The Limitations of Church Insurance

A church’s insurance policy’s exclusion for assaults and batteries precluded coverage, rules a federal appeals court.

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 church's insurance policy's exclusion for assaults and batteries precluded any coverage for both a minister's acts of child molestation and the church itself.

Diocese seeks indemnification

The Roman Catholic Diocese of Phoenix settled four lawsuits for alleged sexual abuse by its priests after which the Diocese filed a declaratory judgment action in a federal district court in Arizona seeking entitlement to indemnification under its excess liability indemnity policy.

The policy excluded coverage for claims that alleged assault and battery:

(a) to liability of any insured for assault and battery committed by or at the direction of such insured except liability for Personal Injury or Death resulting from any act alleged to be assault and battery for purpose of preventing injury to persons or damage to property.

The court construed the insurance policy's assault and battery exclusion to apply only to the offending priest, not the Diocese, and concluded that "the best reading of the assault and battery clause is that 'such insured' means the insured who committed or directed the assault and battery." The district court therefore concluded that the exclusion did not foreclose coverage of the sexual abuse claims against the Diocese.

Coverage excluded both insured and coinsured

On appeal, the insurer argued that because the assault and battery exclusion precluded coverage for "any insured"—and because "such insured" refers back to "any insured"—the assault and battery exclusion categorically excluded coverage for both the insured who committed the assault and battery as well as an innocent coinsured such as the Diocese.

A federal appeals court agreed with the insurer's reading of the exclusion. It concluded that "if any one of the insureds violates the exclusion, no other insureds can recover."

What this means for Churches

Our research shows that sexual abuse of minors remains one of the most common reasons that churches end up in court.

What comes as a shock to many church leaders is that the church's insurance policy may not provide coverage for such claims due to the common exclusion of intentional or criminal acts. To be sure, this exclusion clearly would apply to the perpetrator who has engaged in intentional or criminal acts. But in most of these cases, the church has not committed any intentional or criminal act. It is sued for negligence, either in the selection or supervision of the offender. Does the policy's exclusion for intentional or criminal acts apply to negligence claims against the church?

Incredibly, many courts, like the court in this case, have concluded that it does. Other courts have reached the sensible conclusion that an exclusion for intentional or criminal acts does not apply to a church's alleged negligence.

A church insurance company's interpretation of the application of the intentional and criminal acts exclusion to negligence claims against a church is a question of immense importance. If the insurer takes the position that the exclusion precludes coverage of negligence claims against a church, then the church will be required to retain and compensate legal counsel in the defense of the claim, and pay any settlement or adverse judgment.

The takeaway point is this: Church leaders should seek a clarification from their insurance company regarding the interpretation of an intentional or criminal acts exclusion in the 'church's insurance policy. And, this is one of the most important clarifications that a church should obtain when shopping for insurance. Interstate Fire & Casualty Company v. Roman Catholic Church of Diocese, 761 F.3d 953 (9th Cir. 2014).

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