Nonprofit Insurance in California: What Your Board Should Carry

A California nonprofit typically needs general liability, directors and officers (D&O) liability, property coverage, and workers' compensation if it has any employees. It may also need accident coverage for volunteers, abuse and molestation coverage if it serves minors, special event coverage for fundraisers, and whatever its grants, leases and contracts require. Tax-exempt status doesn't reduce the organization's exposure to lawsuits, injuries or theft, and California law ties some board protections to whether the organization actually carries insurance.

This guide walks through each coverage and the California rules behind it. For a quote, start on our nonprofit and community organization insurance page.

Why insurance is part of the board's duty of care

Directors of a California nonprofit public benefit corporation must act in good faith, in the corporation's best interests, and "with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances" (Corporations Code §5231(a)). Deciding how the organization manages risk, including what it insures and for how much, is part of that job.

California's volunteer-director protections also depend on insurance:

• Corporations Code §5239 protects volunteer directors and volunteer executive officers of public benefit corporations from personal liability to third parties for ordinary negligence within the scope of their duties. One condition is that the damages are covered by a liability policy issued to the corporation (general liability or D&O) or to the individual. If no coverage exists, the protection can still apply if the board and the person made all reasonable good-faith efforts to get available insurance. For 501(c)(3) organizations with annual budgets under $25,000, the statute spells out a minimum annual inquiry.

• Corporations Code §5047.5 bars many negligence claims for money damages against uncompensated directors and officers of qualifying 501(c)(3) and 501(c)(6) nonprofits. It applies only if the corporation maintains liability insurance of at least $500,000 (annual budget under $50,000) or $1,000,000 (budget of $50,000 or more). It also requires that the claim could be made directly against the corporation with a liability policy applicable to it.

Neither statute protects against everything. Self-dealing, gross negligence, intentional misconduct and actions brought by the Attorney General are carved out. The details matter, so ask your nonprofit counsel how they apply to your board. But the practical lesson is simple: an uninsured or underinsured nonprofit can weaken the protections its volunteer board relies on.

Directors and officers (D&O) liability

D&O covers claims that the board or officers made a wrongful decision or failed in their duties. Common examples include mismanaging funds, breaching a grant agreement, wrongfully removing a member or director, or employment claims against the organization. For many nonprofits, employment-related claims are the most frequent source of D&O losses, which is why D&O and employment practices liability are often bundled.

D&O is usually written on a claims-made basis. We cover nonprofit-specific D&O in detail in directors and officers insurance for nonprofits, and the general mechanics in what D&O insurance covers.

General liability

General liability insurance typically covers bodily injury and property damage to third parties: a visitor hurt at your office, a client injured during a program, or damage to a church hall you borrowed for an event. Points nonprofits should check:

• Volunteers as insureds. Most modern GL forms include volunteer workers as insureds while they act for the organization. Confirm it in your policy's "Who Is An Insured" section.

• Program activities. Some activities, such as youth sports, transportation, camps, counseling or food distribution, may be excluded or need specific underwriting. Describe every program on the application.

• Professional services exclusions. Counseling, case management and other client services may need separate professional liability.

• Premises you use but don't own. Venues and landlords will ask to be named as additional insureds. See what "additional insured" means.

Volunteers and workers' comp in California

This is where nonprofits most often get the rules wrong.

Paid staff must be covered. Every California employer, including a nonprofit, must secure workers' compensation for its employees (Labor Code §3700). There's no exemption for charities. A single part-time paid employee triggers the requirement.

Unpaid volunteers are generally excluded. Labor Code §3352(a)(9) excludes from the definition of "employee" a person performing voluntary service for a public agency or a private nonprofit organization who receives no remuneration other than meals, transportation, lodging or reimbursement for incidental expenses.

Stipends can change that. A volunteer who receives something beyond those items, such as a stipend, a gift card or payment per shift, may no longer fit the exclusion. Review any volunteer payments with your agent and counsel.

The board can choose to cover volunteers. Under Labor Code §3363.6, a private nonprofit's board of directors may declare in writing, before the injury, that designated volunteers are deemed employees for workers' comp purposes while performing service. The organization then needs a workers' comp policy that covers them. Some nonprofits do this for high-exposure volunteer roles, such as construction builds, warehouse work or driving. Talk to your carrier about premium before the board adopts a resolution.

Volunteer accident insurance is the common alternative. It pays limited medical and accidental death and dismemberment benefits for volunteers injured while serving, usually on an excess basis over the volunteer's own health insurance. It isn't workers' comp, and it isn't liability coverage, but it handles the small injury without a lawsuit.

Person	Workers' comp required?	Typical coverage
Paid employee (any hours)	Yes (Labor Code §3700)	Workers' comp policy
Unpaid volunteer (meals, travel, incidental expenses only)	Generally no (§3352(a)(9))	Volunteer accident; GL covers their liability to others
Volunteer the board has designated under §3363.6	Yes, once declared in writing before injury	Workers' comp policy
Volunteer receiving a stipend or other pay	Possibly. Get advice	Review with agent and counsel

Abuse and molestation coverage

If your organization serves minors or other vulnerable people through youth programs, tutoring, sports, camps, childcare, mentoring or faith-based programs, abuse and molestation coverage is one of the most important lines you buy and one of the hardest to place.

California law has made this exposure much longer-lived. Under Code of Civil Procedure §340.1, as it now reads, there is no time limit to bring an action for damages from childhood sexual assault, including against an organization that owed a duty of care and whose negligence was a legal cause of the assault. That applies to claims where the assault occurred on or after January 1, 2024. Assaults that happened on or before December 31, 2023 remain subject to the limitations period in effect on that date. The statute also allows up to treble damages where a defendant is found to have covered up the assault.

What that means for your insurance:

• Most general liability policies exclude abuse or limit it to a small sublimit. Read the exclusions. Coverage is often bought by endorsement or as a separate policy.

• Occurrence vs. claims-made matters enormously. A claim filed decades from now may need to reach today's policy. Keep copies of every policy, permanently.

• Underwriters will ask about your controls. Expect questions about background checks, two-adult rules, training, reporting procedures and supervision. Good controls protect children and make coverage obtainable.

• Limits are often lower than the GL limit. Know your aggregate.

Special events

Galas, fun runs, festivals, auctions and fundraising dinners add exposures that your regular policies may not address:

• Event liability. Your annual GL may cover events you host, but check exclusions for things like inflatables, fireworks, animals or athletic participants. Some organizations buy a separate one-day event policy.

• If alcohol is served or sold, you need liquor liability insurance or confirmation that your caterer's liquor liability covers the event and names you as an additional insured.

• Venue requirements. Venues usually require a certificate naming them as additional insured, often with specific limits.

• Collect certificates from caterers, rental companies and entertainment. Our certificate of insurance request template makes this easier.

• Event cancellation, for large events with significant deposits.

Planning a fundraiser or adding a youth program? TSM is an independent agency — we compare carriers for you. Call (209) 524-6366 (Modesto) or (530) 221-3031 (Redding).

Grant, funder and contract requirements

Funders and government contracts frequently set the insurance program for you. Read the insurance section of every grant agreement, lease and service contract before you sign. Common requirements include:

• Minimum GL, auto and workers' comp limits, often with the funder or agency named as an additional insured.

• Professional liability for service contracts with counties and cities.

• Property insurance on funded assets. Under federal grant rules, recipients must insure real property and equipment acquired or improved with federal funds at least as well as they insure their own property (2 CFR §200.310).

• Crime or fidelity coverage for organizations handling grant money. See crime and employee theft coverage.

• Cyber coverage if you hold client data for the agency.

A related point about oversight: charities registered with the California Attorney General that receive $2 million or more in gross revenue in a year (excluding certain government grants and contracts that require their own accounting) must prepare annual financial statements audited by an independent CPA (Gov. Code §12586(e)). Auditors and funders review insurance as part of internal controls.

Other coverages nonprofits commonly need

• Property for owned or leased buildings, contents, donated inventory and equipment.

• Crime / fidelity for theft of donations or funds by staff or volunteers. Embezzlement is a common nonprofit loss.

• Hired and non-owned auto when staff or volunteers drive their own cars for the organization. See hired and non-owned auto.

• Employment practices liability. FEHA generally applies to employers with five or more employees (Gov. Code §12926(d)), and claims by staff are frequent. Note that FEHA's general employer definition excludes religious associations or corporations not organized for private profit, subject to exceptions; faith-based groups should get specific advice.

• Professional liability for counseling, case management, health or legal services.

• Cyber for donor and client data.

• Umbrella over GL, auto and employer's liability.

Nonprofit insurance checklist

• ☐ General liability with volunteers included as insureds and every program disclosed

• ☐ D&O and EPLI, with limits reviewed by the board

• ☐ Liability limits that meet Corporations Code §5047.5 ($500,000 or $1,000,000, depending on budget)

• ☐ Workers' comp for every paid employee

• ☐ A decision on volunteers: §3363.6 resolution and workers' comp, or volunteer accident coverage

• ☐ Abuse and molestation coverage if you serve minors, with screening and training documented

• ☐ Special event and liquor liability plan for each fundraiser

• ☐ Every grant and contract insurance requirement tracked

• ☐ Crime coverage for staff and volunteers who handle money

• ☐ All past policies archived permanently

FAQs

What insurance does a nonprofit need in California?

Most need general liability, D&O, property and workers' comp for any paid employees. Depending on activities, add volunteer accident, abuse and molestation, special event and liquor liability, hired and non-owned auto, crime and cyber. Grants and contracts often set minimum limits.

Are volunteers covered by workers' comp in California?

Generally no. Labor Code §3352(a)(9) excludes unpaid volunteers for nonprofits who receive only meals, transportation, lodging or reimbursed incidental expenses. A nonprofit's board can elect in writing, before any injury, to treat designated volunteers as employees for workers' comp under Labor Code §3363.6.

Do nonprofits need workers' comp in California?

Yes, if they have any paid employees. Labor Code §3700 requires every employer except the state to secure workers' compensation, and there is no exemption for charities.

Can nonprofit board members be personally sued?

They can be named. California law protects volunteer directors and officers from many negligence claims, but Corporations Code §§5239 and 5047.5 tie that protection to the organization carrying liability insurance and carve out self-dealing, gross negligence and Attorney General actions. D&O insurance is the main protection.

Does general liability cover abuse claims?

Often not, or only at a low sublimit. Many GL policies exclude abuse and molestation, so organizations serving minors usually need a specific endorsement or separate policy.

Do I need special event insurance for a fundraiser?

Possibly. Your annual GL may cover events you host, but venues usually require additional insured status, and alcohol, inflatables or athletic events may need separate coverage. Review each event before you sign the venue contract.