The outbreak of the novel coronavirus in the United States is weighing heavily on non-profits, many of which are small and community-based, with 88% spending less than $500,000 each year, according to the National Council of Non-Profits. Moreover, the continued economic impact of the pandemic could have an impact on professional liability-related exposures that non-profits face.
Before the pandemic hit, the sector was in a good place, seeing growth of 20% over the past decade, which led to more board seats at organizations that needed to be filled, said one expert. However, non-profits were also encountering challenges that have since intensified.
“As a consequence of social inflation, the increasing litigious environment and more non-profits, ligation has risen,” said Kevin Schuck (pictured), underwriter at Clearwater Underwriters, a division of Worldwide Facilities. “The typical claims have involved errors in management and employment-related claims.”
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Today, the current health crisis could further exacerbate non-profits’ professional liability exposures. Many organizations generate revenue through fundraising events, donations, as well as government contracts and grants. However, the cancelation of fundraising events and the negative financial impact that COVID-19 has had on some industries may in turn have a negative impact on non-profits, noted Schuck, adding that resulting financial hardship and layoffs can lead to both directors and officers, and employment practices liability claims.
As if the fallout from the coronavirus wasn’t enough of a challenge for non-profits, these organizations also have various cyber liability exposures. “Recently, there have been many phishing scams related to COVID, which have involved attackers impersonating a health organization to gain access to a victim’s personal information,” said Schuck.
Nonetheless, he explained, “There are strategies to mitigate exposures caused by COVID.” For one, board members can communicate with each other to identify the new exposures and implement risk management techniques. Furthermore, non-profits may want to consider consulting with legal counsel to discuss how to deal with potential stumbling blocks, such as ways to address grievances in the event that they are unable to fulfil contractual obligations.
As they watch the coronavirus pandemic unfolding in the US, carriers have become cautious and are underwriting non-profits carefully, especially the EPL exposures. COVID-19 exclusions, as well as breach of contract exclusions, are already more common, and the claims that arise down the road will further impact this market, as well as coverages, and premiums.
“To adequately cover non-profits and their boards from the new exposures created by COVID, it’s important that insurance professionals understand D&O coverage, the types of non-profits that exist, and their coverage needs,” said Schuck. “Worldwide Facilities has expertise and carriers to place D&O coverage for all types of non-profit organizations.”