• Key point. Under the so-called "collateral source rule," benefits payable under a church's insurance policy as a result of a fire loss are not reduced by the amount of contributions the church receives from sympathetic donors following the loss.
A Virginia court ruled that amounts payable to a church under its insurance policy following the complete destruction of its sanctuary in a fire would not be reduced by the amount of contributions the church received from sympathetic donors following the fire. A church was destroyed by a fire. The church's insured value was not adequate to cover the actual loss. The church sued its insurance broker, claiming that (1) the broker's "negligent breach" of his professional duties caused the church to be grossly underinsured, and that (2) the broker breached his contract with the church to obtain adequate property insurance coverage. This case is addressed in the previous recent development in this section of the newsletter. In the course of this litigation, the insurance broker requested that the church turn over detailed information on charitable contributions made to the church following the fire, including the amount of donations and the names, addresses, and telephone numbers of individual contributors. The church contended that the broker's motive for seeking this information was a desire to offset these charitable contributions against its responsibility to compensate the church for the uninsured loss potential resulting from the broker's alleged negligence and breach of contract. In fact, the church received $230,237 from its donors. The Aetna insurance company paid the church $143,000 under the church's insurance policy, plus an additional $50,000 by way of settlement. In sum, the church collected a total of $423,237 in the aftermath of the fire. The broker submitted that one contractor estimated the re-construction costs at between $440,000 and $485,000. According to the broker, if the church had selected this bid then its out-of-pocket losses would only have totaled between $16,763 and $61,763, rather than the $250,000 of uninsured losses sought. The church contended that the estimated cost to rebuild its house of worship exceeded $600,000.