For many nonprofits, special events and fundraisers are a huge part of what keeps operations moving forward. They raise awareness about critical issues in our communities, while simultaneously raising the funds necessary to cultivate change. Given how important special events are, and how complex they can be to execute, it’s not uncommon for nonprofits to hire independent contractors to provide products or services the day of, or in the days leading up to or following an event. Your nonprofit might choose to hire a clean-up crew or entertainment for the event, or it may need to rent a larger space to house the event itself – no matter the work contracted, it’s typical to bring on extra help. However, did you know that the actions or inactions of an independent contractor could potentially put your nonprofit at risk? In fact, if an incident is in some way caused by an independent contractor and your nonprofit is not listed as an additional insured on their policy, your nonprofit could be left holding the bag for the injury! Unfortunately, this is exactly what happened to one Nonprofits Insurance Alliance Group member, as described below.
A nonprofit member-insured held a Bingo Night fundraiser at a local, third-party business. The contract to rent the space for the Bingo Night required the nonprofit to obtain an additional insured status for the business under its insurance policy, as well as execute a contract which included an indemnification provision, a clause used in contracts to shift potential legal liability from one party to the other.
On the night of the event, one of the guests was injured when she tripped and fell in the parking lot of the business where the Bingo Night was being held — an incident caused by an unrepaired pothole in the parking lot, as well as a parking lot light that had burned out so that the claimant could not see the pothole. The nonprofit had no control over the parking lot, nor did it have the opportunity to fix the light that had burned out, as it was not their premises to maintain.
The nonprofit’s insurance policy included an automatic extension of an additional insured status to the business for liability which was "caused by" the nonprofit organization, and because the nonprofit did not control the parking lot or the burned out light, the nonprofit did not cause the incident and it was the business owner's own coverage which was applicable to the loss. However, the indemnification provision within the contract which was executed by the nonprofit included an obligation to indemnify the business for any liability "arising out of" the operations of the nonprofit. Because the claimant was injured as she left the event, her injury was treated as "arising out of" the operations of the nonprofit.
First and foremost, independent contractors should provide evidence of insurance coverage by providing your nonprofit with their own certificate of insurance. If the contractor is one that the nonprofit does business with regularly or is providing an essential service, the nonprofit should request that it be named as an additional insured on the contractor’s insurance policy. Whether a claim or suit has merit or not doesn’t prevent an organization from being sued, and for that reason, additional insured endorsements are vital when it comes to protecting your nonprofit. While these modifications to an existing contract between the insurance company and the insured organization may seem trivial, they have the effect of adding the name of the endorsement holder, your nonprofit, to the list of insureds under the policy, and this could save your nonprofit from a world of hurt.
It’s also essential to perform due diligence to make sure all contractors and subcontractors name your nonprofit as an additional insured, not just assuming as much to be true. Additionally, don’t assume the contractor has appropriate insurance; check that the policy limits of contractors and subcontractors are equal to or greater than your nonprofit’s so you don’t become the deep pocket.
Some nonprofits may think that contracts presented to them, such as the business rental agreement in this case, cannot be negotiated. However, all contract terms are subject to negotiation and must be evaluated to assess responsibilities and risks imposed. With respect to indemnification obligations, nonprofits must evaluate which entity is accepting which risk, whether there is appropriate insurance coverage for the risk, and whether the party with control over the risk, in our example the maintenance of the parking lot, is the one that is legally responsible.
General liability insurance coverage through the Nonprofits Insurance Alliance Group automatically provides an additional insured status to any business, if required by a contract, but only if the acts or omissions of the covered nonprofit have caused the liability. In this example, a change in the language in the indemnification obligation of the nonprofit included in the rental agreement to only accept liability “caused by” the nonprofit or its guests, rather than liability “arising out of” the event would have fixed the problem. With that language, the business owner’s own liability coverage would have been applicable to a loss caused by the business owner (i.e. poor maintenance in the parking lot), and it would have prevented this nonprofit from contractually accepting this otherwise uninsured loss. As we all know, especially when in a contract, it’s the words that matter.
If you need additional guidance, clarification, and/or assistance with additional insured endorsements, contact your insurance broker.