For new business, we rely heavily on referrals from social-service organizations and associations that assist them. We purchase booth space, exhibit and conduct free risk-management lectures at their seminars and conventions. The Maryland Association of Nonprofit Organizations endorses our agency, and its Web site refers visitors to us.

We also assist, and receive referrals from, many Interest on Lawyers Trust Accounts (IOLTA) organizations. Many states require law firms to remit to them interest earned on escrow accounts that the firms establish in their dealings with clients. The states then forward that revenue to IOLTA, which manages and redistributes it to nonprofit organizations that promote the legal welfare of indigent people.

Our agency has a wholesale arm, and agents and brokers from around the country call here to request help in securing coverage for their nonprofit and social-service organization clients. As a result of such referrals, we helped arrange professional liability insurance for the League of Maryland Horsemen, a program that teaches horsemanship, and for the which works with inner-city youths to promote appreciation and preservation of the bay and its tributaries and waterways.

Many social-service organizations have small staffs and no dedicated risk manager, so we typically meet with an organization's executive director, who reviews our proposal and makes a recommendation to the board of directors. In our presentation, we highlight key points-coverage features and pricing-and may offer a list of our current clients in the same geographic area and social-service field. Because nonprofits generally operate on shoestring budgets, we may also discuss premium-payment installment plans and any dividend-paying programs that might be available.

Going to the market

We often encounter prospects who mistakenly believe that coverage for social-service organizations is difficult to obtain, expensive and only available through a nonstandard market. In reality, though, standard coverage with appropriate limits can be quite affordable. Our main markets for human-services organizations and other nonprofit accounts are Chubb, Great American, St. Paul, Fireman's Fund, Philadelphia Insurance Cos. and AIG. Carriers specialize in different product lines, such as workers compensation or professional liability. We consider that factor-along with the insureds' geographic location-when choosing a carrier. For example, we might choose Hartford for workers compensation coverage for an agency on the East Coast, but recommend the California state fund for an organization in that state.

When we submit an application, we include the number of people employed by the insured; payroll, revenue and loss-history data; and property schedules. We also provide a description of the office-age of the building, type of construction, square footage, etc.-and the agency's fund balances (to help establish its crime exposure). Underwriters always ask us for the insured's URL, too, because they can glean much of the information they need by visiting a Web site.

Underwriters generally are not interested in the composition of an insured's board of directors. Unfortunately, directors in both the for-profit and the nonprofit sectors are not always good stewards of organizations' resources. The fact that a mayor, governor or business mogul sits on the board of a social-service agency does not guarantee that the board will judiciously oversee the agency's bank account or fleet of vehicles. Instead, they tend to take a hands-off approach and simply affirm administrators' decisions.

The easiest nonprofit accounts to write are those with few employees whose primary purpose is to fund social services; larger entities and “frontline” programs that actually perform services are more challenging. One example of the latter is Friends Research, which provides education and research support to combat substance abuse. Another client brings disadvantaged youths to Baltimore Harbor to work on boats and learn how to sail. Such programs present greater risks than do the charitable foundations that fund them because of their direct contact with the people they serve and the nature of their operations.

Providing protection

A common misconception is that no one will steal from or file suit against a human-services agency because its mission is charitable or its cause is just. In reality, social-service agencies are just as vulnerable to crime and litigation as are for-profit businesses, and their losses can be equally devastating. For instance, when we first met with officials at an organization in the Midwest, they told us a former office manager had embezzled funds from it, so they urgently wanted coverage for crime and employee dishonesty, which we promptly arranged. Another prospect asked specifically about professional liability insurance because its staff had taken a group of inner-city youths on a field trip, and one of them had drowned. The agency had no professional liability policy at the time, and the claim did not trigger coverage under its D&O or GL policy. Once we acquired the account, we immediately instituted professional liability coverage.

Social-service organizations are concerned about their directors' personal liability, so nonprofit D&O liability insurance is a product we often sell them. Next we discuss employment practices liability-the primary source of claims for our nonprofit clients-and point out that coverage for it often is excluded in the D&O policy and therefore must be bought back by endorsement.

We ask about the number of employees and volunteers and the types of work they perform. Are their duties mainly clerical, or do they have direct contact with their clients? Do they provide any medical services? Do they work with children or disabled adults? If so, how many?

We ask similar questions about such exposures as workers compensation, employee dishonesty, crime and hired/nonowned auto-all of which are important issues. Do employees and volunteers drive their own vehicles or the agency's? Who is authorized to write checks? How much is kept in the organization's bank account? Who are the insured's vendors or other contractors? How frequently do clients or vendors enter the premises? Even if an insured has no employees and no automobiles, it has a general liability exposure if it has an office with a desk and a chair. Someone could trip and fall while delivering mail, dropping off supplies or making a sales call.

Are you being served?

It is important to review nonprofit organizations' exposures carefully to determine the best insurance and risk-management solutions. Suppose a government agency spins off a nonprofit organization, then temporarily lends its employees to that organization. If one of those on-loan employees embezzles from the organization, its D&O policy will not indemnify it, nor will its employee dishonesty policy (assuming it has one) if the policy is written to cover only the fraudulent acts of the insured's own employees. Unfortunately, such incidents are common to organizations of all sizes. A simple solution is to manuscript policy language so the definition of “employee” includes volunteers, contractual workers or any other person working for the insured. We routinely negotiate such policy language revisions for our clients.

We also explain that hired and nonowned automobile coverage protects an organization when employees are involved in accidents while driving their own vehicles in the course of their work. Still, we encourage insureds to ask employees and volunteers to maintain their own auto insurance with adequate liability limits. We also advise them to obtain hold-harmless agreements from contractors and ask major suppliers and frequent volunteers to add the organization as an additional insured to their auto policies. In some cases, we suggest that insureds ask for volunteers' drivers license numbers to verify that their licenses are valid. This measure is especially important for such programs as Meals on Wheels, because their hired and nonowned vehicle coverage requires volunteers or other drivers to be licensed.

The social-service and nonprofit niche is one in which a knowledgeable and conscientious insurance professional can truly shine. Securing the appropriate coverage with the right market at an affordable price and teaching an insured to effectively manage risk can help it operate within a tight budget, protect its officials and perhaps even avoid a devastating loss. Just as human-service agencies are indispensable to their communities, the support of capable and dedicated insurance agents is crucial to the well-being of nonprofit organizations.