Making a Claim
Failure to promptly notify your church’s insurer can result in loss of coverage.

A church hired a contractor to build a new sanctuary. The church purchased a performance bond from an insurance company that made the insurer a "surety" guaranteeing satisfactory completion of the project.

At the conclusion of the project the church sent the insurer a letter informing it that "there are several matters which are still incomplete and several other problems relating to this construction project" and that it was the insurer's legal obligation to pay monetary damages for the subpar performance or take steps to complete the contract. The insurer informed the church that there was no coverage under the policy since the church had failed to comply with all the terms and conditions of the policy. The church sued the insurer for breach of contract, and the insurer asked the court to dismiss the lawsuit.

The trial court concluded that the language of the performance bond "unambiguously sets out a process" that the church was required to follow in order for the insurer to be liable under the policy, and that the church had not satisfied that process. The court noted that "the purpose of the provisions in the performance bond was not to be mere technical steps, but rather to insure that the insurer was notified of any issues and provided with an opportunity to assert its rights to have the project completed."

The appeals court's ruling

On appeal, the church conceded that it did not comply with the notice and procedural requirements of the performance bond. But, it insisted that the insurer knew, or should have known, that the church declared the contractor to be in default and intended to seek payment to complete the project as permitted by the performance bond. It claimed that its failure to follow the strict language of the policy was merely a technical violation that did not prejudice the insurer, and that it had "substantially complied" with the policy's requirements.

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