I serve liquor and fundraisers and events, does my organization need liquor liability?

I get this question all the time. Sometimes when I get a new client they even show me an annual liquor liability policy someone sold them for serving liquor at a quarterly event.

The simple answer is yes, if you serve liquor you should have liability insurance to cover it, but you probably already have it. Liquor liability suits are generally for bodily injury or property damage caused by a person who was served liquor at your event. Well, bodily injury and property damage is the definition of a commercial liability claim. So wouldn’t the liquor liability be covered in my commercial general liability policy? Probably. The standard commercial general liability policy contains an exclusion for liquor liability only if you are “in the business of manufacturing, distributing, selling, serving or furnishing alcoholic beverages.”

In the business means just that. If you own a bar, you need a separate policy. If you run a homeless shelter that has two galas a year, where you sell alcohol to guests either as part of the ticket price or by the glass you are not “in the business of selling alcohol.” Coverage would apply. The same holds true for holiday parties for your staff, coverage exists.

However, not everyone has the standard policy. Some people have an absolute liquor liability exclusion or they have a special event exclusion. Ask your agent and check your policy. But if you have a few special events a year that don’t include a very large unique event; your agent never should sell you a policy with a special event exclusion. You will end up paying much more in coverage for each event. Also, unless there is a very specific reason, no agent should sell you a policy with a more restrictive liquor exclusion than described above.

The short answer is yes, you need liquor liability, but you probably don’t need a separate policy for it.

What does an insurance policy being auditable mean?

Auditable insurance policies means the premium listed on your policy is estimated and won't be finalized until an audit at the end of the term.

All insurance policies are based on certain ratable elements. Those are the key pieces of information that determine how much you pay. For property insurance, the cost is based on the total insured value. It may even be printed on your policy in cost per $100 of insured property value. If you buy a new building, under most policies you have to schedule the building, pay and additional premium, and the insurance company raises your limit.

You don’t notify the insurance company, and there might not be coverage. But it doesn’t work like that with liability insurance. On a general liability policy or a workers compensation policy, the carrier agrees to defend you against claims. They rated you at the beginning of the policy on payroll or possibly gross sales. You pay a premium based on the estimated sales or payroll at that time. If you sell more goods, or hire more staff, you aren’t required to call the insurance company and list them on your policy. Clients and staff names aren’t listed on a normal liability policy or workers compensation policy, anyway.

But what if the business shrinks over the year? Well, with an audit at the end of the policy term some of the premium can be returned. If the business had more sales than estimated or more payroll, then the insurance company had more risk then they anticipated. In that case a bill is generated and additional premium due.

All workers compensation is auditable. Some general liability is auditable, particularly contractors, wholesale, and manufacturing. Professional liability and executive liability (directors & officers, employment practices & fiduciary) is never auditable. Check your policy, so you know what’s coming. And if your business is growing, ask your agent if you can get a non-auditable general liability policy. You could save a lot of money.

What happens to stolen property recovered after insurance paid a claim?

This question comes up from out clients time to time. A client has something stolen; a car for example, and the insurance company pays the claim. The insured buys a new car with the insurance money. A month later, the police find the stolen car. Except for a broken window and needing a new ignition it’s in pretty good shape.

So what happens? Does the insured have to take it back? But they have a new car already. Do they have to give back the insurance money? I’m always able to alleviate a lot of stress when I tell my client that it is their choice. They can keep the money and the insurance company keeps the car, or they can give back the money, less the cost of repairs, and take their car back.

With a car, almost everyone keeps the money. But this holds true for any property claim. Let’s say it was a piece of art that was stolen, not a car. Then, many more people will return the money and take their artwork back.

So if you ever find yourself in this situation take a breath and remember it’s your choice. You don’t have to give back the money and no one can make you take your recovered property back. But you can if you want to.

When does my non-profit need insurance?

A lot of people ask me this question. And there are a few easy answers, and then a lot of grey area. Non profit organizations, most commonly 501c3 corporations, the legal rights and duties of a for profit corporation. They can have employees, sign contracts, own properties, be sued, and most other things than any other business can do. This means that they in general would need insurance when any other business would.

There are a few very clear cut times. Sometimes the state requires you have insurance, like if the organization buys a vehicle, or if it required for a permit. Insurance could be required by a contract the organization signs. But if you’re just starting out, neither of these may apply to you.

While it’s a good idea to have property insurance if the non profit owns something of value (even if it’s been donated) there is rarely a requirement to insure it unless a bank loan is secured against it. So when do you have enough property to insure, and is it worth the money? Non profits are never running short of things to spend money on, but never have the donations or program revenues to buy everything everyone would like. If the operations of the non profit require certain property (like a building, or computers, or anything tangible), and that property could not be quickly replaced out of current funds without severely affecting operations; then there is a need for insurance. Put a little more plainly, if you own something that you need, that you can’t afford to quickly replace, it’s worth insuring.

Liability insurance works a little differently. Often, liability insurance is required by a third party like a grant maker, landlord or the like and the decision is made for the organization. But when it is not, you have to weigh the cost against the value. Liability insurance protects against some of the costs of certain demands for money and lawsuits against the organization. So if the likelihood and severity of these demands outweighs the cost of the insurance, than the choice to buy insurance is easy.

However, when an organization has no employees, and only as much money as people donate, it’s tough to spend on anything but direct program services. So, what makes a suit more likely? If the organization is perceived to have something worth expending resources to stop or take, a suit is more likely. It costs money to file a suit. But for causes of principle, people what that money back in a judgment.

When there is no other reason to buy liability insurance, the basic advise is purchase it when you feel you have assets worth protecting. We go through a very similar discussion with our larger insured’s when looking at limits. Does the likelihood of a lawsuit of that magnitude outweigh the cost of the insurance, and what assets does my organization have at risk?

What is Directors and Officers Insurance?

Non-profit organizations have very vastly different insurance needs then the average business. Non-profit’s do not generally have owners, shareholders or investors but are run by a board of directors. These board members guide the nonprofit in fulfilling its mission and are responsible for the financial solvency of the organization. If board members fail on either of these fronts they can be found personal liable. This means personal assets including but not limited to savings accounts, college funds, checking accounts and investments can all be won in a civil suit. It is essential that a nonprofit protects its board members from lawsuits and financial assessments. Directors & Officers insurance will pay for attorney fees, court costs and settlement up to the limit. This protects board members from having to use savings to defend themselves from frivolous and not so frivolous law suits. Directors and officers insurance is often combined with employment practices insurance and fiduciary insurance and is referred to as executive liability.

Directors and Officers Insurance has three basic parts; direct coverage for individual directors and officers when the organization is unable to defend them, reimbursement to the organization for indemnity of directors and officers and “entity coverage” for indemnity against similar claims made against the entity itself

Many different parties can bring a suit that would be covered by directors and officers insurance, including donors, clients, vendors, contractually joined entities, or other aggrieved parties.

Unlike some other kinds of insurance, there is no standardized directors and officers insurance policy. Most insurance companies write a few basic policy forms for sizes and classes of organization, and then “endorse” or add extra pages changing specific terms as needed. Differences between policies include everything from the definition of a “claim,” who is responsible for hiring and instructing defense council, your rights if you do not agree to a settlement as well as coverage amount.

It is unwise to compare policies based on price alone because the type of coverage can swing wildly between carriers. Remember, even the most fantastic, committed board member can be sued.
Things to discuss with your insurance broker:
1. What is important to your organization?
-Do your board members have a lot of assets? Do you want to control whether the insurance company settles? Do you want to use your organization's attorney?

2. What sort of lawsuits do you see in your organizations future?
-What does your organization do? Do you have high risk employees? Do you have a high risk clientele? Are you dealing with a lot of money? Do you have one large donor? Many smaller donors?