Key point 10-16.7. A liability insurance policy provides a church with a legal defense to lawsuits claiming that the church is responsible for an injury, and it will pay any adverse settlement or judgment up to the limit specified in the policy. Liability insurance policies exclude a number of claims. For example, some policies exclude injuries based on criminal or intentional acts and claims for punitive damages. A church has an obligation to promptly notify its insurer of any potential claim, and to cooperate with the insurer in its investigation of claims.
A federal appeals court ruled that a pollution exclusion in a church's liability insurance policy prevented the spouse of a pastor who was killed by carbon monoxide poisoning in the church parsonage from recovering any damages against the insurer. A pastor and his wife resided in their church's parsonage. One evening the parsonage's heating system malfunctioned and released carbon monoxide throughout the residence. The pastor died as a result of his exposure to the carbon monoxide, and his wife was seriously injured. The church had a multi-peril insurance policy and an umbrella policy. The multi-peril policy contained a pollution exclusion that excluded coverage for:
"Bodily injury" or "property damage" arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release, or escape of pollutants:
(a) At or from any premises, site, or location which is or was at any time owned or occupied by, or rented or loaned to, any insured.
The umbrella policy included identical language. "Pollutants" are defined under both policies as "any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste. Waste includes materials to be recycled, reconditioned, or reclaimed."
Although it was evident that the carbon monoxide had been emitted from the parsonage's heating system, the exact source and cause of the carbon monoxide leak were not clear. The surviving spouse (the "plaintiff") entered into a consent agreement in which she agreed not to "pursue or collect on any of the church's assets or assets of any members of the church, except for any rights to indemnity under any insurance policies." In exchange, the church assigned to the plaintiff all rights it had under its insurance policies.
A federal district court concluded that the pollution exclusions were unambiguous, that carbon monoxide was a "pollutant" as defined by the policies, and that the plaintiff's claims were not covered under the plain terms of the policies.
A federal appeals court agreed, noting that "as an appellate court reviewing terms of an insurance contract, we cannot say that the language of the pollution exclusion is ambiguous in any way. The language in the instant pollution exclusion is clear and susceptible of only one possible interpretation."
What This Means For Churches:
There are two points worth noting. First, be sure that any church-owned residences are thoroughly inspected periodically, including an inspection of the furnace each fall. Second, be familiar with the exclusions under church insurance policies, and consider obtaining excluded coverages through a special endorsement or separate policy. Clay Center Christian Church, 746 F.3d 375 (8th Cir. 2014).