Nonprofits have plenty to protect

BE SURE: Schonning Insurance Services President Stephen Schonning says that nonprofits should be aware of the liability they may carry. He is pictured above with his sister, Bethany Schonning McGill, vice president of the firm. / PBN PHOTO/BRIAN MCDONALD
BE SURE: Schonning Insurance Services President Stephen Schonning says that nonprofits should be aware of the liability they may carry. He is pictured above with his sister, Bethany Schonning McGill, vice president of the firm. / PBN PHOTO/BRIAN MCDONALD

Money – in order to potentially save a lot of it in case of unforeseen liability claims, businesses have to spend some to ensure their protection against such matters.
Nonprofits are no exception but, generally speaking, with less money and manpower available, those organizations may open themselves up to more problems if corners are cut or there is an in-house disconnect on risk assessment.
That’s a big mistake, even for small organizations, according to nonprofit experts and insurance brokers.
“[Nonprofits] take in donations and could be liable for any of their activities,” said Stephen Schonning, president of Schonning Insurance Services Inc. in Westerly. “[The risk] depends on the nature of the nonprofit’s operations and profile. I should probably [be serving] more nonprofits.”
Under the Rhode Island Nonprofit Corporation Act, articles of a nonprofit’s corporation serve to protect the personal liability of an organization’s director or its officers and members, except in cases of a breach of duty or loyalty, acts or omissions not in good faith or involving intentional misconduct, or transactions where such a member may receive an inappropriate personal gain.
Though The Rhode Island Foundation does not provide insurance counseling to nonprofits, Jill Pfitzenmayer, vice president of the foundation’s Initiative for Nonprofit Excellence, said she does point people to guidelines for starting a new nonprofit organization.
“Whenever we talk about best practices and governance, that’s typically something that comes up,” she said.
Schonning said an essential part of a nonprofit’s insurance needs is director-and-officers insurance, which provides financial protection for directors and officers serving on nonprofit boards. The misconception, he said, is that those board members may not face as great a risk as those on corporate boards because there are not any organization shareholders.
“They are volunteer people exposing their personal assets,” Schonning said. “They take in donations and could be liable for any one of their activities. Director-and-officers insurance typically protects them against their decision-making or lack thereof.”
Such insurance also protects directors and board members against claims of wrongful termination, harassment, misrepresentation and other accusations from staff members, organization clients, third parties or the nonprofit itself.
“Nonprofits should take every measure to provide board members and the organization with the proper kinds of protection,” said Doris Feinberg, president of The Prospero Group, a nonprofit consulting firm in Providence. “Nonprofits have a responsibility to their community stakeholders [too] to make sure the board members are well-representing them,” she said.
Schonning’s multiservice agency also provides home-, auto- and life-insurance policies but Schonning’s nonprofit experience isn’t limited to his day job.
He is also president of a nonprofit, which he declined to name. He said he understands the dilemma nonprofits may face in how to justify insurance costs they may doubt they need, when the money could spent to further their mission.
“It costs money [that] otherwise could go into the community for scholarships and other [things]. There’s a belief that if we act honestly and upright anything we do could be defensible,” Schonning said. “[But in] the majority of claims, 99 percent are defense costs.”
Of course director-and-officers insurance isn’t all a nonprofit needs. Like their private-sector counterparts, they need general liability, auto, theft and perhaps property and accident insurance, depending on their activities. All of that adds up and larger organizations especially are looking at hefty insurance bills.
“An average … premium is based on the nonprofit’s assets,” Schonning said.
A relatively new alliance of over 40 service providers is backed by Schuster-Driscoll LLC, a health-and-welfare insurance provider based in Connecticut with Rhode Island clients and an office in Smithfield. That agency provides health insurance and retirement-plan services to nonprofits. But it got involved, said Dave Farrell, who leads the agency’s Rhode Island office, with The Alliance for Nonprofit Growth and Opportunity, to promote discounted services to those organizations, including banking, marketing, employee training and insurance.
“It’s a collection serving nonprofits with unique discounts,” Farrell said. “We’ve tried to create not only a top-tier talent [list] but also we want to give back to the [industry].”
Kapatoes Insurance, which has an office in Warwick, is one of the alliance groups.
“Collectively, nonprofits represent a good opportunity to an insurance company,” said Mark Kapatoes, chief executive officer.
No matter what insurance nonprofits are dealing with, their needs are unique to the sector because, Farrell said, of manpower. The latter is especially true in the human resources department, where professionals aren’t always afforded the time to keep up with latest trends, rules and regulations.
“Because nonprofits are running lean, they typically don’t have an expansive HR department,” Farrell said. “Nonprofits [also] are extremely sensitive to cost, which I guess is not terribly different but it certainly is more critical in the nonprofit world.” •

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