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Should your FCA buy liability insurance? Probably not.

Josh Slocum, executive director

Lots of FCA-affiliated organizations have questions about liability insurance. Do we need it? What if we get sued? Shouldn’t every nonprofit have insurance?

The short answer to the last one is, “no,” but the reasons aren’t always straightforward. Let’s talk about:

  • What liability and risk actually are and how to assess them
  • The different types of insurance
  • Weighing the cost of insurance against the actual risk

Bear this in mind as you read: Anyone can sue anyone, at any time, for any reason. Whether you have insurance or not. Whether you did anything wrong or not. However, the huge majority of threats are empty and will go nowhere. That funeral director who claims his price list is copyrighted and he’ll sue you if you republish it? Baloney. Sure, he can sue, but publishing public information for education and commentary violates no law.

During 12 years as the executive director of FCA I’ve been the subject of many such threats. A simple, “We’ve done nothing wrong and have broken no laws. Filing suit against a nonprofit with $3,000 in total assets and run by community volunteers won’t look good for you when we publicize this,” usually quiets those outbursts. The very few lawsuits FCA people have faced will be discussed below.

Liability protection from incorporation 

By incorporating your organization you remove most of the personal liability from your board members. That means that if John Q. Public sues your FCA because he slipped on your steps, you as a board member won’t personally be expected to cough up money from your own household funds. Only the organization’s assets can be targeted. And when your small FCA has only a few-thousand dollars in assets you’re not a very attractive target. The worst that can happen, generally, is that you lose your few-thousand dollars. This discourages most suits, and you can also turn it to your advantage when fundraising. You’ll be the David against the funeral Goliath.

So it’s important to adjust your expectations and sense of risk. In my experience, most people are far more afraid of lawsuit threats than they need to be. They silence themselves when they don’t need to because they fear legal consequences that are highly unlikely. Don’t let bullying distort your fear threshold so that you’re dancing to someone else’s tune and letting them spend your money wastefully.

The legal self-help organization NOLO says this:

Fear of personal liability stops many people from joining boards of directors at all — although the number who have actually been sued is quite small. The news is good for nonprofits, though with certain exceptions. Once your organization is incorporated, its directors or trustees, officers, employees, and members usually won’t be on the hook personally for the nonprofit’s debts or liabilities. That includes unpaid organizational debts and unsatisfied court judgments against the nonprofit.

Types of insurance: General Liability and Directors and Officers 

Broadly, there are two types of insurance that organizations might have: General Liability (GL)and Directors and Officers (D&O; sometimes called Errors and Omissions). General liability insurance usually covers such things as personal injury claims—if you have an office and someone slips on your steps, for example. Some GL policies also let you bond your treasurer or key employees, giving the organization’s money protection if someone embezzles or misuses funds. If you have a physical office and paid employees you may indeed want to consider a GL policy, but this does not describe the vast majority of FCA groups.

D&O insurance covers other scenarios, such as a suit against your board for mismanaging investment funds, failing to file crucial legal paperwork, and others.

Remember, these policies pay the costs to defend the organization and to protect its assets, not the individual board members. Except in rare cases,  board members’ personal household assets are not at risk in these lawsuits. It’s a mistake to believe that you’re buying “protection for Jane Doe so she’ll feel comfortable serving on the  board.” You are not, since the fact of your incorporation already shields Jane’s money from legal claims.

Note! Insurance policies vary widely by company. Some of the components you’d expect to find in a GL policy might be found in a D&O policy, or vice-versa. It is imperative to research, read policies closely, and have someone familiar with insurance look over the policy before you commit.

To recap so far: Buying insurance does not “protect” the individual incomes and assets of your board members because those are not in danger in the first place. Even if your organization is sued. Insurance helps pay the cost of legal defense for the organization and its assets. Keep this in the front of your mind when you look at the cost of buying a policy versus how much (or how little) organizational money you have to lose.

Real-life examples 

The federation of FCA groups has been around for 51 years. In that time, there are only two lawsuits I am aware of. None of these are likely at all to happen to your FCA (but remember, anyone can sue anytime) and they’re definitely not an argument for buying liability insurance “just in case.”

  • Thomas Lynch v FCA, Funeral Ethics Organization, and Funeral Consumers Alliance of Idaho. Back in 2008, the celebrity funeral director and bestselling author sued these organizations for libel. He also sued FEO’s executive director, Lisa Carlson, personally.* Lynch claimed that we had all defamed him by criticizing his business practices. It was a suit fueled by ego, not facts. The court agreed and tossed the suit out as none of the organizations had said anything untrue and what we did say was constitutionally protected. Read about the suit here (scroll to the bottom of the page). But it made the small FCA of Idaho justifiably nervous (they got dragged in for reprinting one of the offending articles) as they had no insurance or the money for a lawyer. In the end a lawyer sympathetic to FCA of Idaho did some pro bono work in conjunction with FCA national’s lawyer that got the small group dismissed from the suit. This was exceptional on our defense lawyer’s part; it was a favor and there is no umbrella coverage from national that protects local affiliates.
  • A disgruntled funeral director sued the FCA of Central New York in small claims court. That’s the level at which you represent yourself; you don’t need a lawyer. The FCACNY declined to list this funeral director as a cooperating funeral home because of his dodgy business practices. The funeral director believed he had a legal right to be listed as a cooperating funeral home, a claim the judge found as amusing as we did. Two board members showed up in small claims court, told their story, and the suit was immediately dismissed.

Cost versus risk and benefit 

How much at risk is your FCA, really? It’s hard to quantify, but it’s pretty small. Many people forget that risk is not an absolute. There are various levels of risk, and each of us has a personal threshold for how much of risk we can tolerate before we buy liability protection. The most common mistake? Overestimating your risk and wasting money on premiums against a scenario so unlikely to happen it can’t justify the cost. In this way, we fall prey to the idea that any risk at all, no matter how hypothetical, is unacceptable.

Think about how you buy homeowner’s insurance. Companies want to get the most business from you, so they often “helpfully suggest” you insure your home against all sorts of contingencies. When I bought my house I spent more time declining excessive coverage amounts above and beyond what it would cost to rebuild my modest home if it were to burn down.

Most of us make these choices and don’t buy the platinum package simply because it’s theoretically possible that a fire will  destroy our house AND destroy the soil under it AND render the entire neighborhood uninhabitable.

Buying GL or D&O insurance for your FCA because of an inflated sense of risk means, in effect, that you’re buying the platinum package.  It’s letting fear waste your scarce resources and member donations.

Let’s use a realistic example. Most D&O policies anywhere in the country start at $1,000 annually, and that baseline is going up. With that in mind, consider the fictional FCA of Coyote Canyon.

  • FCACC has $5,000 in total assets in the bank
  • Every year FCACC takes in about $2,000 in new member donations and repeat support from members, and it spends about the same amount on newsletters and publications
  • FCACC isn’t rich, but it has enough to cover its minimal administrative costs with this modest balance sheet

FCACC decides it needs D&O insurance. So it buys a policy for $1,100 a year. That eats up more than half the organization’s annual  income.  That’s huge. So huge it’s unjustifiable. Were I a member of FCACC I would be at the next board meeting demanding to know why the board wasted more than half of every donation on an insurance policy instead of the educational mission that I donated for. I think most readers would feel the same about small charities they donate to.

Carry it out five years. FCACC will have spent $5,500 to protect only $5,000 in total assets. It spent more in premiums than the organization ever had in the bank. The absolute worst that could have happened if the group were sued would be the total loss of $5,000. This could easily be made up in fundraising. But in buying the policy they spent more than that theoretical loss. You’d never make such a decision about your own household insurance.

What about FCA national? 

First and most important: No, FCA national’s insurance policy does not and cannot cover any FCA affiliate. Each group is a separate, incorporated legal nonprofit. We are affiliated, but we are not legally the same corporation. There are no exceptions or riders that would change this.

FCA national does carry insurance. We spend about $3,600 a year on General Liability, Worker’s Compensation, and Directors and Officers. Why? Because of our size it would be irresponsible not to. We have three paid employees and about $270,000 in assets (this is just more than one year’s worth of operating expenses, not a treasure trove of extra money). We are also a much juicier target as we’re nationally known for being outspoken critics of the funeral industry.

Still, our chances of being sued are fairly low. Even though we were sued for libel, our chances of being sued again are still low. But the potential risk to our assets is great enough that we would be irresponsible not to carry such insurance. And while we’d love to save that $3,600 a year, it’s only 1.5 percent our annual expenditures. Compare that to FCA of Coyote Canyon spending more than half its annual income on insurance.

Questions or comments? Leave us a comment here or write josh@funerals.org.

*Check your homeowner’s insurance policy. Carlson was delighted to discover that her insurance company defended her under its personal injury protection provisions. Remember that “personal injury” doesn’t mean only “I got hurt physically”. It can also apply to “injuries” such as defamation and libel.