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Coverage Denied

Coverage Denied

Failure to notify the insurance company of a claim cost one church $2.3 million. Five tips for avoiding a similar mistake.

Church insurance policies generally require that a church notify its insurance company in writing, within a specified period of time, concerning any property damage or personal injury that occurs. Failure to do so can relieve the insurance company of any duty to defend the church in a lawsuit or pay a settlement or jury verdict as a result of the damage or injury. A recent case illustrates this point.

Facts. On April 6, 2006, a man (the "plaintiff") sued a church, claiming that he had been sexually molested by a church employee on numerous occasions between 1978 and 1982. The plaintiff claimed that the church had been negligent in hiring and retaining the perpetrator, that it was grossly negligent, and that it inflicted emotional distress. The church changed insurers during the time that the victim was being molested, so two insurance policies were implicated. The church only informed one of the two insurers of the claim, and this insurer retained an attorney who filed an answer to the lawsuit on May 12, 2006. The church did not notify the second insurer of the claim until 2008 because it had been unable to locate its nearly 30-year-old policy on molestation in the church until then.

In 2008, some 21 months after receiving the initial lawsuit, the church notified the second insurer of the claim. This insurer later informed the church that it was denying coverage as a result of the church's failure to notify it of the claim in a timely manner. The church's insurance policy imposed various duties upon the church, including a duty to notify the insurer of claims and lawsuits:

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