Pastor, Church & Law

Insurance

§ 10.16.07

Key point 10-16.07. 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.

Some view liability insurance as a “defense” to church liability since it will provide the church with a legal defense of a civil lawsuit and pay any portion of a settlement or judgment up to the insurance policy limits. Listed below are several aspects of church insurance with which church leaders should be familiar:

1. Coverage

An insurance policy will provide a church with a legal defense of a covered claim, and pay any portion of a settlement or judgment up to the policy limit. It is important for church leaders to understand which claims are covered under the church’s insurance policy.

Some legal claims against a church may not be covered by the church’s insurance policy because of an “exclusion” in the policy (see below).

How much insurance should we purchase? Unfortunately, there is no simple answer to this question. Here are a few points that may help:

  • In general, the amount of coverage should be based on two primary considerations: (1) the nature and frequency of your activities, and (2) the net value of the church’s assets. To illustrate, if your church has a youth program that has frequent meetings involving several minors, or your church provides counseling, or hosts community activities, then your liability risks are increased and you should be looking for higher insurance limits. Further, as a general rule, liability insurance should have limits in excess of the net value of the church’s assets so that the assets are protected in the event of litigation.
  • Annually review all church insurance coverages to be sure they are adequate.
  • Periodically obtain appraisals of church property (real property, personal property, and fixtures) to be sure that you have adequate coverage.
  • Be sure that your church is insured for an amount in excess of what is required by a “coinsurance clause” in your insurance policy. A coinsurance clause is often difficult to understand, but the idea is that unless a church is insured for a specified amount (e.g., 80% of market value) then the church becomes a “coinsurer” in the event of a partial loss, and is responsible for paying part of that loss. This is done by a reduction in the amount that the insurer has to pay. The purpose of such clauses is to persuade property owners to insure their property for an amount equal to or approaching its market value. Over time, a church’s failure to increase the amount of its property insurance to reflect the current value of the church property will reduce the insured amount to less than the coinsurance amount, and this can result in an unpleasant and unbudgeted expense when the insurer only pays a portion of a substantial partial loss.

Key point. Church insurance policies generally do not cover employment-related claims, including discrimination, wrongful termination, and sexual harassment. If your church is sued on the basis of such claims, you probably will need to retain and pay for your own attorney, and pay any judgment or settlement amount. This often comes as a shock to church leaders. You should immediately review your policy with your insurance agent to see if you have any coverage for such claims. If you do not, ask how it can be obtained. You may be able to obtain an endorsement for “employment practices.” Also, a “directors and officers” policy may cover these claims.

Key point. In evaluating whether or not an insurance policy provides coverage for a particular claim, the courts generally apply the following principles: (1) the insurance contract is “construed liberally” in favor of the insured and “strictly” against the insurer; and (2) exclusions are interpreted as narrowly as possible, so as to provide maximum coverage for the insured, and are construed most strongly against the insurance company that drafted and issued the policy.

Tip. Does your church have insurance that covers losses caused by embezzlement and employee dishonesty? Ask your insurance agent the following questions: (1) Does our church insurance policy cover employee thefts and dishonesty? (2) If so, what is the coverage amount? (3) Is the coverage amount adequate for our church? If not, how much would additional coverage cost? (4) If our church is not insured against employee theft or dishonesty, what would the cost be for different levels of coverage? (5) Would a series of acts of embezzlement, occurring over more than one year, be a single “occurrence” or separate occurrences under our employee dishonesty policy?

2. Exclusions

As noted above, all church insurance policies contain exclusions. An exclusion is a claim that is not covered under an insurance policy. It is important for church leaders to be familiar with the exclusions set forth in their church’s liability insurance policy, since these represent potentially uninsured claims that can expose the church to substantial damages. Further, the church would have to retain and compensate its own attorney if it is sued on the basis of an excluded claim.

Common exclusions include:

  • counseling
  • employment practices
  • use of personal vehicles for church-related work
  • sexual misconduct
  • use of the church facilities by outside groups
  • intentional or criminal misconduct
  • injuries occurring outside of the United States (i.e., during a short-term missions trip to a foreign country)
  • injuries caused by exposure to hazardous substances
  • Church leaders may want to discuss with their church insurance agent the possibility of obtaining insurance to cover exclusions.

Case studies

  • A federal appeals court ruled that a church’s insurance policy did not cover lawsuits arising from the employment relationship.237 The Parish of Christ Church v. The Church Insurance Company, 166 F.3d 419 (1st Cir. 1999). A pastor dismissed his church’s music director. The music director sued the pastor, church, and state denominational agency, claiming that she had been dismissed because she suffered from post-traumatic stress disorder and multiple personality disorder. She insisted that her dismissal amounted to unlawful discrimination based on disability. She also claimed that the pastor had defamed her, and invaded her privacy. The church’s insurance carrier insisted that the church insurance policy did not cover the woman’s claims, and it refused to provide the church with a legal defense or to pay any portion of a jury verdict or settlement. A federal appeals court agreed that the insurance policy did not cover the woman’s claims. It noted that the policy indemnifies the church for damages resulting from “personal injury,” including injury from defamation. The policy further obligates the company to defend the church in any suit seeking damages covered by the policy. However, the policy excludes from coverage “personal injury sustained by any person as a result of an offense directly or indirectly related to the employment of such person by the named insured.” The court noted that the key question was whether the woman’s lawsuit was for “personal injury” sustained “as a result of an offense directly or indirectly related to her employment” by the church. If it was, then the exclusion applied, and the company had no duty to defend the church against the lawsuit. The court concluded that “defamatory statements providing an explanation for termination or directed to performance are related to employment. Alleged offenses occurring as part and parcel of an allegedly wrongful termination are plainly related to employment. Post-employment defamations can be directly or indirectly related to employment, and thus can fall within an exclusion of the sort at issue here. The statements to which [the lawsuit] refers are comments as to [the woman’s] abilities and job performance. They are explanations as to why [the pastor] terminated [her] employment.”
  • A federal appeals court ruled that an insurance policy covered two denominational agencies that were sued as a result of the sexual misconduct of an affiliated pastor, despite the fact that the policy excluded sexual misconduct claims.238 Evangelical Lutheran Church in America v. Atlantic Mutual Insurance Company, 169 F.3d 947 (5th Cir. 1999). See also D.E.M. v. Allickson, 555 N.W.2d 596 (N.D. 1996). A learning disabled woman claimed that she had been sexual assaulted by an ordained minister on several occasions at a state school for the mentally handicapped. The minister served as a chaplain at the school. The woman sued the minister for injuries she allegedly suffered as a result of these assaults. She also sued the national denomination (the “national church”) with which the minister was affiliated, and a regional denominational agency (the “regional church”). She claimed that the national and regional churches had been negligent in training, supervising, placing, and monitoring the chaplain, who eventually was indicted for alleged sexual contact with three mentally handicapped individuals. The chaplain was never an agent or employee of the national or regional churches, but graduated from a seminary affiliated with the national church and was listed in the national church’s “clergy roster” as a retired pastor. The national church had an insurance policy containing both comprehensive general liability and “umbrella” liability provisions. The comprehensive general liability provision provided nationwide coverage for the national church. The umbrella liability provision covered the national church and about 40 regional churches. Both the comprehensive general liability and umbrella liability provisions obligated the insurance company to pay “damages because of bodily injury or property damage to which this insurance applies,” but the policies explicitly require that “the bodily injury or property damage must be caused by an occurrence.” An “occurrence” is defined as “an accident, including continuous or repeated exposure to substantially the same general conditions.” Both policies excluded “bodily injury or property damage expected or intended from the standpoint of the insured.” The insurance company asked a federal district court to dismiss the case on the ground that the chaplain’s conduct had been “intended” and therefore was excluded from any coverage under the terms of the policy. The district court declined to do so, and ruled that the policies did provide coverage for the national and regional churches. The insurance company appealed. The federal appeals court concluded that under Illinois law (that law applicable to this case) it was clear that the victim’s allegations of negligent hiring fell within the definition of “occurrence.” It added that “if a complaint potentially supports a ground for recovery, the insurer must defend the entire complaint.” The court, in rejecting the insurance company’s argument that the exclusion of intentional acts precluded coverage, observed: “Here, negligent training was not an intentional tort, and [the chaplain’s] acts are not the insureds’ intentional acts. Thus, the insurance policy did not exclude the acts, and [the insurer] has a duty to defend.”
  • A federal appeals court ruled that a church insurance policy did not provide for a legal defense of a minister who engaged in sexual relations with two members of his congregation.239 Newyear v. The Church Insurance Company, 155 F.3d 1041 (8th Cir. 1998). The minister sued the church’s insurance company after it refused to pay for his legal defense. The church’s comprehensive general liability policy provides coverage for pastoral counseling liability under a provision defining “personal injury” to include “acts, errors or omissions of ordained clergy, acting within the scope of their duties as employees of the named insured and arising out of the pastoral counseling activities of these individuals.” The minister argued that he was entitled to a defense under the policy since the women’s allegations arose out of his duties as a pastoral counselor. A federal appeals court disagreed, and ruled that the church’s insurance policy did not cover the minister’s actions. The critical question, the court concluded, was whether or not the minister was acting within the scope of his employment when he engaged in sexual relations with the two women. It concluded that “a priest does not act in furtherance of the business or interests of his employer when he engages in sexual misconduct with parishioners.” As a result, the minister was not entitled to a defense under the policy “as the alleged acts of sexual misconduct do not fall within the scope of his employment.”
  • A federal appeals court ruled that a church insurance company was under no legal obligation to provide a legal defense to a church or its board of directors in a lawsuit alleging that a church volunteer had sexually molested a young girl.240 All American Insurance Company v. Burns, 971 F.2d 438 (10th Cir. 1992). Contra American Employers Insurance Co. v. Doe 38, 165 F.3d 1209 (8th Cir. 1999). The church’s insurance company refused to provide the volunteer, the church, or the church board with a legal defense to the lawsuit, and denied any obligation to pay any judgment rendered in the case. The insurer based its position on the following language in the church’s insurance policy: “This policy does not apply … to personal injury arising out of the willful violation of a penal statute or ordinance committed by or with knowledge or consent of any insured.” The policy defined the term “insured” to include any duly appointed volunteer. The church and church board conceded that the insurance policy did not protect the volunteer, but they insisted that they were being sued solely on the basis of their negligence and accordingly the insurance policy should cover them. The appeals court rejected the position of the church and church board. It observed, “[T]here is conclusive proof [of a willful violation of penal statutes] by guilty pleas and criminal convictions on both such charges. … We cannot agree with the [argument of the church and church board] that the cases can be viewed as involving only the negligence allegations and the negligent entrustment theory. It is, instead, an essential element of [negligence] that [the volunteer] molested the girls and caused them injuries of mind and body. A cause of action for negligence depends not only upon the defendant’s breach of duty to exercise care to avoid injury to the plaintiff, but also upon damage or injury suffered by the plaintiff as a consequence of the violation of the duty. The sexual violations and resulting injuries cannot therefore be disregarded. And giving consideration to them, the exclusion in the policy is thus applicable providing that the policy does not apply ‘to personal injury arising out of the willful violation of a penal statute or ordinance committed by or with knowledge or consent of any insured.'”
  • A federal appeals court ruled that a church’s insurance policy did not cover a lawsuit against the church for the negligent hiring and supervision of a minister who engaged in sexual misconduct. The church’s insurance policy excluded damages “arising from sexual action.” The court concluded that the exclusion applied to the claims against the church, and so there was no coverage available under the policy. It concluded that the term “arising out of” meant that a claim need only bear an “incidental relationship” to the minister’s acts of sexual misconduct. “Without [the minister’s] sexual misconduct, the victims of the misconduct would have no claims against the church and the four associate ministers. Every alleged harm caused to the victims by the church and the four associate ministers stems from and is integrally related to the minister’s acts. Therefore … all of the allegations that underlie the victim’s claims against the church and the four associate ministers arise out of the minister’s sexual actions, thereby precluding coverage.”241 American States Insurance Co. v. Bailey, 133 F.3d 363 (5th Cir. 1998).

A Potentially Significant Uninsured Risk

These cases suggest that sexual misconduct exclusions in church insurance policies may apply even though a church is being sued for negligence. Other courts have disagreed with this conclusion. Church leaders should examine their insurance policies to see if a sexual misconduct exclusion exists. If so, do not assume that it will not apply to negligence claims brought against the church resulting from the sexual misconduct of an employee or volunteer. Church leaders should discuss this coverage issue with their insurance agent. If the policy does not provide coverage in the event the church is sued on the basis of negligence for the sexual misconduct of an employee or volunteer, then this represents a potentially significant uninsured risk that needs to be addressed either through a separate endorsement with the current insurer, if available, or by switching to another insurer that will insure against this risk.

3. Duty to Cooperate

Most insurance policies impose a “duty to cooperate” on the insured. This means that a church must cooperate with its insurance company in any investigation, or in responding to reasonable requests for information. Church leaders should be aware of this requirement and understand that a failure to cooperate may result in the denial of insurance benefits. There are limits to the authority of an insurance company to investigate. However, churches should never decline an insurance company’s request for information without the advice and consent of a local attorney.

Case study

  • A church sustained a $100,000 fire loss, and promptly notified its insurance company. However, the insurance company refused to pay for any portion of the loss because of the church’s alleged failure to cooperate in the investigation of the claim. In particular, the insurance company complained that the church refused to allow certain individuals to be examined under oath. The church sued its insurance company, and a state appeals court has ordered the case to proceed to trial. A jury will now decide if the insurance company acted properly in denying coverage. 242 Bethel Baptist Church v. Church Mutual Insurance Company, 924 S.W.2d 494 (Ark. App. 1996).

4. Duty to Notify

Most insurance policies impose on the insured a duty to promptly notify the insurance company of any potential claim. Failure to comply with this condition can result in a loss of coverage. Here are some points to consider:

  • Notifying your broker may not be enough. Many churches purchase their insurance through a local broker. Sometimes this person is a member of the congregation. Church leaders naturally assume that in the event of an accident or injury they can simply call this individual and everything will be “taken care of.” This case illustrates that such a conclusion may not always be correct. A broker may not be deemed to be an “agent” of the insurance companies he or she represents, and accordingly when a church provides its insurance broker with notice of an accident or loss it is not necessarily notifying its insurance company.

Tip. If you notify your insurance broker of a loss, insist on a written assurance that he or she will notify the insurance company in writing within the period of time specified in the insurance policy. If you do not hear back within a week or so, contact the broker again to follow up. Better yet, the church itself should notify both its broker and insurance company. The insurance company’s address will be listed on your insurance policy. Ask the insurance company to provide you with written confirmation of receipt of your notice.

  • Written rather than oral notice. If your insurance policy requires written notice, then be sure you provide written rather than oral notice of a loss.

Tip. Church leaders should be familiar with the insurance policy’s provisions regarding notification of the insurance company. Is written notice required? If so, how soon after a loss? It is essential that these provisions be scrupulously followed in order to prevent a loss of coverage.

Tip. If you change insurance companies, be sure to review the new insurance policy. Do not assume that it will contain the same “notice” provisions as your previous policy.

  • A reasonable time. How soon does your church insurance policy require that notice be submitted to the insurance company following an accident or loss? Be sure you know, and that this requirement is followed whenever there is an accident, personal injury, or other kind of loss.

Tip. The duty to inform your insurance company of an accident or loss arises when the injury occurs, and not when a lawsuit is filed. The purpose of the notice requirement is to give your insurance company sufficient time to investigate the incident and provide a defense.

Case studies

  • A federal court in Rhode Island ruled that a diocese’s insurance company had a legal duty to defend diocesan officials who were sued as a result of the sexual molestation of several children by Catholic priests, despite the insurance company’s claim that the diocese had failed to promptly notify it of the potential claims.243 Aetna Casualty & Surety Company v. Kelly, 889 F. Supp. 535 (D.R.I. 1995). The court pointed out that for the insurance company to prevail on this claim it would have to prove that the incidents of molestation actually occurred and that the diocese was aware of them. The court noted that these are the very facts that the victims would have to prove to hold the diocese liable for their injuries, and it would be unthinkable for the diocese’s own insurance company to attempt to prove the victims’ case for them. Such efforts “would be inconsistent with [the insurance company’s] obligations as an insurer. The principal purpose of liability insurance is to protect policy holders from claims asserted by third parties based on matters covered by the policy. By taking action that makes a policy holder liable for such claims, an insurer would subvert the purpose of the policy and violate one of the most fundamental duties it owes to its insured.”
  • A church member was injured when he fell on church property during a funeral.244 Shaw Temple v. Mount Vernon Fire Insurance Company, 605 N.Y.S.2d 370 (A.D. 2 Dept. 1994) At the time of the injury, the church had a general liability insurance policy that required the church to give the insurance company written notice of any accident “as soon as practicable.” Immediately following the accident the pastor instructed the chairman of the board of trustees to notify the church’s insurance broker about the accident. The chairman did so by calling the insurance broker’s office. An employee of the broker assured the chairman that the insurance company would be duly notified. In fact, the insurance company was not notified. Nine months later the church received a letter from an attorney for the injured member threatening to sue the church unless it paid the member a large amount of money. The church immediately turned this letter over to its insurance broker, who in turn forwarded it to the church’s insurance company. The insurance company refused to provide the church with a defense of the lawsuit or pay any amount of money based on the accident since the church had failed to provide it with written notice of the accident “as soon as practicable” as required by the insurance policy. The church responded by suing its insurance company. It sought a court order requiring the insurance company to defend the church under the terms of the policy and to pay for any damages awarded by a jury. A state appeals court ruled that the insurance company had no legal duty to defend the church or pay for any jury verdict since the church had failed to notify it of the accident “as soon as practicable.” The court concluded that when the church gave notice of the accident to its insurance broker it was not giving notice to its insurance company as required by the policy. In addition, the insurance policy required that the church provide the insurance company with written notice of any accident. Even if the broker were an agent of the insurance company, the church still failed to comply with the terms of the insurance policy since it provided the broker with oral rather than written notice of the accident.

5. Coverage Limits

Insurance policies only provide coverage up to the “limits” specified in the policy. Church leaders should be familiar with the limits in their church insurance policy, and be certain that these limits are adequate. The adequacy of policy limits is a complex question that involves an analysis of several conditions. Most importantly, a church should consider its own net worth, and the frequency and relative risk of its programs and activities. Discuss the adequacy of your limits with your insurance agent, or with an insurance broker.

Some church insurance policies have reduced limits for certain risks, including sexual misconduct. This may expose the board to greater risk, as plaintiffs seek to recover damages in excess of the policy limits by suing board members directly.

Case study

  • A federal appeals court ruled that several children who were molested over a number of years by two priests represented multiple “occurrences” under a church insurance policy.245 Society of Roman Catholic Church v. Interstate Fire & Casualty Co., 26 F.3d 1359 (5th Cir. 1994).Two priests molested 31 children over a 7-year period. The priests were sued along with their diocese, and a question arose as to the number of “occurrences” the numerous incidents of molestation represented under the diocese’s insurance policies. These policies provided insurance to the diocese on a “per occurrence” basis. The more occurrences that occurred, the more insurance coverage that was available. The court acknowledged that defining this term in the context of multiple acts of molestation occurring over several years is difficult: “An occurrence could be the church’s continuous negligent supervision of a priest, the negligent supervision of a priest with respect to each child, the negligent supervision of a priest with respect to each molestation, or each time the diocese became aware of a fact which should have led it to intervene, just to name a few possibilities.” The court added that “when a term in an insurance policy has uncertain application [the courts] interpret the policy in favor of the insured.” The court concluded that “[w]hen a priest molested a child during a policy year, there was both bodily injury and an occurrence, triggering policy coverage. All further molestations of that child during the policy period arose out of the same occurrence. When the priest molested the same child during the succeeding policy year, again there was both bodily injury and an occurrence. Thus, each child suffered an occurrence in each policy period in which he was molested.” To illustrate, a child that was molested several times in each of seven different years represented seven different “occurrences” under the insurance policies. On the other hand, several incidents of molestation occurring within the same year represented only one occurrence.

6. Liability for Maintaining Inadequate Insurance Coverage

A few churches have been sued for failing to maintain adequate insurance coverage. Such claims have been rejected by the courts.

Case study

  • The Kansas Supreme Court ruled that a student who was rendered a permanent quadriplegic as a result of injuries sustained while playing football for a church-operated high school could not sue church officials for failing to obtain adequate insurance coverage.246 Wicina v. Strecker, 747 P.2d 167 (Kan. 1987). The victim alleged that the school and church officials had been negligent in “failing to properly insure students for injury incurred as a result of school activities and in failing to properly advise and inform students and their parents … of the insurance protection provided to students.” In rejecting this claim, the court cited a state law making the purchase of liability insurance coverage by public schools discretionary rather than mandatory. Such a law, reasoned the court, applied “by implication” to private schools as well. Since private schools were not required to purchase insurance, they could not be liable for failure to have enough coverage to cover catastrophic losses. “We feel sympathy for the severe injuries suffered by this plaintiff,” concluded the court. “However, there are dangers and risks inherent in the game of football and those who play the game encounter these risks voluntarily. It is fundamental that before there can be any recovery in tort there must be a violation of a duty owed by one party to the person seeking recovery. … It is clear under the facts of this case that no … duty existed to properly insure or to advise the plaintiff regarding medical insurance purchased by the defendants for the plaintiff.”

7. Punitive Damages

Church insurance policies exclude punitive damages. This means that a jury award of punitive damages represents an uninsured risk. As a result, it is important for church leaders to understand the basis for punitive damages. Punitive damages are damages awarded by a jury “in addition to compensation for a loss sustained, in order to punish, and make an example of, the wrongdoer.” They are awarded when a defendant’s conduct is particularly reprehensible and outrageous. This does not necessarily mean intentional misconduct. Punitive damages often are associated with reckless conduct or conduct creating a high risk of harm. Unfortunately, it is not uncommon for church leaders to ignore significant risks. Church leaders must understand that reckless inattention to such risks can lead to punitive damages, and that such damages may not be covered by the church’s liability insurance policy.

The following common scenarios potentially could result in punitive damages, meaning that the church may face substantial, unbudgeted, and uninsured liability:

  • refusing to implement a program for screening youth and children’s workers (both employees and volunteers)
  • failure to implement, and monitor, a policy prohibiting the use of cell phones (for calls and texting) while driving a vehicle on church business
  • continuing to use 15-passenger vans
  • using noncompliant cribs in the church nursery that fail to comply with the guidelines mandated by the Consumer Product Safety Commission.

8. Claims Made or Occurrence Coverage

Many forms of liability insurance come in two varieties: (1) occurrence policies, and (2) claims made policies. It is critical for church leaders to understand the difference. Occurrence policies only cover injuries that occur during the policy period, regardless of when a claim is made. A “claims made” policy covers injuries for which a claim is made during the policy period if the insured has continuously been insured with claims made policies with the same insurer since the injury occurred. Some insurers who offer claims made policies may agree to cover claims made during the current policy period for injuries occurring in the past when the insured carried insurance with another insurer. This is often referred to as “prior acts coverage.”

Table 10-5 summarizes the advantages and disadvantages of both forms of coverage.

Example. A church purchases “claims made” counseling insurance from Company A each year for several years. It switches to an “occurrence policy” with Company B this year. A lawsuit is brought against the church this year for an alleged act of counseling malpractice that occurred in three years ago. The church’s policy with Company A will not cover this claim, since the claim was not “made” during the policy period (even though it occurred during the policy period). Had the church not switched insurers this year, the claim would have been covered. Does the policy with Company B cover the claim? No, since the injury did not occur during the policy period. As a result, there is no coverage for this claim. Note that the result would have been the same had the church purchased a claims made policy from Company B, unless it also purchased “prior acts” coverage. This example illustrates an important point. Churches should not switch from a claims made to an occurrence policy (with the same or a different insurer), or switch claims made insurers, without legal counsel.

9. Subrogation

Church leaders should be familiar with the principle of subrogation since it may expose church members to unexpected liability. Church members whose negligence causes a loss (injury or property damage) that the church’s insurer pays under the church insurance policy may be sued by the insurer to recover the full amount of the loss that it paid. Insurance companies cannot subrogate against persons who are “insureds” under a church insurance policy. Church members and volunteers are specifically listed as insureds under some church insurance policies with respect to actions they perform on behalf of the church, but this is not always true. Review your church insurance policy to see if members and volunteers are insureds. If they are not, talk with your insurance agent about including them.

Insurance companies generally can subrogate against volunteers or church members who perform criminal acts, even if the perpetrator is otherwise an “insured” under the church insurance policy. Church staff members or volunteers who engage in criminal acts for which the church insurance company pays a loss should understand that they may be sued personally by the insurance company for the full amount of the loss. For example, church members and volunteers who engage in sexual misconduct, embezzlement, or reckless driving of a vehicle may be sued personally by the church insurer to recover any amounts paid out under the church insurance policy as a result of such acts.

10. Misrepresentation

Misrepresentations by an insured in completing an application for insurance constitute grounds for denial of coverage.

Example. A 3-year-old child attended a church preschool. One day she wandered away from the other students, entered the church’s sanctuary, and fell into a full, uncovered baptistry and drowned. The church’s insurer denied covered on the ground of misrepresentation. It noted that the church had answered “no” to a question regarding the operation of a preschool. Church leaders insisted that the mistake was unintentional and therefore was not a willful misrepresentation. A court disagreed.

11. Other Matters

Here are some additional points to note about church insurance:

  • Retaining your policies. It is important for church leaders to keep church insurance policies permanently, since some claims (such as sexual misconduct) may arise years or even decades later, and a church may need to produce a copy of the insurance contract for the year in which the misconduct occurred in order to obtain coverage.
  • Reservation of rights letters. It is common for churches to receive a “reservation of rights” letter when they report a claim to their insurance company. Under such a reservation, an insurance company agrees to defend an insured, but reserves the right to deny any obligation to pay an adverse judgment as a result of an exclusion in the policy.
  • Periodic insurance review. Churches should appoint an insurance committee consisting of persons with some knowledge of insurance who periodically review the church’s insurance coverages to ensure they are adequate.

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.

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