Sexual abuse of a minor is the number one reason churches end up in court. It’s a statistic that’s been true for a number of years, according to attorney Richard R. Hammar. And churches must do all they can to prevent this type of tragedy. But churches also must be wise and purchase the right kind of insurance that will help cover any legal action that might occur because of abuse or alleged abuse on their property or during church-related events, trips, or activities.
Based on interviews with church insurance experts, attorneys, and a risk management specialist, Church Finance Today offers five guidelines to help churches of all sizes make sure they are financially prepared should the unthinkable ever happen.
1. Don’t assume your general liability policy covers abuse claims. It usually does not.
“Some churches may not be aware that their typical church liability coverage doesn’t cover sexual abuse or misconduct,” said Eric Spacek, risk management and loss control director for GuideOne Insurance.
Since there’s typically an exclusion for allegations of child abuse in the general liability coverage, he said that churches need separate sexual misconduct coverage. While the agent or broker who sold the insurance should have explained what is or isn’t in the policy, churches still may be unaware of, or have certain misconceptions about, what’s actually covered by a general liability policy, he said.
To illustrate the point:
- Last year, a federal appeals court affirmed that an insurer need not cover a $4.35 million civil verdict awarded against a church for two teenage girls sexually assaulted by the church’s former pastor, Law360 legal news service noted. The court found that the church’s policy clearly excluded coverage for any claims of sexual misconduct of an individual.
- In a review of a child abuse case in the July/August 2017 issue of Church Law & Tax Report, Hammar wrote, “The Ohio Supreme Court ruled that an exclusion in a church’s insurance policy for criminal or intentional acts precluded coverage not only for the person committing the wrongful act, but also for the church, even though it was being sued for negligence.”
This means churches must seek additional insurance to help cover a potential future claim. The amount of coverage needed depends on the size of the church and the scope of its youth programs. For a small church with limited exposure, a policy with coverage as low as $50,000 might be purchased for $50 to $100 a year. For a larger church, a policy with seven-figure coverage might require a premium costing several thousand dollars a year.
Attorney Frank Sommerville’s advice on how much coverage to buy: as much as the insurance company will sell you, “because the incremental cost difference between the lowest policy limits and the highest they’re willing to sell is usually not that much money.”
In some cases, buying two sexual liability policies—the first policy covering damages up to a certain amount and an umbrella policy covering any damages over a certain amount—may be cheaper than a single policy, attorney Richard J. Mathews said.
2. Read the fine print of your sexual liability policy.
Some specific questions to consider when evaluating a sexual liability policy:
- Is the policy based on claims or occurrences?
An occurrence policy states that an insurer will pay for any incidents that happen during the coverage year, regardless of when the claim is made, said Scott Figgins, vice president of underwriting for Brotherhood Mutual Insurance Company. “So let’s say I have a Sunday school teacher who molested a 2-year-old child [in 2017], and that child doesn’t come forward for 15 years,” he said. “It doesn’t matter, as long as that occurrence happened between January 1st and December 31st of 2017, that policy [the church had that year] will always respond to it.”
The long tail of many allegations is a critical incentive for churches to save the original insurance policies forever in case a claim arises decades later, added Sommerville, who serves as an editorial advisor for Church Finance Today.
On the other hand, Figgins said, “A claims-made policy says that you have to bring the claim during the period of time that the policy is enforced.”
Also, some insurers specify that their sexual liability policy only provides coverage if a perpetrator’s first act of abuse occurred during the policy period. For example, if the policy were enacted on January 1, 2017, and acts of abuse were alleged beginning in 2016 that continued into 2017, they would not be covered.
Other policies cover all acts that happen during the policy period, regardless of whether it’s the first time or the tenth time the perpetrator has abused a specific minor, said Judy Frymark, sexual misconduct claims specialist with Church Mutual Insurance Company.
Failure to carefully read and understand language of a policy, Frymark said, “can be very financially catastrophic for the church” if a policy doesn’t cover all acts during the policy period.
- What locations are covered by the policy?
Mathews, a former general counsel for the Boy Scouts of America, said it’s important that the policy cover claims arising out of any location—not just the church building or a formally sponsored church event. This was a lesson he learned during his time with the Boy Scouts.
For example, would a sleepover at the youth choir leader’s house be covered?
“Insurance companies, nothing against them, are always going to look for a legitimate basis to indicate the coverage was not in effect,” Mathews said. “They’ll say this wasn’t church property, it was just this guy who assumed he could do this. … So you need to make sure that it is not only the sanctioned activities that are in the bulletin or come directly from church leadership [that are covered].”
- Does the coverage for legal defense costs fall inside or outside of the sexual misconduct liability insurance limits?
This question is crucial because defense costs “can run into the thousands of dollars over the course of litigation,” GuideOne’s Spacek said. “If the defense costs are inside the insurance limits, then the amount available to pay for settlement or judgment of a sexual misconduct claim will be reduced by the amount of the defense costs.”
For example: “If you have a $2 million policy, and defense costs come out of that $2 million policy, you may only have $1 million or $1.5 million to pay claims out,” said Sommerville, who has represented hundreds of churches in sexual abuse cases.
- What specific types of abuse are covered?
Brotherhood Mutual’s Figgins said it’s a myth that sexual abuse claims only arise out of adult-child relationships.
“It may not just be an adult with a child,” Figgins said. “It could be a child with a child, a teen with a child, an adult with an adult situation where they feel like they were coerced into something they didn’t want to do either through psychological manipulation or through an improper counseling situation.”
The bottom line, stressed Figgins, is to have the kind of coverage that would handle whatever type of sexual misconduct situation could possibly occur.
- What are the occurrence and aggregate limits?
An occurrence limit would be the amount that an insurer would pay for a single claim—typically $1 million or so for a larger policy. An aggregate limit would be the maximum amount the insurer would pay for multiple claims during a policy period—for example, a $3 million total for all claims during the policy period.
3. Check the insurance policy’s requirements for implementing risk-management and prevention policies.
A failure to follow guidelines can invalidate insurance claims. Legally speaking, such a failure constitutes gross negligence, which is not covered by a policy, Sommerville explained.
For instance, some insurers recommend that churches impose a six-month waiting period before allowing new members to teach Sunday school or otherwise work with children. Church Mutual’s Frymark said the reason for this is that “often sexual predators are not willing to wait that period.”
If churches adopt such a six-month rule and then don’t enforce it, it could cause problems both in terms of damages awarded against a church and/or an insurer covering the damages, said Patti Malott, executive director of Upright Ministries, a Texas-based nonprofit that advises churches on safety and security matters.
Also, “some insurance companies may require you to run background checks on all the volunteers,” Sommerville said, “and if you never run a background check, [a claim] won’t be covered if allegations of sexual misconduct are made against the volunteer.”
If a church knows someone has a troubled past and allows that person to serve with children, it could invalidate insurance claims. For instance, if a church learns someone is on a sex-offender registry list, but allows the person to serve because the church believes the individual has changed, only to discover that person commits a future act in the course of serving at the church, “some policies would have exclusions for that type of thing. That’s a fairly common exclusion,” Figgins said.
4. Don’t buy the myth that child sexual abuse couldn’t happen at your church.
Churches tend to exhibit a high level of trust and want to extend grace to people, Sommerville said.
Mathews agreed and said, “Churches don’t recognize the danger and the widespread nature of [child sexual abuse]. I think it’s like anything else: We all think it’s never going to happen to us.”
Sommerville recalled a 200-member church that he urged to conduct criminal background checks on all its volunteers and staff. The first time the church did so, it found it had two registered sex offenders volunteering with children.
But he said churches are becoming more aware of the dangers—and of the fact that the dangers aren’t just strangers, but also individuals who are known to the congregation and those whom most members would never suspect.
“I think what’s getting churches’ attention is the size of the settlements and the size of the rewards that juries are giving plaintiffs when churches don’t properly screen their volunteers and workers,” Sommerville said.
Criminal background checks on potential volunteers and staff are important, especially if the insurer requires them, the experts said. But they stressed that many perpetrators never have been caught and, thus, there will be no record.
“The reality is, with the vast majority of cases we’ve had over the years, if you would have run a criminal background check the day before, you would have found nothing,” Figgins said. That reinforces the need for interviews and qualified references during the selection process, and vigilant supervision practices of all staff and volunteers.
5. Remember it’s about more than money—it’s about protecting people and the church.
The experts stressed that while preparing to financially manage a potential problem is vital, and insurance coverage is a critical component of that preparation, prevention is more important. Churches must be vigilant to protect children—and their entire congregation.
“I can’t tell you how many times a church has been substantially damaged by [revelations of child abuse],” Figgins said. “There’s loss of membership, pastors are forced out, deacons and elders turn over. Just dealing with the associated fallout from an emotional perspective, both in the family and the victims, and potentially the perpetrator’s family who may attend there—it is a no-win situation. Thinking of it just in terms of ‘How do I protect myself from a dollar perspective?’ really is not the right mentality to have.”