Insuring Against Embezzlement

A court issues a helpful decision.

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.

This content is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold 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. "From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations." Due to the nature of the U.S. legal system, laws and regulations constantly change. The editors encourage readers to carefully search the site for all content related to the topic of interest and consult qualified local counsel to verify the status of specific statutes, laws, regulations, and precedential court holdings.

ajax-loader-largecaret-downcloseHamburger Menuicon_amazonApple PodcastsBio Iconicon_cards_grid_caretChild Abuse Reporting Laws by State IconChurchSalary Iconicon_facebookGoogle Podcastsicon_instagramLegal Library IconLegal Library Iconicon_linkedinLock IconMegaphone IconOnline Learning IconPodcast IconRecent Legal Developments IconRecommended Reading IconRSS IconSubmiticon_select-arrowSpotify IconAlaska State MapAlabama State MapArkansas State MapArizona State MapCalifornia State MapColorado State MapConnecticut State MapWashington DC State MapDelaware State MapFederal MapFlorida State MapGeorgia State MapHawaii State MapIowa State MapIdaho State MapIllinois State MapIndiana State MapKansas State MapKentucky State MapLouisiana State MapMassachusetts State MapMaryland State MapMaine State MapMichigan State MapMinnesota State MapMissouri State MapMississippi State MapMontana State MapMulti State MapNorth Carolina State MapNorth Dakota State MapNebraska State MapNew Hampshire State MapNew Jersey State MapNew Mexico IconNevada State MapNew York State MapOhio State MapOklahoma State MapOregon State MapPennsylvania State MapRhode Island State MapSouth Carolina State MapSouth Dakota State MapTennessee State MapTexas State MapUtah State MapVirginia State MapVermont State MapWashington State MapWisconsin State MapWest Virginia State MapWyoming State IconShopping Cart IconTax Calendar Iconicon_twitteryoutubepauseplay