By Teresa Rodgers and Abby Rolland
In the simplest yet incomplete of descriptions, institutional philanthropy (such as giving through foundations and donor-advised funds (DAFs)) is about giving money away to address issues typically by helping support organizations and people making positive change.
There’s an entire field dedicated to expanding on that very basic definition, layers of complexity of how and in what ways organizations can give money away, and questions about effectiveness, strategy, community, and best practices that permeate conversations and actions on philanthropy. However, what can be missing are discussions about the more technical aspects of establishing and maintaining entities such as private foundations. Through this blog post series, we at harp-weaver compile resources from organizations like Exponent Philanthropy, the National Center for Family Philanthropy, and more while also sharing our own experiences and thoughts about topics like insurance, investing, cyber-attacks, audits and reviews, and memberships at various philanthropy-serving organizations.
These topics may be viewed as the less interesting aspects of establishing and maintaining a charitable giving institution in good standing, but we think that understanding them is vital to ensuring a healthy, well-functioning foundation* that fully optimizes its giving.
The first post in the series on “what you need to know” focuses on insurance.
There are several types of insurance that funders can consider purchasing, depending on the organization’s needs.
1. Directors & Officers (D&O) Liability Insurance
As referred to in its name, D&O Insurance covers directors and officers for claims made against them while serving on a board of directors and/or as an officer. In addition to the board, it could also cover committee members, employees/staff, and other volunteers who are acting in the direction of the organization. The policy covers claims resulting from managerial decisions that have adverse consequences.
This is the type of insurance that most small foundations have. Larger funders can look into separate policies for general liability insurance and cyber insurance if the D&O insurance does not provide coverage for all that the funder needs.
2. General Liability Insurance
Liability insurance provides protection against claims resulting from injuries and damage to other people or property. A common phrase found in contracts states that one party agrees to hold another party harmless for any injuries, accidents, or losses that occur while the contact is in effect.
Liability insurance often includes an element of cyber insurance, which offers protection from Internet-based risks.
When considering insurance needs, foundations can look at whether or not they need a separate general liability insurance policy, or whether their D&O liability insurance will cover what is deemed necessary.
3. Cyber Insurance
As shared above, cyber insurance offers protection from Internet-based risks, and more generally from risks relating to information technology infrastructure and activities.
Some foundations are adding cyber insurance to the coverage they have. Each foundation should determine their need for cyber insurance based on their level of online/technology presence and activity. To what extent is the work of the charitable giving entity in the public domain (e.g., Do you have a website? Specific email addresses? Other “presences” online?)? If they aren’t in the space and/or their D&O insurance covers what they need, purchasing a separate policy may not be necessary.
4. Workers’ compensation insurance
For a foundation with paid staff and payroll, having workers’ compensation insurance is required. This insurance includes coverage for if physical harm occurs to an employee. It exists to protect the business owner if something happens to the employee and they want to receive benefits as a result.
5. Contractual liability insurance
Contractual liability insurance helps covers claims related to contract issues covering any liabilities that a foundation assumes from a contract. This type of insurance is also included in general liability insurance up to a certain point, so a foundation should conduct due diligence to see if they need a separate policy.
There is much more about insurance that can be shared; harp-weaver encourages funders to do their due diligence to make sure that their insurance approach aligns with their mission, goals, and needs.
*A note that donor-advised funds (DAFs) operate differently than private foundations do with regards to insurance. A DAF sponsoring institution e.g., the organization that “hosts” the DAF has its own insurance; thus, a DAF owner (the person who gave the money to their DAF) does not have to own their insurance.