Court Could Resolve Malpractice Suit Against Deacon

The First Amendment does not necessarily bar all claims that may touch upon religious conduct.

Bio

State: Texas
Categories: Malpractice

Key point 4-05 . Most courts have rejected clergy malpractice as a basis for liability in all cases. A few courts have found clergy members guilty of malpractice for engaging in sexual misconduct with an adult or minor, or if they engage in “nonreligious” counseling.

A Texas appeals court ruled that it was not barred by the First Amendment or “ecclesiastical abstention doctrine” from resolving a clergy malpractice lawsuit against a religious organization.

Background

A married couple were active members of a Catholic church for 15 years. The wife sought out a church deacon for marriage and family counseling.

In time, the husband (the “plaintiff”) noticed an unusual closeness between the deacon and his wife, and he discovered that the two were having an affair. The couple later divorced.

Appeals court: not all religious conduct claims are necessarily barred

The plaintiff sued the deacon and archdiocese on several grounds, including malpractice (negligent counseling). A trial court dismissed all claims, and the plaintiff appealed.

On appeal, the plaintiff argued that the trial court should have allowed the claims of professional malpractice to proceed to trial because some courts have recognized causes of action for such claims.

The appeals court made the following observation:

Pursuant to the First Amendment, government action is not permitted to burden the free exercise of religion by interfering with an individual’s observance or practice of a particular faith or by encroaching on a church’s ability to manage its internal affairs. . . . Accordingly, the First Amendment “severely circumscribes” the role that civil courts may play in resolving church-related ecclesiastical disputes. . . . For example, civil courts cannot inquire into matters concerning “theological controversy, church discipline, ecclesiastical government, or the conformity of the members of the church to the standard of morals required of them.” (Serbian E. Orthodox Diocese for U.S. of Am. & Can. v. Milivojevich, 426 U.S. 696, 713-14 (1976)). This constitutional limitation is implemented in Texas through the ecclesiastical abstention doctrine.

However, the First Amendment does not necessarily bar all claims that may touch upon religious conduct. . . Churches, their congregations, and their hierarchies function within the civil community and, where appropriate, are subject to rules governing property rights, torts, contracts, and criminal conduct. . . . Texas courts decide non-ecclesiastical issues based on the same neutral principles of law applicable to other entities while deferring to religious entities’ determinations on ecclesiastical and church policy questions.

As the Texas Supreme Court noted, the “differences between ecclesiastical and non-ecclesiastical issues will not always be distinct” because many disputes “require courts to analyze church documents and organizational structures to some degree.” Masterson v. Diocese, 422 S.W.3d at 606 [2013]. Therefore, the court must determine whether a particular dispute is “ecclesiastical” or simply a civil law controversy in which a church or church official happens to be involved—a determination made by examining the substance and effect of the plaintiff’s petition . . . (“the key inquiry is whether a judicial resolution will encroach on the institution’s governance and affairs”).

The court noted that “courts have addressed a wide variety of disputes involving religious organizations; here, we focus on those analyzing the ecclesiastical abstention doctrine in the counseling context.” The deacon and archdiocese argued “that claims based on marital counseling services provided by a member of the clergy impinge on a church’s ability to manage its affairs” and therefore are barred by the ecclesiastical abstention doctrine. The court disagreed:

[T]he allegations at issue here do not clearly intrude upon a religious matter or interfere with the Archdiocese’s ability to manage its internal affairs. [The plaintiff] does not allege that the conduct forming the basis of his claims (i.e., the family and marriage counseling . . .) was grounded in religious doctrine or otherwise undertaken pursuant to guidance from the Archdiocese. Instead, [the plaintiff] alleges that [the deacon] was having [an affair with his wife] and had a history of “inappropriate relationships with others.” These general allegations do not implicate any religious standards or indicate that judicial resolution of this dispute will encroach upon the Archdiocese’s internal affairs or religious doctrine. Therefore, they do not affirmatively demonstrate that the underlying dispute is inherently ecclesiastical as necessary to warrant First Amendment protection.

What this means for churches

Ministers who engage in counseling as a part of their ministry should be aware of the following conclusions regarding “clergy malpractice”:

No court has found a minister liable on the basis of malpractice for the content of his or her counseling.

Most courts have refused to find ministers liable on the basis of malpractice for sexual misconduct with counselees, on the basis of either or both of the following two grounds.
First, by exempting clergy from the licensing requirements that apply to other counselors, most state legislatures recognize that “the secular state is not equipped to ascertain the competence of [pastoral] counseling.” Second, “it would certainly be impractical, and quite possibly unconstitutional, to impose a duty of care on pastoral counselors” since such a duty “would necessarily be intertwined with the religious philosophy of the particular denomination or ecclesiastical teachings of the religious entity” (the court quoting from a 1981 law review article).

A few courts have recognized malpractice claims against clergy in either or both of the following two situations: sexual misconduct with an adult or minor, or “nonreligious” counseling.

It is advisable for churches to obtain counseling liability or malpractice insurance. While the likelihood of a church being successfully sued for clergy malpractice is very remote, the likelihood of being sued for clergy malpractice is conceivable. With malpractice insurance, the insurer will be responsible to retain and pay for the church’s legal defense.

Mosby v. Kleinguetl, 2021 WL 824779 (Tex. App. 2021).

Legal Developments

Are Ministers Always Exempt from State-Required Counseling Licenses?

A Florida appeals court’s decision offers a rare look at the elements necessary for a licensing exemption to apply.

Richard R. Hammar, Attorney, CPA

Bio

State: Florida
Categories: Malpractice

Key point 4-10. Every state strictly regulates the practice of both psychology and counseling. However, pastoral counseling within a church to members of the congregation does not constitute the unauthorized practice of either psychology or counseling. Clergy who establish counseling ministries outside of this limited context may be liable for the unauthorized practice of either psychology or counseling.

A federal district court in Florida addressed the exemption of pastoral counselors from a state counselor licensure law. The case is particularly important for ministers to note because courts rarely offer guidance about how such exemptions do—or do not—apply to them.

A detective launches an investigation

After a detective with the local sheriff’s department received an anonymous complaint about a minister’s (the “plaintiff”) practice of mental health care without a medical license, the detective enlisted the help of a Florida Department of Health agent to launch a criminal investigation.

That agent met with the plaintiff for two sessions in an undercover capacity. The detective thereafter applied for a warrant to search the plaintiff’s office. He based his search warrant application on the plaintiff’s alleged unlawful practice of psychology and marriage counseling without a state-issued license. The search culminated with an initial arrest of the plaintiff. Subsequent investigation, including interviews by prosecutors with the ministerial fellowship (“fellowship”) that the plaintiff claimed to serve under as a minister, resulted in additional charges against the plaintiff and two additional arrests.

Minister sues for false arrests and malicious prosecution

All 25 criminal charges against the plaintiff were ultimately abandoned, the reasons for which are unclear. The plaintiff then filed a civil lawsuit claiming false arrests and malicious prosecution. He named the detective, the sheriff’s department, the prosecutors, the Christian counseling association (“association”) related to the fellowship that he received training from, and the fellowship as co-defendants. The plaintiff claimed that the detective’s application for a search warrant “intentionally or recklessly omitted” any reference to the “Christian counselor exemption.” He also claimed his assertion of the exemption was overlooked by prosecutors, based at least in part on “false” statements about his credentials and status made by the fellowship’s president before the additional charges were filed.

The plaintiff had no medical training, and he had no license to provide mental health care as a psychologist or therapist in the medical sense. Instead, the plaintiff asserted he was trained by the association and referred by it to its related fellowship for ministerial sponsorship, which thus made him eligible for the following clergy exception under Florida’s counseling license requirement:

No provision of this chapter shall be construed to limit the performance of activities of a rabbi, priest, minister, or member of the clergy of any religious denomination or sect, or use of the terms “Christian counselor” or “Christian clinical counselor” when the activities are within the scope of the performance of his or her regular or specialized ministerial duties and no compensation is received by him or her, or when such activities are performed, with or without compensation, by a person for or under the auspices or sponsorship, individually or in conjunction with others, of an established and legally cognizable church, denomination, or sect, and when the person rendering service remains accountable to the established authority thereof.

The plaintiff claimed he was a licensed minister

A state appeals court reviewing the plaintiff’s claims noted that the state had alleged that there was no evidence that the plaintiff served as a church pastor in the regular understanding of the term, nor did the plaintiff report membership in a denomination. His ministerial credentials instead were through the fellowship. Further:

The Plaintiff did not say where he went to divinity or theological school. The Plaintiff reports only Christian counseling education. He reports Master’s and doctorate level degrees in the Christian counseling field from [a religious university]. The Plaintiff reports Christian counselor training through the [association]. He describes a very wide range of therapeutic subjects taught by the [association]. They include Integrated Marriage and Family Therapy, Child and Adolescent Therapy, Substance Abuse and Addiction Therapy, Sexual Therapy, Death and Grief Therapy, Crisis and Abuse Therapy, Domestic Violence and Intervention Therapy, and Group Therapy. He asserts that the [association]has given him board certification in the areas of Temperament Therapist, Crisis and Abuse Therapy, Integrated Marriage and Family Therapy, and Group Therapy. Thirdly he asserts that the [association]has given him advanced board certification in the areas of Death and Grief Therapy, Child and Adolescent Therapy, Substance Abuse and Addiction Therapy, and Group Therapy.

The plaintiff claimed the association referred him to the fellowship, where he is a licensed minister who is permitted to perform all clerical and religious functions. The plaintiff argued “he paid dues to the [fellowship], and that his minister’s license was up to date at the time of the criminal investigation.”

The state appeals court dismissed all but one claim brought by the plaintiff against the detective. The court dismissed the claims brought against the assistant state attorney and the sheriff’s department. However, the court allowed the plaintiff to pursue certain claims against the association and fellowship, due to “a sufficient degree of interconnectedness between” the association and fellowship and the detective and prosecutors. The court highlighted the plaintiff’s assertion that the association and fellowship “work hand in hand to train, license and sponsor individuals interested in pursuing Christian counseling” as a reason why the litigation could continue against both.

What this means for churches

This case is important, not because the lawsuits were allowed to proceed against the association and fellowship, although that outcome is also notable. Rather, the case is important because it is one of the few decisions on record addressing the exemption of pastoral counseling from state licensure laws.

All states regulate the practice of psychology, counseling, and related practices. But pastoral counseling is exempt from licensure under such laws so long as specified conditions are met. As this case illustrates, those conditions under Florida law (quoted above) include:

No provision of this chapter shall be construed to limit the performance of activities of a rabbi, priest, minister, or member of the clergy of any religious denomination or sect, or use of the terms “Christian counselor” or “Christian clinical counselor” when the activities are within the scope of the performance of his or her regular or specialized ministerial duties;

No compensation is received by him or her; or

When such activities are performed, with or without compensation, by a person for or under the auspices . . . of an established and legally cognizable church, denomination, or sect, and the person rendering service remains accountable to the established authority thereof.

Ministers who engage in counseling should be familiar with the conditions that apply to the pastoral counseling exemption under state law. Ruperto v. Snyder, 2019 WL 4146434 (Fla. App. 2019).

Legal Developments

Woman Sues Pastor for Divulging Confidential Information

Court rules that the First Amendment prevents it from resolving case.

Richard R. Hammar, Attorney, CPA

Bio

State: Texas
Categories: Church Members, Confidential and Privileged Communications, Counseling, Malpractice

Key Point 6-10.1 According to the majority view, the civil courts will not resolve disputes challenging a church's discipline of a member since the first amendment guaranty of religious freedom prevents them from deciding who are members in good standing of a church.

The Texas Supreme Court ruled that the First Amendment guaranty of religious liberty prevented it from resolving a dismissed church member's claim that her pastor committed "professional negligence" by using information she shared with him in confidence as the basis for disciplining her.

A church endeavored to operate according to biblical principles and practices as described in the church's constitution and statement of faith. The church required all membership applicants to affirm their willingness to abide by the church's constitution, which contains the following disciplinary policy:

We believe that one of the primary responsibilities of the church is to maintain the purity of the Body. We are directed by God to be holy. In recognition of the importance of this obligation, the elders will biblically and lovingly utilize every appropriate means to restore members who find themselves in patterns of serious misconduct. When efforts at restoration fail, the elders will apply the Biblical teaching on church discipline, which could include revocation of membership, along with an appropriate announcement made to the membership (Matthew 18:15-17; 1 Corinthians 5:1-5; Galatians 6:1, Galatians 6:2; 2 Thessalonians 3:6).

The church's constitution provided that, if a member engaged in conduct that "violates Biblical standards, or which is detrimental to the ministry, unity, peace or purity of the church," and the member is unrepentant, "the elders will follow our Lord's instructions from Matthew 18:15-20," which states: "If your brother sins, go and show him his fault in private; if he listens to you, you have won your brother. But if he does not listen to you, take one or two more with you, so that by the mouth of two or three witnesses every fact may be confirmed. If he refuses to listen to them, tell it to the church; and if he refuses to listen even to the church, let him be to you as a Gentile and a tax collector."

If a member remained unrepentant and chose not to resign, the constitution instructed the church elders to revoke the person's membership and announce his or her removal to the congregation. The church's stated goal is "to encourage repentance and restoration of fellowship with the Lord and His people."

A woman (the plaintiff) became a member of the church. In applying for membership, she signed an application in which she expressed her agreement with the church's beliefs and affirmed her willingness to abide by the church constitution.

The plaintiff separated from her husband, and thereafter the couple participated in a series of weekly counseling sessions at the home of their pastor, who was also a licensed professional counselor. The plaintiff alleged that the Bible was not discussed in these sessions and she considered them to be a professional counseling relationship with the pastor in his role as a licensed professional counselor.

The plaintiff later informed the pastor that she had decided to divorce her husband, and that she had engaged in an extramarital sexual relationship. When the pastor informed her that her extramarital sexual relationship would trigger the church's disciplinary process, she informed him that she was resigning her membership.

A few days later the pastor and church elders wrote a letter to the church membership concerning the plaintiff. The letter explained to the congregation that the plaintiff intended to divorce her husband, there was no biblical basis for the divorce, she had engaged in a "biblically inappropriate" relationship with another man, and she had rejected efforts to bring her to repentance and reconciliation.

Describing the disciplinary process as one of "tough love," the letter encouraged the congregation to "break fellowship" with her in order to obtain her repentance and restoration to the church body. The letter admonished the congregation to treat the matter as a "members-only issue, not to be shared with those outside the congregation."

The plaintiff sued the pastor, church, and church elders alleging defamation, professional negligence, breach of fiduciary duty, and emotional distress. The professional negligence claim was based on the pastor's breach of an alleged "secular duty" to refrain from disclosing confidential information shared with him during counseling sessions.

The church defendants claimed that the plaintiff's claims all arose in the context of a church disciplinary matter which the First Amendment placed beyond the jurisdiction of the civil courts. A trial court agreed with the church defendants, and dismissed the lawsuit. The plaintiff appealed, but only with respect to her claims against the pastor. A state appeals court affirmed the dismissal of all of the plaintiff's claims except for her professional negligence claim which the court concluded could be resolved without violating the First Amendment. The pastor appealed to the Texas Supreme Court.

The church autonomy doctrine

The court began its opinion by acknowledging that "when a pastor who holds a professional counseling license engages in marital counseling with a parishioner, the line between the secular and the religious may be difficult to draw."

The court noted that "while it might be theoretically true that a court could decide whether the pastor breached a secular duty of confidentiality without having to resolve a theological question, that doesn't answer whether its doing so would unconstitutionally impede the church's authority to manage its own affairs.

Churches have a fundamental right to decide for themselves, free from state interference, matters of church government as well as those of faith and doctrine." The court stressed that "it is a core tenet of First Amendment jurisprudence that, in resolving civil claims, courts must be careful not to intrude upon internal matters of church governance. It quoted from a landmark decision of the United States Supreme Court:

The right to organize voluntary religious associations to assist in the expression and dissemination of any religious doctrine and to create tribunals for the decision of controverted questions of faith within the association, and for the ecclesiastical government of all the individual members, congregations, and officers within the general association, is unquestioned. All who unite themselves to such a body do so with an implied consent to this government, and are bound to submit to it.

But it would be a vain consent and would lead to the total subversion of such religious bodies, if any one aggrieved by one of their decisions could appeal to the secular courts and have them reversed. It is of the essence of these religious unions, and of their right to establish tribunals for the decision of questions arising among themselves, that those decisions should be binding in all cases of ecclesiastical cognizance, subject only to such appeals as the organism itself provides for. Watson v. Jones, 80 U.S. (13 Wall.) 679 (1872).

As a result, "the autonomy of a church in managing its affairs and deciding matters of church discipline … or the conformity of the members of the church to the standard of morals required of them" has long been afforded broad constitutional protection."

The neutral principles exception

The court acknowledged that the United States Supreme Court has recognized a narrow exception to the church autonomy doctrine when "neutral principles of law" may be used to resolve disputes over ownership of church property. The plaintiff asked the court to apply the neutral principles exception to her professional negligence claim, claiming that it could be resolved under neutral legal principles without resorting to or infringing upon religious doctrine.

Specifically, she asserted that the primary focus of her complaint was not the letter the church sent to the congregation or the church's disciplinary process. Rather, it was the pastor's disclosure to the church elders of confidential information he obtained during the marital counseling sessions, which she claimed constituted a breach of professional counseling standards. The court was not persuaded that her claim could be resolved without implicating religious considerations:

It is true that the plaintiff pins the pastor's liability … on his breach of a secular duty by disclosing confidential information to the church elders. However, this disclosure cannot be isolated from the church-disciplinary process in which it occurred, nor can [it be resolved] without examining what effect the imposition of damages would have on the inherently religious function of church discipline.

Subjecting the pastor to liability for engaging in the disciplinary process that the church requires would clearly have a chilling effect on churches' ability to discipline members and deprive churches of their right to construe and administer church laws …. In sum, while the elements of the plaintiff's professional negligence claim can be defined by neutral principles without regard to religion, the application of those principles to impose civil liability on the pastor would impinge upon the church's ability to manage its internal affairs and hinder adherence to the church disciplinary process that its constitution requires.

The court concluded

The secular confidentiality interest the plaintiff's professional negligence claim advances fails to override the strong constitutional presumption that favors preserving the church's interest in managing its affairs. She voluntarily became a member of the church body and agreed to abide by the church constitution; indeed, she expressed that she did so willingly. That constitution outlined the disciplinary process that would be followed if a member engaged in conduct that the church considered inappropriate. The pastor … assumed an obligation to the plaintiff and to the congregation to follow the church's constitution. Although the plaintiff contends pastoral counseling is not at issue because she did not receive marital counseling from the pastor in his capacity as a member of the clergy, the publication about which she complains was made in the course of the church disciplinary process and communicated by the pastor pursuant to the requirements of that process.

Even if the pastor's dual roles as secular counselor and pastor could be distinguished, which is doubtful, he could not adhere to the standards of one without violating the requirements of the other. Any civil liability that might attach for his violation of a secular duty of confidentiality in this context would in effect impose a fine for his decision to follow the religious disciplinary procedures that his role as pastor required and have a concomitant chilling effect on churches' autonomy to manage their own affairs. The result would be interference by the civil courts in the relationship among the church, its pastor, and the church members, which the First Amendment prohibits.

Resignation from church membership

The plaintiff claimed that her resignation from the church after she revealed confidences to the pastor "precluded any argument that he was performing a pastoral function in disseminating confidential information to the church."

The court disagreed. It noted that the church's constitution required the discipline of members to follow the procedure laid down in Matthew 18:1-35. According to this procedure, if a member sins and does not heed the counsel of church leaders, then the matter must be "told to the church." The court concluded that the church's decision to proceed with the formal discipline of the plaintiff following her resignation "was based on its interpretation of Matthew 18:15-20, an inherently ecclesiastical matter. We hold that court interference with that decision through imposition of liability in this case would impinge upon matters of church governance in violation of the First Amendment."

What this means for churches

What is the relevance of the Texas Supreme Court's decision to other churches? Obviously, the court's decision is binding only upon churches in the state of Texas. Nevertheless, the case represents one of the most extensive discussions of church discipline by any court, and as a result may be given special consideration (and no doubt be followed) by the courts of other states. For this reason, the case merits serious study by church leaders in every state. With these factors in mind, consider the following:

This is one of the few courts to address the question of whether a minister can be liable for divulging confidential information. The court concluded that a pastor was not liable for divulging confidential information to his congregation regarding a member's confession of marital infidelity since the disclosure occurred in the context of administering discipline pursuant to the church's constitution.

The most significant church discipline ruling up until now has been a 1989 decision of the Oklahoma Supreme Court. Guinn v. Church of Christ, 775 P.2d 766 (Okla. 1989). In the Guinn case, the court reached the following conclusions: (1) The discipline of church members (i.e., persons who have not withdrawn from membership) is a constitutionally protected right of churches. (2) Discipline of persons who have withdrawn their church membership is not a constitutionally protected activity, and a church that engages in such conduct can be sued under existing theories of tort law. (3) Church members have a constitutional right to withdraw from church membership unless they have waived that right. (4) Statements by church leaders to church members concerning the discipline of current members are conditionally privileged—meaning that the disciplined member cannot successfully sue the church for making such disclosures unless the church acted maliciously (i.e., it either knew that the disclosures were false or made them with a reckless disregard as to their truthfulness).

It is important to note that the Texas Supreme Court deviated in two significant ways from the Guinn ruling: First, the court rejected the conclusion that the discipline of persons who have resigned their church membership is not a constitutionally protected activity, and a church that engages in such conduct can be sued under existing theories of tort law. The court stressed that the church's decision to proceed with the discipline of the plaintiff following her resignation "was based on its interpretation of Matthew 18:15-20, an inherently ecclesiastical matter," and that "court interference with that decision through imposition of liability would impinge upon matters of church governance in violation of the First Amendment."

Second, the Guinn court noted that a "qualified" or "conditional" privilege protects churches from liability for disclosing confidential information to members, but it concluded that this privilege does not apply to disclosures made to non-members. The Texas Supreme Court ignored this issue. It simply noted that the church sent a letter "to the congregation," without any indication if the recipients included both members and nonmembers. Perhaps the court concluded that its ruling did not require a discussion of the qualified privilege. That is, since the church's disclosure of the plaintiff's marital infidelity was constitutionally protected, it didn't matter to whom the disclosure was communicated. Westbrook v. Penley, 231 S.W.3d 389 (Tex. 2007).

Legal Developments

Child Abuse

Church Law and Tax 1990-05-01 Recent Developments Child Abuse Richard R. Hammar, J.D., LL.M., CPA

Richard R. Hammar, Attorney, CPA

Bio

State: California
Categories: Child Abuse, Malpractice

Church Law and Tax 1990-05-01 Recent Developments

Child Abuse

Richard R. Hammar, J.D., LL.M., CPA

• Can a person who reports a suspected case of child abuse be sued by the child’ parents after an investigation determines that no abuse occurred? That was the question before a California state court. A nine-year-old girl contracted chicken pox and was taken by her parents to a doctor for diagnosis and treatment. The doctor misdiagnosed the child’s symptoms as a venereal disease, and promptly notified county authorities while the girl was in his office. The same day, the girl was removed from her parents’ custody and was taken to a juvenile detention facility where she remained (without her parents’ knowledge) for seven weeks before being returned to her home after the county determined that the child was not suffering from a venereal disease. The parents sued the doctor for infliction of emotional distress, malpractice, and false imprisonment. They acknowledged that the doctor had a mandatory duty to report known or reasonably suspected cases of abuse, and that the child abuse reporting law granted “blanket immunity” to anyone filing a report based on actual knowledge or reasonable suspicion of abuse. However, the parents insisted that the doctor did not have enough facts to create a reasonable suspicion of abuse. Rather, he “jumped the gun” and acted with a “knee-jerk” response, and therefore was not protected by any immunity. The court agreed that the child and her parents were “traumatized by these events and suffered substantial individual and family distress.” However, it dismissed the lawsuit against the doctor on the ground that he did have enough evidence to create a reasonable suspicion of child abuse, and accordingly he could not be sued for damages resulting from the fact that his suspicion was wrong. This case illustrates the important principle that persons who report known or reasonably suspected incidents of child abuse generally cannot be sued if their suspicion later is proven to be false. The typical child abuse reporting law grants immunity to reporters in order to encourage reporting of reasonably suspected incidents of abuse as well as those that the reporter knows to be true. Cream v. Mitchell, 264 Cal. Rptr. 876 (Cal. App. 1989).

See Personal injuries—on church property or during church activities, Bender v. First Church of the Nazarene (Ohio App. unpublished opinion 1989).

© Copyright 1990, 1998 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m10 c0390

Legal Developments

Insurance

Can a church-established health insurance plan that suffers huge losses sue its CPA firm for malpractice?

Richard R. Hammar, Attorney, CPA

Bio

State: Florida
Categories: Insurance, Malpractice

Can a church-established health insurance plan that suffers huge losses sue its CPA firm for malpractice? That was the question before a Florida state appeals court in a recent case. In 1968, the Catholic Archdiocese of Miami established a health insurance plan for the clergy and lay employees of the archdiocese.

A board of trustees was created to oversee the plan, and an administrator was appointed. Each year, the trustees and administrator determined the level of premiums that had to be made to the plan in order to cover anticipated medical expenses. In 1969, the trustees purchased a "stop-loss" insurance policy from Lloyd's of London which would insure against the risk that in any year the amount of claims paid by the plan would exceed the premiums received.

Each year before issuing the stop-loss policy, Lloyd's required the trustees to submit detailed information about the types and amounts of benefits to be provided by the plan, the number of workers covered, and the amount of premiums charged. The plan was audited by a large CPA firm each year from 1969 through 1981.

The CPA firm's "audit program" required it to obtain a copy of the current stop-loss policy each year to ensure that such coverage was available. However, after 1971, the CPA firm neither obtained a copy of the stop-loss policy nor verified the existence of such insurance. Nevertheless, it repeatedly informed the trustees that the Lloyd's stop-loss policy remained in effect.

In reality, Lloyd's cancelled the policy in 1980 due to the administrator's failure to pay premiums in a timely manner. In 1980, the trustees—unaware of the loss of coverage—significantly increased benefits to the plan members. As a result, claims exceeded premiums by $320,000 for the year. When the trustees discovered that the Lloyd's policy was no longer in effect, they sued the CPA firm (that had assured the trustees of the availability of the stop-loss policy).

A jury ordered the CPA firm to pay the whole $320,000 deficit, and the firm appealed. The state appeals court agreed that the CPA firm had been negligent in advising the trustees that the stop-loss policy was still in effect for 1980, but it concluded that the firm could not be liable for the entire $320,000 deficit for the year.

The court emphasized that there was no guaranty that Lloyd's would even have renewed the stop-loss policy for 1980—the year in which the trustees greatly expanded benefits under the plan. The court observed: "The trustees presented no evidence that Lloyd's, or any other carrier, would have issued a stop-loss policy that would have covered the deficit in the fund.

It is also uncertain whether the trustees and plan participants would have agreed to increased premiums which Lloyd's was likely to demand in light of the expanded benefits offered by the trustees. [The CPA firm] was negligent [and] the trustees' plan suffered losses. However, because there is no causal link between [the CPA firm's] negligence and the deficit in the plan, the deficit was improperly charged to [the firm].

Where policy coverage is merely speculative, as here, we hold that an accounting firm which negligently fails to discover the lack of insurance cannot be charged with benefit payments which might have been covered had the policy been in force."

Coopers & Lybrand v. Archdiocese of Miami, 536 So.2d 278 (Fla. App. 1989).

Legal Developments

Clergy – Part 3

Malpractice

Richard R. Hammar, Attorney, CPA

Bio

State: Ohio
Categories: Clergy Malpractice, Malpractice

Church Law and Tax 1989-01-01 Recent Developments

Clergy – Malpractice

Richard R. Hammar, J.D., LL.M., CPA

• The Ohio Supreme Court recently addressed the issue of clergy malpractice. Here are the facts. A husband and wife who had been experiencing marital problems went to a Lutheran minister for counseling. They selected him because “he held himself out to the public … as a minister and counselor trained and able to provide counseling for marital difficulties.” During the final three or four weeks of counseling, the minister allegedly engaged in consensual sexual relations with the wife. These relations, and the counseling, ended when the husband learned of the affair. The husband, who was later divorced from his wife, sued both the minister and his church. The suit against the minister alleged “clergy malpractice,” breach of fiduciary duty, fraud, misrepresentation, nondisclosure, and intentional infliction of emotional distress. The suit against the church alleged liability based on negligent supervision and negligent training of the minister. The husband alleged that the minister’s actions resulted in his divorce and caused him to suffer “mental and emotional anguish, shock, nervousness, and depression.” A trial court dismissed both suits, and a state appeals court ruled that the husband could sue the minister for intentional infliction of emotional distress (it dismissed all of the other allegations). The case was then appealed to the state supreme court, which dismissed all of the husband’s charges against both the minister and church. The supreme court began its decision by acknowledging that clergy are not immune from legal liability for their actions. It observed that “religious leaders have been held liable for obtaining gifts and donations of money by fraud; for undue influence in the transfer of property; for the kidnapping of a minor; for unlawful imprisonment; and for homosexual assault.” The first amendment guaranty of religious freedom did not prevent liability in these cases, and did not protect the minister in the present case, since “we find it difficult to conceive of pastoral fornication with a parishioner or communicant as a legitimate religious belief or practice in any faith.” The court then proceeded to reach the following conclusions: (1) the minister was not guilty of clergy malpractice since malpractice implies negligent conduct and the minister’s actions were intentional in nature; (2) the allegation of intentional infliction of emotional distress failed since this allegation “in truth and effect asserts an action for … alienation of affections” (i.e., enticing a spouse to lose his or her affections for the other spouse)—and such a tort was abolished by the Ohio legislature in 1978; and (3) the allegations of breach of fiduciary duty, fraud, misrepresentation, and nondisclosure were similarly rejected, since they all sought damages based on the minister’s seduction of the wife, and as such were barred by the state law prohibiting lawsuits based on “alienation of affections”. The court also concluded that the church was not liable: “[A]n underlying requirement in actions for negligent supervision and negligent training is that the employee is individually … guilty of a claimed wrong against the employer. Because no action can be maintained against [the minister] in the instant case, it is obvious that any imputed actions against the church are also untenable.” The court emphasized that it found the alleged conduct on the part of the minister to be “reprehensible,” but concluded that there was no basis for relief available to the husband. A dissenting judge expressed outrage at the result reached by the court, and observed: “[The husband] and his wife sought counseling from [the minister] in order to overcome their marital problems. Not only was [the minister] aware that such problems existed, but he was consulted for those very problems. Armed with this knowledge and cognizant of the great emotional strain and vulnerability experienced by his clients at that time, it is alleged that [the minister] sought not to remedy the situation but rather to exploit his position in order to obtain sexual gratification. Given [his] knowledge and experience, there exists a jury question as to whether he intentionally sought to inflict emotional harm upon [the husband].” Stock v. Pressnell, 527 N.E.2d 1235 (Ohio 1988).

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