For most churches, the choice of insurance involves little consideration and is based almost entirely on price, or in some cases on familiarity with an insurance agent who attends the church. Churches can and should do better. The choice of insurance should be the result of an intentional and rational process, and this can be facilitated through the use of an insurance committee.
The Bible says that “there is safety in having many advisers” (NIV). A church is almost always better served when a committee of three or more members explores and recommends insurance coverage options. This is especially true when members of the committee reflect business and financial expertise. The committee makes its recommendations to the governing group, such as the board or congregation, which then makes the final decisions.
Here are five important tasks any insurance committee should perform.
1. Choose an insurance company
One of the main tasks of an insurance committee is to select an insurer. The committee should obtain quotes from two or three insurers. A final decision should be made on the basis of several factors, including but not limited to cost. It is often helpful to deal with an insurer that specializes in the church market.
If an insurance agent or broker is a member of your congregation, feel free to consider this person for the committee. But, be aware of a potential conflict of interest if the person is a member of the church board. Even if not a board member, be wary of doing business with this person’s company since this may not be the best option when viewed objectively.
2. Identify risks to insure
Another valuable function of an insurance committee is to identify risks to insure. If one or more committee members are on the church board, they will be familiar with the full extent of the church’s programs and activities and be able to provide invaluable input for selecting coverages. When evaluating risk coverage, here are some valuable tasks an insurance committee can perform.
Property risks
- Check to see if unique items—such as stained glass windows, pipe organs, handbells, artwork, and sound equipment—require special “endorsements.”
- Obtain appraisals of unique items to be sure they are adequately insured.
- Conduct periodic inventories of property to prove claims in the event of loss or destruction.
- Check to see if coverage is limited to the market value of damaged or destroyed property. If so, consider obtaining replacement cost coverage.
- Check to see if boiler heating systems require a special endorsement.
- Check the exclusions under the policy. Some risks—such as earthquakes, mold, and sewer or drain backup—may be excluded and require special endorsements.
- Check to see if your policy contains a “coinsurance clause.” If so, you are required to insure your property for a specified percentage of its market value. If you don’t, you become a “coinsurer,” meaning that your policy will pay less than the stated limits in the event of a partial loss. The committee members should review the policy every year to carefully evaluate coinsurance clauses.
Liability risks
- Check to see if sexual misconduct coverage is limited, and if higher amounts can be obtained by complying with specific prevention procedures.
- Every policy excludes intentional or criminal misconduct. Some insurers take the position that this exclusion precludes any coverage for a church that is sued on the basis of negligence for the molestation of minors by an employee or volunteer. The church’s argument in such cases is that the intentional and criminal conduct exclusion does not apply since the church has not engaged in such conduct. However, it is being sued for its alleged negligence in selecting or supervising the perpetrator.
One of the most important tasks of an insurance committee is to ascertain, in writing, the insurance company’s position on this essential question.
- Some policies provide only minimal medical benefits to persons injured on church property. Make sure this risk is adequately covered.
- Check to see if your property or general liability policy contains coverage for church-owned vehicles. If not, obtain a separate endorsement for this coverage.
- Determine if the church needs employment practices coverage. Liability policies typically exclude coverage for claims made by current or former employees against the church, including wrongful termination. Employment claims can present a substantial uninsured risk to churches.
3. Help determine coverage amounts
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. Once again, if one or more committee members are on the church board, they will be familiar with the full extent of the church’s activities and assets and will be in the best position to make informed decisions regarding coverage amounts.
To illustrate the first consideration, if your church has a youth program that has frequent meetings involving minors, or provides counseling or hosts community activities, then your liability risks increase and you should look for higher insurance limits.
Regarding the second consideration, and 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.
An insurance committee also should periodically review all church insurance coverages to be sure they are adequate and periodically obtain appraisals of church property (real property, personal property, and fixtures) to be sure the church possesses adequate coverage.
4. Assist with compliance of insurance policy conditions
An insurance committee can assist with compliance of the conditions in a church’s insurance policies.
To illustrate, church insurance policies generally require that the church notify the insurance company in writing and within a specified period of time concerning any property damage or personal injury that occurs. Failure to do so can relieve the insurance company of any duty to defend the church in a lawsuit or pay a settlement or jury verdict as a result of the damage or injury.
The duty to notify your insurance company of an injury or loss arises when the injury or loss occurs and not when a lawsuit is filed. The purpose of the notice requirement is to give the insurance company sufficient time to investigate the incident and provide a defense.
Church treasurers should be familiar with the notification requirements in all of the church’s insurance policies. If you change insurance companies, be sure to review the new insurance policy. Do not assume that it will contain the same “notice” provisions as the previous policy.
In addition, liability insurance policies require churches to cooperate with any investigations conducted by the insurance company into losses or injuries. A failure to cooperate may result in the denial of insurance coverage. Churches should never decline an insurance company’s request for information without the advice of an attorney.
5. Review exclusions
An exclusion is a loss that is not covered under an insurance policy. In some cases, excluded losses can be covered by a separate “endorsement” or “rider” by paying an additional premium. An insurance committee should carefully review all exclusions under the church’s insurance policies and obtain special endorsements as necessary.
Choosing committee members
In many churches, the tasks described in this article are handled by one person, typically the lead pastor or church treasurer. But there are so many tasks, and so important, that it is far better to entrust them to a group rather than any one person.
The church board may fill this function in some churches, but an insurance committee often makes more sense if it includes individuals with insurance or financial experience. The committee does the legwork, and makes recommendations to the governing board. This eliminates the need for the board to become bogged down with addressing the many tasks involved in evaluating insurance coverages, and allows for the input of persons with financial and insurance expertise.
