The owners of non-profit businesses focus on their mission and services to provide for their community, protect their assets, and manage their teams. Yet, they can still be held accountable for legal liabilities, even if they never make a mistake. Less than 5% of civil cases in the U.S. are resolved by trial, but many still go through some formfor of alternative dispute resolution.
Unfortunately, the accusation alone can cause irreparable damage to the reputation of a non-profit organization, impacting its donors’ confidence and community relationships.
If your nonprofit is sued, you will need a supportive safety net that includes business insurance designed specifically for non-profit organizations. The right insurance strategy can cover the costs of legal defenses, settlements, and reputational damage in the event of a lawsuit. Without coverage, these costs can overwhelm a nonprofit and disrupt its community and donor relationships.
Covered in This Blog:
This article goes into detail about all relevant types of insurance specific to non-profit organizations, including areas where potential lawsuits could arise. We also cover how the right insurance policies can mitigate the financial and reputational damage to help nonprofits recover quickly and continue serving their communities.
The Litigation Process for Non-Profit Organizations in Hawaiʻi
In many aspects, a non-profit organization is subject to the same risks as a for-profit business. However, many nonprofits hire limited or volunteer staff, handle donations, and provide services that are vulnerable to public disputes, revealing risk factors distinct to their industry. If a claim is filed against a nonprofit in Hawaiʻi, the litigation will likely follow this basic process:
- Notice: Disputes may begin with a formal demand letter, including the charges or claim notification with evidence, such as a medical bill.
- Negotiation: Before a formal complaint is filed, the organizations may wish to negotiate with the party who sent the complaint. Insurers may begin forming a defense strategy.
- Complaint Filing: The appropriate court, usually a circuit court, will receive the complaint, initiating civil action.
- Issuing and Responding to Summons: The court will summon the defendant (your organization), which is required to answer within 20 days.
- Disclosures and Discovery: The information relevant to the claim will be shared, including permitted evidence.
- Settlement or Trial: If alternative dispute resolution and settlement efforts fail, the case will go to trial. To avoid reputational damage, non-profit organizations should try to avoid a trial if possible.
Key Takeaway
Though courts in Hawaiʻi are guided by state-specific civil procedure, this process is similar to most states. Non-profit businesses familiar with it can help avoid litigation where possible.
Core Types of Insurance that Non-Profit Business Owners Should Know
Throughout the process of litigation, non-profit businesses need comprehensive business insurance personalized to their coverage gaps to protect them from costly settlements, legal fees, medical costs, and more. These are the most common core policies:
- Commercial General Liability: This policy is the foundation of non-profit insurance, protecting the business from the costs of on-site injuries, property damage, and other claims. General liability coverage is a vital safety net, especially for businesses that host events or employ volunteers.
- Professional Liability: As nonprofits often offer advocacy, education, counseling, or other intangible services to their clients, this insurance protects them from the costs of professional mistakes, such as providing advice the client believes was harmful.
- Commercial Property: Whether nonprofits rent or own commercial spaces and equipment, they must protect their assets from damage related to fire, weather, theft, vandalism, and more. Many nonprofits lack the liquid funds needed to recoup these costs without insurance.
- Commercial Auto: Even if the business does not employ vehicles, any vehicles used for business services, including those of volunteers, should have commercial auto coverage extended to them.
- Directors & Officers: Non-profit boards handle funding and strategic decision-making that can be prone to claims of mismanagement. This policy not only covers the costs of those mistakes but also provides desired assurance of coverage that helps retain qualified board members.
- Workers’ Compensation: Though employees and volunteers are compensated differently, their status must be evaluated to add the necessary policies and riders that cover medical costs in the event of an accident. Volunteer accident coverage may be needed to supplement this policy.
- Cyber Liability: As with most modern businesses, nonprofits manage donor data and payment transactions, requiring insurance to cover the costs of cyberattacks or data leaks, including legal defenses, required notifications, and recovery costs.
- Event Liability: For nonprofits that host large events or galas, additional event liability coverage on top of general liability may be needed to protect the business from damage, injuries, and other claims.
- Employment-Related Practices Liability: Though nonprofits often rely on volunteers, workplace claims related to discriminatory hiring practices, harassment, or wrongful termination could impact their reputation.
- Temporary Disability Income (TDI): Paid employees on temporary medical leave will require income support. TDI insurance helps businesses meet legal requirements while helping employees feel cared for.
- Umbrella Insurance: Umbrella policies bundle multiple insurance policies to create a more comprehensive and customizable plan.
The Costs of Underinsurance
Nonprofits can become overwhelmed by a single claim without the right insurance coverage. Insurance policies are designed to protect businesses from the costs of damages at the time of the incident, such as medical costs in a workers’ compensation case or replacement costs in a property damage case. However, when a claim made against the business threatens litigation, insurance takes on another role.
Even in the pre-litigation phase, businesses must consult with legal professionals to recognize their needs and prepare for their defense. This means attorney fees, investigation costs, filing costs, administrative labor, court expenses, and more. Even if a nonprofit has done nothing wrong and the case never proceeds to trial, they can spend thousands of dollars on the pre-trial, defense, and repairing their reputation.
What is the Role of Non-Profit Business Insurance in a Lawsuit?
Insurance steps in to take the brunt of this damage, provided it covers legal defenses and other fees in the event of a claim. With insurance covering the financial side of preparation, business owners can focus on their defense and settlement terms.
When that settlement arrives, the nonprofit may be required to pay damages. Alternatively, to avoid litigation, the business may settle with the other party. In either case, this leads to additional costs, some or all of which would be absorbed by a versatile insurance plan.
Key Takeaway
Insurance policies prepare businesses for litigation by protecting their financial assets throughout the legal process. Agents can also offer risk management guidance, review contracts, initiate better safety training processes, and advise the business on how to use better insurance coverage to reduce their risk exposure in the future.
Local Insurance Agents Customize Policies to Protect Non-Profit Businesses From Liability
At Atlas Insurance, our agents build on nearly 100 years of experience helping businesses in Hawaiʻi protect their assets, finances, workers, and reputations from legal liabilities. Our goal is to provide transparent insurance, risk management, employee benefits consulting, and claims management guidance to customize insurance strategies. For non-profit organizations, we structure every policy specifically to your group’s needs and goals.
Contact our team today to learn how the right insurance strategy can help your non-profit business prevent costly litigation and respond to any claims that come your way.