Nonprofit organizations are navigating complex questions regarding their operations during the COVID-19 pandemic. The coronavirus has introduced a great deal of uncertainty into our day-to-day lives.
There are constructive actions that you can take to benefit your nonprofit and support its good work. As you consider how to resume or continue operations, and how best avoid potential liability, the various options below are tools that can be used to build a shield of protections. While no shield can protect your organization from all risk under all circumstances, using different tools in the box will help build a broader shield of protection.
Hold Board Meetings.
Your nonprofit’s Board owes duties of due care and loyalty to the organization, meaning that Board members must try to protect your nonprofit and advance its interests. The Board should consider matters including: required health and safety guidelines; potential liability protections; ideas for operating on a scaled-down basis (if needed); options for fundraising; and ways to effectively communicate with stakeholders. Financials must be reviewed. Contingencies must be considered (these are the “what if” questions, such as “What if our organization reopens and then the Governor issues another shutdown order?”). Professionals, including insurance agents and accountants, should be consulted. By taking these actions and documenting them, the Board demonstrates that it is engaged, proactive, and fulfilling its due diligence obligations.
Use a Waiver.
A waiver of rights may sound off-putting to your organization; after all, in working to fulfill your mission you do not want members of your community to feel uncomfortable. Bear in mind, however, that approving a waiver for use by your organization is a factor demonstrating the Board’s exercise of due diligence and loyalty. In the midst of a pandemic, no entity can guarantee the safety of all persons who use its services. Of course, your nonprofit must do its part to follow required health and safety guidelines; presuming that you have done so, a waiver will state that volunteers and those persons who use your organization’s services understand and assume the risk of participation.
There are different types of waivers that your organization could use. Although a waiver may not be bulletproof, MA courts are inclined to favor them if they are entered into knowingly by the party waiving his or her rights. At the very least, a waiver will be a record that your organization has weighed the risks of reopening and has communicated those risks to its community.
Consider Force Majeure Clauses.
As with a waiver, you may feel that a Force Majeure clause is not the right style for your organization. Alternatively, you may be eager to put Force Majeure clauses in place to protect your operations during such an uncertain and financially challenging time. In our opinion, the clause is a good idea to consider adding to your contracts and here is why: A Force Majeure clause spells out your responsibilities during an interruption in the services that you perform when the cause is outside of your control. It provides much-needed flexibility in performance of a contract when you simply cannot perform due to an emergency such as COVID-19. It also allocates responsibilities (including, in some circumstances, reasonable payments to be made) during a temporary interruption in services.
Review Insurance Policies and Consider Additional Coverage.
The scope of your organization’s insurance policies should be reviewed by a qualified insurance professional periodically and you may want to request review at this time to determine whether there is potential coverage for any COVID-19 related claims. Although your insurance policies may not provide all of the following protections, the policies should nevertheless be explored. If your organization does not yet have these policies in place, you may want to consider:
Commercial General Liability Insurance
will cover claims brought by a 3rd party for bodily injury or property damage; may not, however, cover COVID-19 claims
Directors and Officers Liability Insurance
will cover trustees, directors and officers for management decisions
Business Interruption Insurance
will cover lost income due to interruption in business operations as a result of direct physical loss or damage to the business’s property
As of yet, it is unclear whether courts would apply this coverage to COVID-19 cases. Insurance companies take the view that business interruption insurance does not apply to COVID-19-related matters. Some courts have had a more expansive view that would favor insureds.
Proposed legislation in MA would provide COVID-19 coverage under business interruption insurance policies — even if those policies do not provide such coverage — if the policies are in effect as of the date of the Act.
Purchasing a Business Interruption Insurance policy now may be prudent, if the cost is reasonable; be aware, however, that the MA proposed legislation may not pass; also, review the policy for exclusions in coverage due to viruses.
Another type of Business Interruption Insurance – called Contingent Business Interruption Insurance or Supply Chain coverage – may provide broader protections and would apply if a third-party supplier or distributor were unable to fulfill its responsibilities to the insured.
Civil Authority Insurance
covers loss of business income that results from government action and pertains to physical damage to property
Event Cancellation Insurance
covers losses due to cancellation of an event if caused by something beyond business’s control; some policies have an extra coverage endorsement for diseases
Employment Practices Insurance
generally, covers claims made by employees, but does not include bodily injury or property damage
Errors and Omissions Insurance
generally, insures against claims made against professionals in providing their services
Note: In assessing your organization’s insurance coverage, it is very important to review your policies for defense cost coverage (i.e., coverage for attorneys’ fees in the event your organization is sued; even if the claim is without merit, the cost of litigation can be very expensive) and exclusions that expressly deny coverage for loss caused by viruses, bacteria, mold, fungus, diseases, etc. If you think that your organization has a claim, be sure to keep good records and follow all instructions about reporting the claim to your insurance company.
Bottom line: An insurance policy is only as good as its coverage and exclusions. A $1,000,000.00 policy is worthless if it excludes coverage for your loss!
Consider the Charitable Cap.
You may have heard of “charitable immunity” and be wondering what it is and whether it applies to your organization. This doctrine had been adopted in MA in the 1800s to protect assets of charitable organizations: The reasoning was that those funds are held in trust for the public good and should not be diverted for other reasons such as personal injury claims. In modern times, although the doctrine of charitable immunity has technically been abolished, statutory protections for MA nonprofits remain (and are still often referred to as charitable immunity). The current rule puts a cap of $20,000 on injuries (torts) caused by a nonprofit as long as the nonprofit was working to fulfill its charitable mission when the injuries occurred. A $100,000 cap protects nonprofits that provide healthcare against malpractice claims.
The charitable cap does not apply to:
· Negligent acts of employees
· Contract law claims
· Fundraising activities (some exceptions apply)
· Commercial activities
· Use of an automobile
· Injunctive relief (i.e., a court order requiring your organization to do something or refrain from doing something)
· Claims against directors, trustees and officers who are compensated
· Claims brought by the MA Attorney General’s office (e.g., for breach of fiduciary duty)
· Claims for employment discrimination
· Claims under the MA Consumer Protection Law
· Claims under the laws of other states
· Claims under federal law
Note: Per MA statute, officers, directors, and trustees of public charities who serve without compensation are protected from liability for their reasonable acts performed to further the nonprofit purposes of the organization.
There are many resources available to your organization as you start to assemble your own toolbox. It is our privilege to work with the nonprofit community and we are here to help if needed!