What the form is
The MP 00 06 Not-For-Profit Management Liability Coverage Form is an Insurance Services Office (ISO) form that provides specialized liability coverage tailored for not-for-profit organizations. It operates on a claims-made basis, meaning coverage applies only to claims first made against an insured person during the policy period or an applicable extended reporting period (ERP). A significant feature of this form is that the costs to defend a suit are paid from the limit of insurance, which reduces the funds available to satisfy any judgment or settlement. The policy uses "you" and "your" to refer to the named insured organization, and "we," "us," and "our" for the insuring company. Words in quotations within the policy have specific definitions that can significantly alter coverage and must be reviewed carefully.
The core coverages provided are typically:
- Coverage A – Executive Liability: Pays on behalf of insured persons for losses they are legally obligated to pay due to a claim for a wrongful act, provided the organization has not already indemnified them.
- Coverage B – Organization Reimbursement: Reimburses the named organization for amounts it paid to indemnify an insured person for a covered claim.
- Coverage C – Organization Liability: Pays on behalf of the organization for losses it is legally obligated to pay due to a claim for a wrongful act.
Classes of business it applies to
This form is specifically designed for not-for-profit organizations. This can include a wide array of entities such as:
- Charitable organizations
- Foundations
- Educational institutions (non-profit)
- Religious organizations
- Trade and professional associations
- Community service groups
Real-world example: A local community arts center, a non-profit entity, could be insured under this form. If its board members are sued for alleged mismanagement of funds (a wrongful act), this policy would respond to the claim, subject to its terms and conditions. However, if this arts center decided to operate a for-profit gift shop, activities related to that for-profit venture might not be covered under the standard MP 00 06 unless specifically endorsed (e.g., with a form like MP 04 02 for acquired or created for-profit entities).
Special considerations
Several important aspects require careful attention when using this form:
- Claims-Made Basis: This is critical. Coverage is triggered by when the claim is made, not when the wrongful act occurred (though there is usually a retroactive date). Insureds must understand the implications for reporting claims promptly and the potential need for an Extended Reporting Period (ERP) if the policy is cancelled or non-renewed.
- Defense Within Limits: Legal defense expenses erode the policy limit, potentially exhausting it before a settlement or judgment is paid. This differs from many liability policies where defense costs are outside the limits.
- Retroactive Date: Claims arising from wrongful acts committed before the policy's retroactive date (if any, shown on the declarations) are generally not covered.
- Exclusions: The form contains various exclusions, such as for bodily injury or property damage (except for mental or emotional distress from an employment practices action), illegal personal profit or advantage, acts occurring before the retroactive date, prior or pending litigation, and claims related to acquired or created for-profit organizations (unless specifically endorsed).
- Acquisition/Merger: If the named insured acquires or merges with another not-for-profit, notice must typically be given to the insurer within a specified timeframe (e.g., 90 days) for coverage to potentially extend. For-profit acquisitions require specific endorsements like MP 04 02.
Real-world example: A non-profit housing organization is sued by a former employee alleging wrongful termination. The claim is first made during the policy period of their MP 00 06 policy. The legal fees to defend the lawsuit and any potential settlement would be paid from the policy's limit of liability. If the wrongful act leading to the termination occurred before the policy's retroactive date, the claim might be denied.
Key information for agents and underwriters
Agents and underwriters should focus on the following when dealing with the MP 00 06:
- Educate the Insured: Ensure the not-for-profit client fully understands the claims-made nature, the implications of defense costs within limits, and the importance of the retroactive date and ERP options.
- Risk Assessment: Thoroughly assess the organization's operations, governance structure, employment practices, and financial oversight to identify potential sources of management liability claims. Consider the organization's experience, the stability of its leadership, and any past litigation.
- Coverage Gaps: Be mindful of potential coverage gaps, especially concerning activities that might blur the line between non-profit and for-profit (e.g., revenue-generating activities). Ensure appropriate endorsements (like MP 04 02 for for-profit subsidiaries or MP 04 06 for publication services) are considered if needed.
- Underwriting Guidelines: Pay close attention to the organization's financial health, bylaws, and internal controls. The application process should delve into these areas. The prior acts exposure and any pending or prior litigation are critical underwriting considerations.
- Limit Adequacy: Given that defense costs erode the limits, help the client select an adequate limit of liability that considers the potential for costly litigation in their specific operational sphere.
- Definitions: Emphasize that policy definitions (Section VII) are crucial and can significantly impact the scope of coverage.