Many members work with non-profits to assist with functions of their operations. During risk management evaluations (RMEs), the Authority’s risk managers have found that some members do not have written agreements with non-profits they work with. Others may assume that non-profits are automatically covered under the member’s coverage. For members seeking to minimize potential third-party liability, including the liability associated with injuries of a non-profit’s employees or volunteers, an executed written agreement is an effective risk management tool and ensures coverage is in place in the event of a loss.
Coverage and indemnity obligations for every agreement scenario should be evaluated. When a member is not involved in the operations of a non-profit, the best risk management practice is to require the non-profit to indemnify the member and provide their own insurance coverage. An example of this scenario is a humane society providing a member with animal control services. In this example, the non-profit has control over its operations and employees, with no involvement on the part of the member. The non-profit should provide, at a minimum, general liability insurance (including naming the member as additional insured), automobile liability, and workers’ compensation and employer’s liability insurance to support the indemnity obligations.
Sometimes, members work with non-profits that do not carry their own insurance coverage. This is usually when members consider providing coverage for the non-profit. In these situations, and during RMEs, a misconception often heard is the understanding that the non-profit is automatically covered under the member’s coverage. To the contrary, a non-profit organization is not an automatic protected party under the Memoranda of Coverages for the Primary and Excess Liability Programs (MOCs). According to both MOCs, a non-profit or unincorporated association is a protected party only under the following definition:
Any nonprofit California corporation or unincorporated association under written contract, approved by the Member’s governing board or council, to perform specified functions under the Member’s direction and control. The corporation or unincorporated association is a Protected Party only for Occurrences arising out of the functions described in the contract. For the purposes of this section, direction and control means the authority of the Member to be involved in decision making and to overturn decisions.
For injury or illness resulting from a non-profit’s volunteer’s service, a non-profit’s volunteers would only be covered under the Memorandum of Workers’ Compensation and Employer’s Liability Coverage under the following definition:
Volunteers are considered employees under this Memorandum only if the Member has a resolution in effect, and passed prior to the date of injury or illness at issue, providing workers’ compensation coverage to volunteers under Labor Code §3363.5, and while performing specific functions in the course and scope of authorized activities for the Member.
There may be instances where a member may consider covering a non-profit under the member’s liability and/or workers’ compensation coverage. The decision to cover a non-profit under the member’s liability and/or workers’ compensation coverage often comes down to whether the non-profit’s operations are providing a benefit to the member and community. Another important factor is the member’s tolerance of risk. The decision to extend coverage to a non-profit is a business decision to be made by the member.
Some examples where members have considered providing liability coverage and indemnifying non-profits include those where the non-profit operates a member owned facility or organizes a member special event. Members should evaluate whether they are involved in the non-profit’s decision-making process before determining whether coverage would be extended to the non-profit under the MOC. As long as the member has some type of ultimate control over the organization, such as allowing them to operate or not, would meet the decision making and control requirement outlined in the non-profit or unincorporated association protected party MOC definition.
In the example of a non-profit organizing a member special event, there may be some degree of member involvement, such as providing funding and resources to the non-profit. Resources in this scenario typically include providing member staff to assist with the organization and operations of the event. Members in this situation typically feel comfortable extending coverage to the non-profit. However, there may be instances where a non-profit operates a member facility or program/event with no oversight from the member. In these situations, it is recommended that the member obtain as much information as possible on the operations of the non-profit to determine whether the potential risks involved with the operations are acceptable to the member’s tolerance of risk, which may then lead to the decision of extending coverage to the non-profit.
If a member chooses to extend liability coverage to a non-profit, a written agreement needs to be executed for coverage to be in effect. Members electing to extend workers’ compensation coverage to non-profits volunteers should also state this in the written agreement. Members are advised to work with their legal counsel when drafting agreements with non-profits and consult with their assigned Authority risk manager for guidance. The agreement should clearly define the scope, function, and responsibilities of both parties to the agreement. A member’s indemnity obligations and coverage intent must be specified. Any limitations on coverage should be outlined. For example, a member may decide not to extend coverage related to a non-profit’s fundraising efforts, not to extend automobile liability coverage (members liability coverage includes automobile liability) or choose not to cover the non-profit’s volunteers under workers’ compensation. There may be other coverage limitations that members consider. Agreement scenarios differ and should be evaluated thoroughly.
If you have questions, please contact your assigned Risk Manager.