By Jani Memorich, CLCS, Associate Director of Professional Athletes & Entertainers
While many professional athletes have great intentions and look to give back when establishing a Foundation, having a charity event or simply throwing a birthday party at a club, there are also liability exposures often overlooked by the advisor and professional athlete.
Unfortunately, many athletes only think about securing insurance coverages for their homes, condos, automobiles and jewelry. While these coverages can provide proper protection for their personal liability exposures, they do not provide coverage for activities associated with the athlete for their commercial exposures.
Many advisors and athletes make the assumption their Foundations and charity events would be covered under the athlete’s personal liability coverage, which may include an umbrella policy. There have been many cases where we have provided an insurance review for an advisor and their clients where they were unaware there were additional exposures associated outside of their personal insurance coverages.
Many Foundations may have little or no insurance coverage at all. It’s imperative to provide this protection for a client since he or she has that exposure when providing any events under the Foundation name. Every Foundation should have an insurance program in place as part of their business model. Coverages such as General Liability, Errors & Omissions, Directors and Officers, business property and Workers Compensation coverage may all be necessary to provide the proper protection for the athlete’s exposures. There are a number of questions to be answered when considering what the appropriate coverage is for a Foundation or special charity event:
Does the Foundation have employees and office space?
Do the employees directly handle the funds received?
What types of events are held during the year?
Is alcohol served?
How many events take place during the year?
Are the Board members provided protection under the Foundation’s coverages?
Do employees drive for any Foundation activities?
Is anything associated with the Foundation sold on the internet or in other ways?
Many advisors and agents do not make an insurance review an integral part of the Foundation’s business plan. Insurance is seen as a commodity and overlooked. These Foundations and charity events come with significant exposures. Many of them have family members running them who may not have the knowledge and expertise in placing the proper insurance as part of the Foundation’s financial portfolio.
What types of insurance should a Foundation have? While the cost of insurance may at times feel like a financial burden to a Foundation, not having it in place if a claim arises could be the real financial challenge. The following types of coverage should be considered depending on the type of Foundation and the mission.
GENERAL LIABILITY INSURANCE: General liability coverage insures your organization against classic slip-and-fall scenarios. Your Foundation will be covered for damages to someone (such as a visitor, supplier, or associate) who is injured on the organization’s property. These policies don’t apply to the nonprofit’s employees, who are covered separately by workers’ compensation insurance. If the Foundation is run out of someone’s home, an accident that occurs while there on Foundation business would expose the Foundation to a claim and may not be covered under a homeowner’s policy.
PROPERTY INSURANCE: Whether owned or rented space is occupied by the nonprofit, consider what your organization might lose in the event of a fire, earthquake, vandalism, storm, flood, or similar event.
fixtures (such as lighting systems or carpeting)
equipment and machinery
office furniture
computers and accessories (monitors, CD-ROM drives, modems, printers, and so forth)
inventory and supplies
If you are running a nonprofit out of your home, you may need to adjust your homeowners’ or renters’ insurance policy. Many exclude coverage of business-related claims, while others forbid business use of your home — meaning that if you run a nonprofit there, your coverage could be limited or excluded.
HIRED NON-OWNED AUTO INSURANCE: If your staff or volunteers use rented vehicles or their own for your nonprofit’s activities, this coverage is recommended. The insurance will pay for injuries a driver causes to other people or property while carrying out your organization’s business.
DIRECTORS AND OFFICERS INSURANCE: Your nonprofit’s Board of Directors and Officers (many of whom are volunteers) could be personally named (individually or collectively) in a lawsuit against your nonprofit. For example, if the board members invests the nonprofit’s assets unwisely and lose everything, a creditor might sue the nonprofit as well as its directors and officers. In such a case, you’d want directors and officers (D&O) insurance to cover the cost of defending the directors and officers and pay any resulting money damages. The organization can choose to indemnify the board members which means that the Directors and Officers coverage will be used to pay for the legal costs associated with the lawsuit. The board members could not be indemnified for criminal acts.
PROFESSIONAL LIABILITY INSURANCE: Similar to D&O coverage, professional liability coverage (sometimes called “Errors and Omissions” or “Malpractice” insurance) protect against liabilities resulting from mismanagement of the organization, as well as workplace-related claims such as discrimination or sexual harassment. It covers not only directors and officers but also staff, volunteers, and the nonprofit organization itself.
WORKERS COMPENSATION INSURANCE: If your organization has employees, you should have additional coverage. Both state and federal insurance requirements will apply, typically mandating that you pay for workers’ compensation and unemployment insurance, and possibly for disability insurance as well.
Here are a few examples of claims:
DONORS: Claims resulting from those who make donations to the organizations
The Board of Directors of a nonprofit were sued by a number of their donors, alleging misrepresentation of the financial status of the organization. Three members brought separate suits for repayment of the money lent to the organization. The first case settled for $240,000 of which $117,000 accounted for expenses including legal. The second case settled for $75,000 and incurred $86,000 in defense costs. The last case paid nothing to the claimant but incurred $13,000 in defense costs. The total loss including defense costs exceeded $530,000. A $1,000,000 limit including legal costs on a Directors and Officers policy would have covered this loss.
THIRD PARTIES: Third party lawsuits can be filed for various reasons
An organization filed a suit against a Foundation and its Board of Directors for improperly infringing upon the claimants intellectual property rights (the claimant was actually being used as a vendor to promote the event). The claimant filed suit seeking injunctive and monetary relief for the Foundation’s alleged improper use of trademarked property while promoting their fundraiser. The claim settled and the total loss, including defense, was over $400,000.
EMPLOYEES AND VOLUNTEERS: Often suits will be brought regarding discrimination, harassment, wrongful termination, retaliation and hostile work environment.
After 10 years of employment, an employee was fired for poor work performance, the employee brought a discrimination suit against the employer under the Americans with Disabilities Act. The individual alleged lack of work place accommodation and constructive discharge. The claim was closed for a total loss of over $80,000, including more than $20,000 in defense costs.
BENEFICIARIES/CLIENTS: A claim by the recipient of the organization’s services/gifts or on behalf of the intended recipients. A suit was brought against a Foundation for not providing support both financial and services that the Foundation had solicited donations from donors to pay for.
Consequently, if every donation isn’t used in the way your organization says it will be, the organization is exposed to lawsuits. These lawsuits may be determined false but they still have to be defended. Defense costs should play an important role in determining the limits of your policy.
Understandably, many attorneys, advisors and agents may not have confidence in an insurance broker who does not fully understand and appreciate the exposures a professional athlete has, both personally and professionally. Insurance is seen as a commodity.
With the proper insurance advisor to assist in providing these coverages, your clients will receive the appropriate insurance program as part of your overall service model.
