Christ Lutheran Church v. State Farm, 471 N.E.2d 124 (N.C. App. 1996)
Facts. During a period of 13 months a church treasurer embezzled church funds totaling $33,000 by issuing 24 separate checks to himself in various amounts. Church officials learned of the embezzlement, and made a request for reimbursement to the church's insurance company. The church's insurance policy provided coverage for embezzlement under the "employee dishonesty" section. The policy specified that it would pay up to $5,000 for losses incurred "in any one occurrence." The policy defined occurrence as "all loss involving a single act, or series of related acts, caused by one or more persons."
The church insisted that the 24 checks written by the treasurer to himself constituted 24 separate acts, and so the insurance company was required by the policy to reimburse the church for the full amount embezzled ($33,000). The insurance company claimed that the treasurer's 24 checks were all a single occurrence since they were "related acts" caused by the same person, and therefore it was obligated to pay only $5,000—the limit under the policy for one occurrence.
The court's ruling. A court agreed with the insurance company, and ruled that the church was entitled to only $5,000 under the policy. The court agreed with the church that insurance policies "are to be strictly construed against the insurer, with any ambiguity being resolved in favor of the insured." However, it concluded that there was no ambiguity in the policy. The treasurer's 24 checks clearly met the definition of a "single occurrence."
The court noted that as a general rule "an occurrence is determined by the cause or causes of the resulting injury." The cause of the church's loss or injury in this case "was the continued dishonesty of one employee." The checks
were all written in furtherance of one employee's dishonest acts. They do not constitute a new and individual act of dishonesty, as alleged by [the church], but are instead a continuum of wrongful actions. This was the cause of the [church's] loss.
The court emphasized that the treasurer had the intent "to continue the dishonesty, not to commit an entirely new and different act of dishonesty."
What this means for churches
Consider the following points:
- Check your insurance policy to see if you have coverage for "employee dishonesty." If not, discuss this with your insurance agent. Unfortunately, church workers sometimes embezzle church funds, and this can lead to financial hardship for a church. This is a risk that can be partly or fully offset through insurance.
- If you have insurance, is it adequate? Remember that apparently separate acts of embezzlement may be viewed by the courts as a "single occurrence" under your insurance policy, meaning that the insurance company only has to pay the insurance limit once. This can come as an unpleasant surprise to church leaders, as happened in this case.