Should chapters get liability insurance? An expert weighs in…

Here’s a recent question
posted on the ASAE Collaborative Group: 

We are a XXX
organization for XXX and have more than 100 components (we call them chapters)
in cities across the country.  They are
all 501c6 organizations with their own articles, bylaws and D&O
insurance.  Question of the day: do they
also need liability insurance?  Most of
the larger components have had it; however, the rates tripled this year so they
are asking if it is a requirement. 

Excellent question and one that associations are often confused
about. Do chapters need their own insurance, and if they don’t, what happens
when something goes wrong? While chapters are the face of National on the local
level, National certainly doesn’t want to get mired in legal or public relations
crises that are the fault of the chapter.

Fortunately for us, we have an expert in liability insurance who
can help muddle through the murkiness of it all. Leslie White, CPCU, CIC, ARM,
, president of Croydon Consulting, LLC is an expert in insurance and risk
management, specializing in serving nonprofit organizations.

As an insurance and
risk management consultant, I strongly recommend that the chapters have general
liability insurance. I have gone so far as to say if the chapter can’t afford
both general liability and D&O insurance, the Board needs to have a
conversation as to which insurance is most important to them.

There are other
things to take into consideration as well:

Many facilities
will require the chapter to have general liability insurance before letting the
group use the facility. Some sponsors may also request proof of insurance.

If chapter doesn’t have any employees, it is less likely to have a
D&O claim. But as a caveat, D&O claims can be expensive
and in most states, board members are personally responsible for any wrong

Many chapters hold dinner meetings, outings and social events. These
events expose chapters to many liability exposures, and the boards may not be
too sophisticated about contracts, indemnification provisions, hold harmless
agreements and insurance requirements. So liability insurance can be an
effective safety net.

Several years ago I wrote an article about
national associations and their chapters exploring options for insurance
coverage for chapters.

There are several ways for the national office to help chapters with their insurance
needs. You can negotiate an unofficial agreement with your insurance agent and
carriers to have them handle the chapters’ insurance needs. You could also
create a purchase group or an affinity type program for the chapters. Creating
a program will take a lot of work for both the association and the insurance
agent. Discuss your options with your insurance agent or broker – you can
develop an answer that is best for the association and chapters.