Key point 6-06.02. Officers and directors must be legally authorized to act on behalf of their church. Legal authority can be express, implied, inherent, or apparent. In addition, a church can ratify the unauthorized actions of its officers or directors, but this is not required.
A federal court in California ruled that a church’s insurance policy was not obligated to provide a legal defense to a lay member of the church’s council. The member was sued for defamatory remarks he posted on the website Yelp regarding the quality of services provided by a contractor to the church.
In 2018, a company installed solar panels at a church. Dissatisfied with the purported lack of savings in the church’s energy bills promised by the company, a church member (the “defendant”) began investigating the church’s energy usage.
When the company was not sufficiently responsive to the defendant’s inquiries, the defendant began posting critical reviews of it on social media. In particular, the defendant posted a one-star review on the website Yelp.com, stating the company’s products caused the church’s energy bills to increase.
After the defendant refused to remove the posts, the company sued the defendant in state court for defamation and trade libel. The defendant notified the church’s insurance company of the lawsuit. The insurance company initially agreed to provide the defendant with a legal defense, but later determined that no coverage existed. The insurer asked a court to issue a “declaratory judgment” that it had no duty to defend or indemnify.
Explaining the duty to defend
The court noted:
“[A]n insurer must defend its insured against claims that create a potential for indemnity under the policy.” . . . “[W]here there is no potential for recovery on a covered claim, there is no duty to defend.” . . . For instance, “an insurer does not owe a duty to defend if it conclusively demonstrates that a policy exclusion applies to preclude coverage.”
In this case, the insurer argued that there was no duty to defend because the defendant was not even “covered by the church’s insurance policy.” In particular, the insurer pointed to the policy language, which defined “covered person” to include the church and its leaders, employees, appointed persons, and volunteers (or the spouses of such persons) “in relation to any leadership activity undertaken on [the church’s] behalf.”
Defining “leadership activity”
“Leadership activity” was defined by the policy to mean “the decision-making acts of [the church’s] leaders regarding the operation of your organization, and includes related and authorized activity undertaken by volunteer committee members and by other covered persons for the purpose of implementing such decisions.”
The insurer noted that “[t]here are no allegations in [the underlying] complaint that defendant was acting on behalf of the Church or within the course and scope of defendant’s agency with the Church.”
The insurer further noted:
Defendant was not a “covered person” because his allegedly defamatory “social media posts were not authorized by the Church, made for the benefit or on behalf of the Church, made within the course and scope of his duties as a member of the Church Council, or made in relation to the Church’s religious or not-for-profit operations.”
The church provided an affidavit from a former member and former president of the church council, stating that “[c]ouncil members are not expected or authorized to act independently on any matter.”
The defendant acted without direction from leadership
The former church council president testified:
[A]fter the solar panels were installed, Defendant began incessantly sending [the former church council president] and other church leadership . . . “paperwork regarding his alleged investigation into the operation of the installed solar panels.” This culminated in a “report” regarding the operation of the solar panels, which Defendant had created on his own and without direction of church leadership.
According to the former church council president, no one in leadership “authorized defendant to take any action related to his report.”
In December 2018, the defendant began contacting the company and making social media posts “without the knowledge or authorization” of anyone in church leadership.
According to the former church council president, the defendant’s role as member of the church council did not authorize him to make social media posts on behalf of the church and his duties in that role did not relate to “the Church’s contracts and relationships with third party contractors.”
Once the former church council president and other leaders became aware of the defendant’s actions, church leaders wrote him twice to advise him that his activities “were done without the permission of the Church.”
The insurer also noted that the defendant himself stated in his social media posts that he “felt a big pressure from the Church leaders to remove” his allegedly defamatory Yelp review.
Court: The defendant is not a “covered person”
The court concluded:
In sum, [the insurer] carries its burden . . . to show that Defendant’s conduct of making allegedly defamatory social media posts was undertaken on his own and without authorization of any church leader. Consequently, at least in regard to the actions giving rise to the underlying litigation, Defendant is not a “covered person” for purposes of the church’s insurance policy . . . and thus Defendant falls outside the scope of coverage.
What this means for churches
This case demonstrates the potential risk churches face when posting critical comments about businesses and organizations in the community. However, individuals who post critical messages on Yelp or other social media sites, even if in the name of the church, will not create liability for the church if they acted alone and outside the scope of any “agency” relationship with the church.
Consider these three important points from this case.
First, the case illustrates a basic principle of corporate law that board members have no authority to act individually on behalf of their corporation. They may only act collectively as a board. This is an important point, for it demonstrates the potential personal liability of board members who seek to bind their corporation by their unilateral and unauthorized acts.
Second, the court concluded that there was no evidence that the defendant was acting on behalf of the church “or within the course and scope of [his] agency with the Church” when he made his unauthorized Yelp reviews purportedly on behalf of the church.
This is an important point. It indicates that conduct by church employees and volunteers outside of the scope of their ordinary duties cannot be ascribed to the church on the basis of agency.
Third, the defendant was sued by the company for trade libel because of the critical reviews he posted on Yelp. Trade libel is an intentional disparagement of the quality of services or product of a business that results in pecuniary (financially related) damage to the business.
The church’s insurance policy did not provide the defendant with a defense or indemnification because he acted alone when posting his negative Yelp comments without authorization or approval from the church.
According to this court, individuals who post comments on social media without authorization from the church are not acting within the scope of their agency, and so it is the poster rather than the church that is exposed to liability for trade libel.
Insurance Company v. Vinkov 2021 WL 3553733 (C.D. Cal. 2021)