Evaluating Your Legal Liability
The Checklist consists of lists of questions about nonprofit organization policies, programs or procedures that could carry legal liability risks. The Checklist can be used by a nonprofit organization as an organization management self-evaluation document to help understand and evaluate the potential risks they might face.
Subjects addressed in the Checklist were identified through studies of areas in which claims against nonprofit organizations covered by D&O have most often been brought.
You Can't Pass or Fail
It must be emphasized that the Checklist is not an objective criterion document, but instead a subjective evaluation document. The Checklist is not a test that a nonprofit organization can "pass" or "fail." Although the questions are designed to be answered either "yes" or "no," there are no right or wrong answers for all nonprofit organizations in all circumstances. In most cases the answer "yes" suggests a low risk for the nonprofit organization and the answer "no" suggests that consideration should be given to whether a risk exists and whether it is acceptable to the nonprofit organization. But a nonprofit organization's answers will not necessarily identify the nonprofit organization as one that is, or is not, "liable" or one that is, or is not, "insurable." Legal liability for a nonprofit organization can only be assessed with respect to its specific factual situation under applicable legal authority. Ultimately, only a court can determine if a nonprofit organization is "liable" when the nonprofit organization is challenged. Whether the nonprofit organization is likely to be able to secure insurance indemnification depends upon underwriting guidelines, available underwriting authority and other internal insurance company factors when the grantmaker applies for insurance. Ultimately, a grantmaker is "insurable" only if it is actually offered acceptable insurance coverage by a reputable insurance company.
You Can Reduce Your Risk
The exercise of attempting to answer the Checklist can be valuable, however, because the questions do relate closely to liability and insurability. Use of the Checklist may lead a nonprofit organization to more knowledgeable planning to eliminate or reduce unnecessary liability risks. Even if the nonprofit organization has no liability insurance and is "self-insured," this exercise can help make it a better risk. Use of the Checklist may lead an insurance company to more knowledgeable consideration of what coverages to offer, what conditions to specify, and what premiums to quote. This should reduce losses, improve insurers' profitability, attract insurers to the D&O market, and make the insurance more easily available to nonprofit organizations.
1. Does the nonprofit organization use a written contract signed by all parties whenever it becomes committed to a significant legal, financial or other obligation?
2. Are contracts reviewed by staff before they are signed to assure that they contain all of the intended and acceptable terms such as for price or fee, date of delivery or performance, interest or penalties and termination or cancellation?
3. Are contracts reviewed by legal counsel before they are signed to assure that they contain minimum requirements, are legally enforceable, do not violate the law or present unanticipated tax or tax exemption problems, other problems?
4. Does the nonprofit organization insist that every contract it enters into, no matter who drafts the contract, must be written in "plain English" - with simple and understandable statements of terms and conditions?
5. Are any changes in the arrangements contained in a written contract made only by insertions that are initialed by all parties or by use of a separate written agreement signed by all parties?
6. Does the nonprofit organization assure itself that the individual negotiating on behalf of the other party actually has the authority to bind that other party?
7. Is there an established policy as to who among the volunteers and staff is specifically authorized to bind the nonprofit organization to legal, financial, or other obligations?
8. Are volunteers and staff periodically advised regarding authority to bind the nonprofit organization?
9. When several aspects of a function or arrangement must depend on one another for success, are related contracts for each aspect specified as contingent upon one another - for example, committing through different contracts with several hotels and a convention center to be used simultaneously for a large meeting, or committing through different contracts with separate suppliers of computer hardware and computer software?
10. When a contract incorporates another document into its terms by reference to that document, is the other document obtained, reviewed, approved and attached to the contract?
11. Does the nonprofit organization specifically assign someone to monitor performance under the terms of the contract by all parties involved?
12. When a nonprofit organization provides that it is automatically renewed unless terminated by a specified date, is that date carefully logged on a permanent calendar to assure against unintended automatic renewal?
13. Are original, signed copies of contracts maintained in secure and permanent files?
1. Do the nonprofit organization's publications carry a copyright notice--the word "Copyright", the abbreviation "Copr.", or the "c" in a circle symbol, followed by the date of first publication and the name of the copyright owner?
2. Are important nonprofit organization publications registered with the Copyright Office of the Library of Congress?
3. Does the nonprofit organization assure that it owns the copyright for its publications and their content under the "work for hire" doctrine--either the work is created by a nonprofit organization employee who receives a salary or by someone else who is paid an author's fee or honorarium?
4. Where a work is created "for hire," is the ownership established in writing?
5. Does the nonprofit organization avoid copying or re-publication of copyrighted works of others except for excerpts, samples or other portions under the "fair use" doctrine?
6. When an infringement of the nonprofit organization's copyright is discovered, is the infringer pursued legally?
7. Does the nonprofit organization avoid libel by assuring that all statements in its publications which criticize individuals, firms, products or services can be supported as fair and accurate from clear evidence?
8. Does the nonprofit organization invite individuals or firms whose products or services are criticized in the nonprofit organization's publications to respond to the criticism in advance of publication?
9. Is the response published?
10. Does legal counsel review publications in advance that contain potentially libelous statements?
11. Does the nonprofit organization endorse or recommend particular products or services in its publications?
1. Does the nonprofit organization avoid discrimination in hiring, firing and other employment-related decisions?
2. Does the nonprofit organization check all references provided by candidates for employment?
3. Does the nonprofit organization generate and check additional references?
4. Does the nonprofit organization distribute a personnel manual to all employees?
5. Are all of the provisions of the manual uniformly applied?
6. Does the manual include job descriptions for all employees, list all employee benefits and provide for periodic evaluation against specific criteria?
7. Is the manual specific as to vacation benefits and the availability of "carry-forward" of unused vacation?
8. Are the job evaluation criteria objective, reasonable, and consistently applied?
9. Does the manual include criteria for determining when an employee is disabled and what the consequences and benefits are, if any?
10. Does the manual specify whether such conditions as AIDS are considered disabilities?
11. Does the manual make clear that staff are "employees-at-will" subject to termination at the discretion of the nonprofit organization?
12. Does the manual specify termination procedures and severance benefits, if any?
13. Is the manual reviewed on a regular basis by legal counsel to assure compliance with applicable laws?
14. When an employee's performance is inadequate, are procedures consistently applied for notification to the employee, establishment of goals and deadlines for improvement, and recording of the situation in personnel files?
15. Does the nonprofit organization have a plan for quickly confronting and resolving instances of workplace abuse of alcohol or drugs?
1. Does the nonprofit organization obtain an audited financial statement at least annually?
2. Are periodic interim financial reports issued to the governing board of the nonprofit organization?
3. Is a budget prepared each year, approved by the governing board, used to measure financial performance of the nonprofit organization, and adjusted when necessary?
4. Is the nonprofit organization's bookkeeper bonded?
5. Are internal financial and bookkeeping procedures in place, approved by the governing board, and reviewed periodically with weaknesses noted?
6. Is a segregation of duties maintained among those with financial and bookkeeping responsibilities?
7. Is access to nonprofit organization funds limited to specified individuals and in specified amounts, with the nonprofit organization's bank notified of the amounts beyond which counter-signatures are required?
8. When cash is received at the nonprofit organization's office or at conventions, are special procedures in place to assure control?
9. Are short-term and long-term plans or protocols for investment of association funds in place, reviewed periodically by the governing board, and revised when necessary?
10. Are all employee benefit programs reviewed periodically for compliance with applicable laws?
1. Is each nonprofit organization meeting held according to a notice and agenda distributed in advance to attendees?
2. Are those who preside at nonprofit organization meetings made aware by staff or legal counsel of subjects that must not be discussed because of potentially adverse legal ramifications?
3. Are attendees at nonprofit organization meetings admonished against discussion of subjects with potentially adverse legal ramifications?
4. Are minutes taken of nonprofit organization meeting proceedings?
5. Do the minutes record all or most comments, views, criticisms, considerations or discussions of each subject rather than merely reports, communications and resolutions?
6. Are minutes prepared by staff rather than by volunteers?
7. Are draft versions of minutes removed from the nonprofit organization's records once the final version is approved?
8. Are minutes reviewed by legal counsel before distribution?
9. If audio recordings are maintained of nonprofit organization meeting proceedings, are they destroyed after use in preparing written minutes?
10. Are "rump," "secret" or "off-the-record" meetings by the nonprofit organization or among its leadership or members prohibited and avoided?
1. Is the leadership of the nonprofit organization routinely advised, through oral or written communications, regarding avoidance of potential legal liability?
2. Is the nonprofit organization managed by one or more experienced and knowledgeable professional nonprofit organization executives?
3. Has the executive attended educational programming on legal liability of nonprofit organizations?
4. Does the executive receive and review books, periodicals or other literature covering nonprofit organization law?
5. Is qualified legal counsel available either "inside" (on staff) or "outside" (on a retained basis) to consult regarding potential legal liability situations?
6. Is legal counsel specially knowledgeable and experienced in nonprofit organization law because of professional memberships, educational seminars, legal publications, or representation of other nonprofit organizations?
7. Does consultation with legal counsel typically occur when potential liability situations are first identified rather than later when a claim or challenge is received?
8. Does legal counsel attend meetings of the governing board of the nonprofit organization?
9. Does legal counsel regularly receive and review minutes, communications and publications of the nonprofit organization?
10. Does the nonprofit organization have governing documents--a corporate charter, bylaws, and a compilation of policies and procedures--that clearly specify the rights and obligations of members, directors, officers and staff?
11. Are the governing documents periodically reviewed to make them current and consistent with present interpretation of nonprofit organization law?
12. Is the purpose of the nonprofit organization stated clearly in its governing documents with no implication of illegality?
13. Are volunteers or staff indemnified through the governing documents or otherwise?
14. Is there an established policy as to who among the volunteers and staff is specifically authorized to communicate outside the nonprofit organization its views, comments and positions?
15. Are volunteers and staff periodically advised regarding authority to communicate on behalf of the nonprofit organization?
16. Are volunteers prohibited from using nonprofit organization letterhead except when authorized for a specific task, project or purpose?
17. Has the nonprofit organization previously carried any form of "errors and omissions," "directors" and officers" or "nonprofit organization professional liability insurance"?
18. Were there no claims made under that insurance?
19. Has that insurance been terminated?