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Protecting Your Association from Claim Exposures: Liability Insurance Can Reduce Legal Risk
Date: January 1, 2011
From: Tom McDonoguh and Paulette Norman

In today’s increasingly litigious business climate, the ability to eliminate as many potential claims as possible against an association could be the difference between financial success and failure.

Many nonprofit organizations are now looking to Association Management Companies (AMCs) as a potential solution to their liability risk woes. Because the association’s employees are considered AMC personnel, the nonprofit organization is able to avoid many employment-related claims – the largest legal liability area for a nonprofit organization and its board of directors.

That’s why it’s important for AMCs and associations to consider a wide range of factors when choosing professional liability insurance coverage. Every association is vulnerable to mismanagement suits – particularly as they relate to discrimination, harassment, wrongful employee discharge, overtime compensation and violation of family and medical leave rules. A staggering percentage of all claims made against associations and their leaders are employment-related. ("Reducing Liabilities" Volume 1, Issue 1)

A variety of insurance plans are available that can help protect associations and AMCs from liability suits that arise from director or employee errors, personal injury, event cancellation and more. Here are a few policies that benefit the association industry.

  1. Directors and Officers (D&O) Liability Insurance provides financial protection for organization leaders in the event they are sued based on their work performance. These policies help protect the association and it’s directors from employee and client claims. D&O policy claims are typically the result of a bad management or governance decision that causes harm other than bodily injury or property damage. Employment practices lawsuits – such as harassment and discrimination – make up most of the claim activity under Directors and Officers policies. Various exclusions and limitations can narrow that coverage.
  2. General Liability Insurance pertains more to slips and falls, defamation of character, and libel and slander. This is essential to operations, protecting the assets of a business when it is sued for something related to bodily injury, property damage and personal injury. Through the policy, the insurer is obligated to pay the organization’s legal costs and compensatory and general damages. General liability insurance can be purchased separately or bundled together with several other types of policies.
  3. Event Cancellation Insurance provides reimbursement should a convention or expo be cancelled, postponed or rescheduled due to weather conditions, unavoidable traffic delays or venue damage. The policy also provides financial protection for certain losses such as theft of presents, deposits and more. The majority of associations regularly host conventions and meetings, where they sign a contract costing thousands or even millions of dollars. Even in the case of a labor strike, facility fire, hurricane or blizzard, the association would still be held accountable in terms of returning booth space or registration fees. If this is an association’s primary annual revenue-generator, the financial loss of one cancelled event could prove disastrous to operations.

To obtain adequate coverage – and best address the liability needs of your associations – work with an agent or broker on insurance alternatives.

Paulette A. Norman is Vice President and Tom McDonough is Senior Vice President of AMC Institute Associate member Marsh Affinity Group Services, located in Park Ridge, Ill. Paulette.norman@marshpm.com, Tom.McDonough@marshpm.com, 1-800-323-2106

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