Key Point 10-16.7. A liability insurance policy provides a church with a legal defense to lawsuits claiming that the church is responsible for an injury, and it will pay any adverse settlement or judgment up to the limit specified in the policy. Liability insurance policies exclude a number of claims. For example, some policies exclude injuries based on criminal or intentional acts and claims for punitive damages. A church has an obligation to promptly notify its insurer of any potential claim, and to cooperate with the insurer in its investigation of claims.
A Michigan court ruled that a church was barred from suing its insurer for property damage it sustained in a fire on the basis of a release agreement it signed and a two-year limitations period in the insurance contract. A fire damaged a church building and its contents. The church immediately notified its insurer, and the insurer began assessing covered losses. The parties did not entirely agree on what was damaged or what damage was caused by the fire. Among other items at issue were the building's lead coated copper dome roof, interior iconography or murals, church bells and associated electrical wiring, and chalices and candle stands. The parties exchanged correspondence regarding plaintiff's claims and a possible settlement. Eventually the insurer informed the church that it would not cover damage to the dome. The same letter offered the church a final opportunity to accept a compromise settlement in exchange for a release. A few weeks later, after some additional analysis of the roof, the church signed a release that covered "all claims for all damages sustained except for any possible damage to the exterior lead coated copper sheathing covering the building dome."