Should our church be insured? If so, what kinds of coverage should we have, and for what amounts? What are exclusions? What is the best way for us to obtain insurance? What insurance company should we use? What are our responsibilities regarding the reporting of a claim, and assisting with an investigation? Church treasurers should be familiar with the answers to these questions. This article, along with an article in next month’s newsletter, will provide you with information that will assist in responding to these questions. This article addresses the following questions:
(1) Do we need insurance?
(2) What kinds of insurance should we have?
(3) What amounts of coverage should we have?
Next month we will be addressing these additional questions:
(4) Claims made or occurrence coverage?
(5) What are exclusions?
(6) How should we obtain insurance?
(7) What is a church’s duty to notify and cooperate?
(8) What is subrogation?
(9) Is insurance a substitute for risk management?
There is no legal requirement that churches purchase insurance (with the possible exception of workers compensation insurance, as noted below). It is completely optional. Why, then, do most churches purchase property and liability insurance, and some purchase additional kinds of coverage? Consider the following reasons:
(1) Risk. Every church, regardless of size, faces significant risks. These include damage or destruction to church property due to fire, wind, tornado, hurricane, flood, or other natural disaster. They also include several liability risks, such as injuries or deaths occurring on church property or in the course of church activities. Any of these risks can be catastrophic since they may result in a total loss of the church’s facilities, or in significant harm to children and adults with the potential for astronomical judgments. No church is immune from these risks.
(2) Protection of ministry and assets. Most church leaders are simply not willing to assume the potentially devastating consequences of property loss or personal injury, and they purchase insurance to ensure that the church and its ministries will survive these occurrences.
(3) Defense costs. Most insurance policies provide your church with a legal defense of covered claims. And, since “the duty to defend is greater than the duty to indemnify,” your insurer may provide a legal defense for a claim even though coverage is disputed. As a result, insurance policies relieve churches of the time and expense of finding, and compensating, an attorney. While a church may successfully defend against an uninsured claim, the legal fees can be substantial.
Some insurance is essential, and should be obtained by every church. Other kinds of insurance coverage are desirable, meaning that they are not absolutely necessary but may be highly desirable depending upon a church’s circumstances. Most church leaders would consider property and liability insurance to be essential. As the table in this newsletter indicates, other forms of insurance should be regarded as essential depending on the circumstances.
Insurance Coverages for Churches
|Covers many major risks to church property, including fire, smoke, lightning, hurricane, tornado.
|Covers many forms of personal injury and damage to the property of others. Common examples includes slips and falls, sexual misconduct (coverage may be limited to the church, and exclude the offender).
|Covers injuries and damages resulting from the use of church-owned vehicles.
|Covers injuries and damages caused by members who use their own vehicle while performing services for their church. The driver’s personal car insurance is also available, but if inadequate, the church will likely be sued. Often must be obtained as a separate endorsement. Essential for churches that allow members or employees to drive personal vehicles on church business.
|Covers injuries caused during counseling activities. Often must be obtained as a separate endorsement. Essential for churches that provide counseling services.
|Covers certain employment-related claims such as wrongful dismissal and some forms of discrimination.These are among the most common types of church litigation today. Many church leaders erroneously assume that their general liability policy covers these claims. In most cases it does not.
|directors and officers
|Covers several potential legal claims that can be brought against officers and directors directly. “D&O” policies also may cover claims not covered by general liability policies. While uncompensated directors of nonprofit organizations have “limited immunity” from personal liability under both state and federal law, this protection does not cover compensated directors and does not cover acts of “gross negligence.” Must be obtained as a separate endorsement or policy.
|Covers embezzlement and other misappropriations of church funds and securities by employees and others having access to money or property. Often must be obtained as a separate endorsement. This form of insurance is also referred to as bonding.
|Provides medical benefits for injuries occurring during foreign travel. Costs of a medical evacuation may also be covered. Often must be obtained as a separate endorsement or policy.
|Covers legal judgments in excess of the limits on other insurance policies.
|Workers compensation insurance provides benefits to employees who are injured or become ill in the course of (or because of) their employment. Many church leaders erroneously assume that churches are not covered by state workers compensation laws. In most cases this assumption is incorrect, and exposes a church to a substantial uninsured risk.
Church leaders often ask, “How much insurance should be purchase?” Unfortunately, there is no simple answer to this question. Here are a few points that may help:
- In general, the amount of coverage should be based on two primary considerations: (1) the nature and frequency of your activities, and (2) the net value of the church’s assets. To illustrate, if your church has a youth program that has frequent meetings involving several minors, or your church provides counseling, or hosts community activities, then your liability risks are increased and you should be looking for higher insurance limits. Further, as a general rule, liability insurance should have limits in excess of the net value of the church’s assets, so that the assets are protected in the event of litigation.
- Annually review all church insurance coverages to be sure they are adequate.
- Periodically obtain appraisals of church property (real property, personal property, and fixtures) to be sure that you have adequate coverage.
- Be sure that your church is insured for an amount in excess of what is required by a “coinsurance clause” in your insurance policy. A coinsurance clause is often difficult to understand, but the idea is that unless a church is insured for a specified amount (e.g., 80% of market value) then the church becomes a “coinsurer” in the event of a partial loss, and is responsible for paying part of that loss. This is done by a reduction in the amount that the insurer has to pay. The purpose of such clauses is to persuade property owners to insure their property for an amount equal to or approaching its market value. Over time, a church’s failure to increase the amount of its property insurance to reflect the current value of the church property will reduce the insured amount to less than the coinsurance amount, and this can result in an unpleasant and unbudgeted expense when the insurer only pays a portion of a substantial partial loss.
This article first appeared in Church Treasurer Alert, July 2002.