Submission Date:
Question:
Is it required or advised that the Friends group (ours is a separate non-profit) have their own insurance? Monetary restrictions have resulted in our FOL group dropping their annual insurance as they understood it was not "required."
Answer:
There is a large array of insurance coverage a not-for-profit organization might be required to have, and another, equally large array of coverage this is "optional" but may be advised as wise.
Most of the "required" coverages are due to having employees.
Since most (all?) Friends groups in New York State do not have employees, we'll skip over those (unemployment, disability, paid family leave, worker's compensation, etc.), and focus on the other types of required coverage first.
With employees out of the picture, what other coverage is required?
If the Friends own a vehicle (also not too likely), automobile insurance is required.
If the Friends lease space, certain coverage (usually "general commercial liability") may be required by their lease.
If the Friends have accepted a grant or performance contract conditioned on certain coverages, those coverages must be in place. For example, a grant to create a public mural at the Library may come with a requirement for proof of general liability insurance; a contract or MOU with the Library with which the Friends are affiliated might have a similar requirement.
If none of the above-listed "required" conditions apply, is any coverage required of a "Friends" group?
No.
This brings us to the "optional" coverage I mentioned; coverage that is not "required" but is "advised as wise."
For a Friends group that hosts many fund-raising events, some type of general liability coverage is wise (and just like under a lease or grant, may be "required" by contracts for certain event venues).
The scope of such coverage (as in, what types of claims it will kick in for) can change from policy to policy, but the basic function of such coverage is to ensure that the financial risks of conducting the events is mitigated in the event of a worst-case scenario.
What type of activities could a "Friends" group host, that merit such coverage? As a hypothetical example, let's consider a Friends group that hosts four very popular routine fund-raising events per year:
Event 1: A Fall "Bookride," a kids-focused event where children ride a horse-drawn carriage filled with books (instead of the more traditional hay.).
Event 2: A Winter "Library Tango", where participants buy tickets to dance the night away, with micro-events like a "Silent Book Auction,” with all proceeds for special programs at the Library.
Event 3: A Spring "Seedlings for Seniors," a tree/plant sale to ensure extra programming for senior members of the community.
Event 4: A "Summer Water Fest," an event where participants pay by the pint to douse local celebrities with water.
Each of these events have a certain—albeit small—amount of physical risk for participants.[1] In addition, every event will take place at a location where the property owner could face some type of claim for negligent management of the property, leading to injury.
Whether it's getting kicked by a horse at the Bookride or a latex balloon allergy at the Water Fest, the way to mitigate the risk of a person sustaining an injury and bringing a legal action that could jeopardize the finances of the Friends is to either a) have insurance that covers a possible claim; or b) ensure all the risk as assumed by another entity that has insurance, and who has indemnified the Friends; and/or c) use waivers to mitigate the ability of participants to bring a claim.
As seasoned event planners know all too well, the trouble is, each of these mitigation methods bring its own complications.
As the member points out, insurance coverage costs money, which many Friends groups would rather see go to support their library.
Meanwhile, asking another organization (like a co-sponsor) to take on all the risk and/or supply the insurance is not always a feasible option.[2]
And using waivers, while effective if properly drafted, can be a real bummer.[3]
This is where a good insurance agent or lawyer can come in. Either can help a group of Friends assess their actual "exposures" (what risks they face), after which the right type and amount of coverage can be selected.
If almost all the risk can be mitigated (for instance, if the only event is an annual book sale, conducted at the library, which has insurance, and agrees to accept the risk) an informed business decision to accept a small amount of risk, and not get coverage, can be made. On the flip side, for an active Friends group with a wide array of physical events, it can be decided that ongoing coverage is worth the money.
The same goes for a final type of "optional" coverage: Director's and Officer's coverage, or "D&O," which covers certain claims (contract violation, defamation, advertising injury, theft, copyright claims) that can be made against the leadership of a corporation.
Just like with other coverages, there is no "one" type of D&O. This means that any policy under consideration should be carefully reviewed, because some policies exclude the more common types of claims, making insured entities wonder: "Why did we pay for this in the first place?"[4]
For a Friends group without employees or many business transactions, extensive D&O might not be needed, but if the Friends are active on social media and in politics (for instance, fighting the good fight for intellectual freedom, increased budgets, and/or capital campaigns), some coverage for "advertising injury" and alleged defamation is wise.
So, what are the important take-aways, here?
First, without employees, it may be that a Friends group is not "required" to have any type of insurance coverage.
Second, a decision to obtain discretionary insurance coverage should be made based on the activities of the group, ideally with advice from a licensed insurance agent or advisor.
Third, such a decision should be revisited from time-to-time, and weighed by the full board, to ensure there is a good match between the coverage (or lack thereof) and the group's activities.
Thank you for an important question!
[1] If you have never been injured while transporting a seedling, you haven't transported enough seedlings.
[2] Some pesky lawyer for the organization asked to take this risk will often protest this approach. I know, because I have been that pesky lawyer many a time.
[3] "Welcome to the BookRide! Please sign this form agreeing that if your child falls of the wagon and gets hurt, you won't sue us." Doesn't exactly put people in a festive mood, right?
[4] Common exclusions are sexual harassment, other types of discrimination claims, and ERISA (retirement benefits) claims. These are also very common claims directed against governing boards!
Tag:
Friends of the Library, Public Libraries, Insurance, Liability
