Insurance Company Investigations

Many policies require churches to comply with investigations.

Church Law and Tax 1991-05-01 Recent Developments


Liability insurance policies ordinarily require churches to cooperate with any investigations conducted by the insurance company into losses or accidents. This often comes as a surprise to churches. Occasionally, questions arise as to the extent of an insurance company’s right to investigate. Such was the case in a New York case. A church building and its contents were totally destroyed in a fire of suspicious origin. The loss was covered by a comprehensive insurance policy, and the church promptly filed a claim against the insurance company. The insurance company launched an investigation into the facts and circumstances surrounding the fire. It notified the church that it wanted numerous documents, including (1) a list of monthly expenses for the church, (2) a listing of all income of the church, including the names of donors and the amounts they individually contributed, (3) copies of tax returns filed by the church, (4) copies of tax returns filed by the directors and officers of the church, and (5) a list of the salaries of the directors and officers (from their secular employment). The basis for this request for information was a provision in the insurance policy specifying that the insurance company “may examine and audit the named insured’s books and records at any time during the policy period and extensions thereof and within three years after the final termination of this policy, as far as they relate to the subject matter of this insurance.” Despite being warned by the insurance company’s attorney that a refusal to provide the requested information might lead to a refusal to a denial of any coverage under the policy, the church refused to provide the requested information. A state appeals court ruled that the church had to provide the documents that were “material and relevant to the issue of [its] financial status at the time of the fire,” if the fire loss was to be covered under the insurance policy. However, the court emphasized that “the circumstances presented do not provide a basis for [the insurance company] to be granted access to personal financial information pertaining to [the church’s] board of directors and officers, or to the names of church donors ….” This case illustrates an important point—church insurance policies typically require churches to cooperate in insurance company investigations. Churches should be aware of this requirement, and understand that a failure to cooperate may result in the denial of insurance benefits. This case further illustrates that there are limits on the authority of an insurance company to investigate. If personal financial information pertaining to officers, directors, and donors is not “material and relevant” to a particular loss, then it is not discoverable by the insurance company. However, churches should never decline an insurance company’s request for information without the advice and consent of a local attorney. Church of St. Matthew v. Aetna Casualty and Surety Co., 554 N.Y.S.2d 563 (A.D. 1 Dept. 1990).

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