor Liability as required NB difference between Host Liquor vs selling liquor as a business enterprise ii. Auto Liability iii. Workers Compensation iv. Umbrella & Excess Liability Other provisions Additional Insured Waiver of Subrogation Primary and non-contributory Contracted party s insurance is primary Cancellation Certificates 13

14 A Word on Additional Insureds General rule: you never want to give it, you always want to receive it! Action over claims Aggregate exhaustion The Standard CGL insurance policy requires that Additional Insured status be in the form of a written agreement between the two parties to the contract. Failure to do so will invalidate coverage Cannot be provided on Workers Compensation and all Professional Liability Coverages Many policies require the Additional Insured be added to the policy by specific endorsement Make sure that the Certificate of Insurance has the Additional Endorsement included with the certificate Make sure that the contract language is enforceable For example, CG is no longer offered by insurers [yyyy] Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only. 14

15 Special/ Fundraising Events An unique contractual relationship Status of Event Yours? A no-relation philanthropic person Yours Make sure your CGL covers these events NB hired and non-owned coverage on auto policy for volunteers Differentiate contractually Volunteers from Employees Impact on Workers Compensation and other employment related coverages Participants & Participant Waivers Philanthropic Person Contractual relationship Volunteers Participants & Participant Waivers Need for special event coverage Host liquor - oftentimes no coverage under Homeowner s policy 15