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 appeals court ruled that a pollution exclusion in a church's liability insurance policy prevented the spouse of a pastor who was killed by carbon monoxide poisoning in the church parsonage from recovering any damages against the insurer. A pastor and his wife resided in their church's parsonage. One evening the parsonage's heating system malfunctioned and released carbon monoxide throughout the residence. The pastor died as a result of his exposure to the carbon monoxide, and his wife was seriously injured. The church had a multi-peril insurance policy and an umbrella policy. The multi-peril policy contained a pollution exclusion that excluded coverage for: