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 federal district court in North Carolina ruled that an insurance company properly denied coverage to a church for sexual injuries to three minors at a church-owned preschool due to a sexual misconduct exclusion in the church's insurance policy. A guardian of three minor children sued a church, its preschool, and a regional denominational agency (the "church defendants") after learning that the victims had been sexually assaulted by a 4-year-old preschool enrollee who was "acting out" sexual activity. The lawsuit alleged that the preschool director approved the perpetrator's enrollment in the preschool, despite being informed that he "had been sexually abused and had a history of acting-out sexually with other children." The lawsuit further alleged that the church defendants were negligent in their supervision of the perpetrator, thereby allowing him to continue this inappropriate "acting-out sexually" on other members of his preschool class.