When determining whether an organization is directly or vicariously liable, perhaps the most relevant factor is whether or not the organization, or someone acting on its behalf, was negligent. To show that an organization was negligent, a plaintiff must establish the following: That the organization or someone acting on the organization’s behalf had a duty to meet a certain standard of care with respect to the person harmed; that the organization or someone acting on the organization’s behalf breached the duty of care that was owed to the person harmed; that the individual actually suffered a compensable loss (physical injury, property damaged, etc.); that the compensable injury was the direct result of the organization’s breach of duty; or that the compensable injury was the result of a chain of events beginning with the organization’s breach of duty. As mentioned above, strict liability is not assessed on a fault basis, but is simply based on whether or not the injury occurred within the scope of the duty in question.

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A nonprofit can be held responsible for its own actions and omissions (direct liability). In addition, under the theory of respondeat superior, a nonprofit can also be held responsible for the actions and omissions of individuals in the organization’s employment or acting on the organization’s behalf (vicarious liability). In the cases of direct and vicarious liability, an organization will be held liable if it is determined that the organization (or someone acting on its behalf) was at fault, either intentionally or negligently. However, in the case of strict liability, liability is not necessarily assigned on a fault basis. For example, under workers’ compensation laws, a nonprofit will be held responsible for injuries suffered by employees while acting within the scope of their employment, even if it was the employees’ negligence that caused the injuries.

Directors and Officers Insurance (D&O) provides coverage for the members of the Board of Directors and officers of the organization for claims made against the organization. When considering D&O, it is important to make sure that employment-related claims (along with tort and contract claims) are included in the policy. Most policies do cover employment-related claims, but as the bulk of claims filed are employment related, it is in the organization’s best interest to make certain that its policy provides such coverage. It is also important to note that most D&O policies do not cover fines and penalties imposed by law, fiduciary duty suits, failure to procure or maintain insurance, property damage, or personal injury. Such claims are usually covered under general liability policies. Each D&O policy is different, and it is important to consult with an insurance professional.

Risk management is more than selecting an insurance policy. With the increasing numbers of laws and regulations governing nonprofits and more cases of employee-related litigation, organizations have become more proactive where risk management is concerned. Risk management is systematically identifying, preventing, and when necessary, managing threats to the organization. It is important that the organization review its major function areas to determine the likelihood and potential impact of possible threats then address those with the greatest potential to become volatile issues.