Many people who work or volunteer for a nonprofit agency believe that nonprofits still operate under some form of charitable immunity. This and other misconceptions about nonprofit liability may jeopardize the success of nonprofits that fail to take appropriate steps to protect themselves and their stakeholders from harm. Dispelling the myths about liability is a first step in managing risk in a nonprofit organization. For many nonprofits, insurance is a critical component of a risk management program, but buying insurance is no substitute for engaging in the practice of risk management. When losses do occur, organizations must pay for them somehow.
Insurance is one of many methods available for financing losses.
However, insurance does nothing to prevent a loss from occurring. A popular belief is that the legal system is running amok. Sometimes it seems that everybody's suing somebody and that multi-million dollar awards are common. The facts reflect a different reality. According to a 1988 study by the Insurance Services Office, lawsuits represent less than a third of total liability claims.