Pastor, Church & Law

Defenses to Liability

§ 10.18.03

Key point 10-18.03. There are several legal defenses available to a denominational agency that is sued as a result of the acts or obligations of affiliated clergy and churches. These include a lack of temporal control over clergy and churches; a lack of official notice of a minister’s prior wrongdoing in accordance with the denomination’s governing documents; lack of an agency relationship; the prohibition by the First Amendment of any attempt by the civil courts to impose liability on religious organizations in a way that would threaten or alter their polity; and elimination or modification of the principle of joint and several liability.

There are a number of legal defenses available to a denominational agency that is sued as a result of the acts or obligations of affiliated ministers or churches. Some of these are the same that are available to local churches, and they are addressed in previous sections of this chapter. Others are more unique to denominational agencies, and they are addressed in this subsection.

Most attempts to hold denominations legally accountable for the activities of clergy or affiliated churches have failed. The courts have relied on a variety of grounds in reaching this conclusion. The more important grounds are summarized in the paragraphs that follow.

1. Ecclesiastical Rather than Temporal Control

A number of courts have recognized that some denominations have authority to exercise only ecclesiastical control over affiliated clergy and churches, and that this form of control is not enough to warrant the imposition of legal liability upon the denomination for the activities of clergy and churches. In one of the earliest cases, the national conference of the Pentecostal Holiness Church was sued for breach of contract when its Florida regional conference defaulted on a life care contract with two elderly church members who resided in a nursing home owned by the conference.²⁵⁹A state appeals court concluded that the national conference could not be sued for the financial improprieties of a local church or regional conference since local churches and regional conferences were totally independent of the national conference with respect to financial matters.

In a similar case, a Florida court made the following observation in a lawsuit attempting to impute liability to the Central Florida Diocese of the Episcopal Church for injuries sustained on the premises of a local Episcopal church:

We perceive the Constitution and Canons of the Diocese to be in the nature of a contract between it and its missions and parishes. In that circumstance, consistent with the well-settled principle that it is a function of the court to construe and interpret contracts, it was error to grant to the jury the power to interpret the Constitution and Canons in the search for an agency relationship … between the Diocese and [the local church]. [W]e conclude that where vicarious liability is sought to be imposed upon one of two ostensibly interrelated entities through the ordinary principles of agency, the imposition of such liability is unwarranted in the absence of evidence revealing that one entity controls the other. Our analysis of the Diocese’s Constitution and Canons fails to disclose that quantum of diocesan control, let alone domination, over the everyday secular affairs of [the local church] to sustain the imputation of liability to the Diocese. Indeed, we do not gainsay that the Diocese has impressed upon and demands from [the local church] unfailing obedience to ecclesiastical dogma, discipline and authority. We subscribe, however, to the concept that whenever a religious society incorporates, it assumes a dual existence; two distinct entities come into being—one, the church, which is conceived and endures wholly free from the civil law, and the other, the corporation created through the state prescribed method. Each remains separate although closely allied. The components of the ecclesiastical inter-relationship between the parent church and the subordinate body cannot be permitted to serve as a bridge capable of reaching the nonsecular parent in a civil proceeding.²⁶⁰

This language illustrates quite well the difference between ecclesiastical relationship and legal agency. To quote the Florida court, “the components of the ecclesiastical interrelationship between the parent church and the subordinate body cannot be permitted to serve as a bridge capable of reaching the nonsecular parent in a civil proceeding.” Further, the Florida court observed that “[w]e find no evidence from which a jury could conclude that the Diocese controlled or regulated the church [or its agents] in the maintenance of its grounds or the manner in which the equipment used to maintain the grounds was either operated or kept in repair.” In other words, the Diocese could not be liable on an agency theory for injuries occurring on a local church’s premises during mowing activities since the Diocese had no authority to control the church’s maintenance activities or the instrumentalities that allegedly caused the injuries in question.

The Alabama Supreme Court ruled that a Catholic religious order was not responsible for the misconduct of a priest.²⁶¹The court noted that “the relationship between [the priest] and the society was ecclesiastical and did not necessarily create a … principal/agent relationship.” The court further observed that

the law with regard to ecclesiastical orders and religious societies [is] that the relationship is essentially ecclesiastical in nature. I would analogize this to situations where a young man may be in a seminary and the seminary is asked to supply a preacher or a minister for a congregation. The fact that the young minister may have some alma mater does not make the seminary responsible for his behavior in the event he elects to commit a burglary or some other act. … [T]he plaintiff must have evidence in addition to the fact that [the priest] was a member of the Benedictine Society of monks.²⁶²

The Kansas Supreme Court ruled that the fact that a priest was subject to the “ecclesiastical control” of his diocese was not relevant in determining the issue of legal control for purposes of imputing liability to the diocese on the basis of agency or respondeat superior.²⁶³

In another case, the United States Tax Court addressed the question of whether a minister (Rev. Shelley), who was ordained by the International Pentecostal Holiness Church (IPHC), was an employee or self-employed for federal income tax reporting purposes.²⁶⁴The IRS argued that the fact that Rev. Shelley was expected to comply with the provisions of the IPHC Manual indicated that he was an employee. While the Court conceded that the Manual imposed certain requirements on Rev. Shelley, it viewed these as “more in the nature of an outline of his responsibilities than directions on the manner in which he was to perform his duties. We do not find the Manual or its contents to be determinative of an employer-employee relationship.” The IRS noted that the Manual described pastors as “amenable to the quadrennial conference and the conference board,” and it insisted that this proved an employer-employee relationship. The Tax Court disagreed:

While this language suggests an employee-employer relationship, we are not persuaded that it fully defines the relationships between the parties. The Manual provides little guidance as to how this amenability is exercised so as to give this description significance. In addition, testimony and other evidence indicate that the relationships between the parties are more complicated than the statement suggests. A chart included in the Manual depicts the local church board as amenable or accountable to the pastor. But, similarly, an examination of the record reveals that the relationship between those parties is less hierarchical and more interwoven than the chart indicates. While Rev. Shelley had a place in the structure of the IPHC, that structure was a looser affiliation than the strict hierarchy suggested by the term “amenable.”

A federal appeals court reached the same conclusion in a case involving the question of whether an Assemblies of God minister (Rev. Alford) was an employee or self-employed for federal income tax reporting purposes.²⁶⁵The IRS insisted, based on language in the Constitution and Bylaws of the national church (the “General Council”) and a state agency (the “District Council”) that Rev. Alford was an employee. In rejecting this conclusion, the court observed:

The General Council’s and District Council’s right to control Alford during the relevant years extended primarily to their function in awarding credentials to ministers like himself. Generally, the church has established certain criteria that must be met for an individual such as Alford to obtain credentials initially and to renew that status annually. … Thus it is apparent that, while the regional and national churches had doctrinal authority to exercise considerable control over Alford as regards his beliefs and his personal conduct as a minister of the church, they did not have “the right to control the manner and means by which the product [was] accomplished.”

The [trial court] and the United States make much of the fact that Alford, as a minister holding credentials, was “amenable” to the General Council and to the District Council in matters of doctrine and conduct. But this is not unusual in such a profession, and actually is merely a shorthand way of describing the parent church’s doctrinal and disciplinary control discussed above. The control exercised by the regional and national organizations, and their right to control Alford, was no more nor less than most professions require of individuals licensed or otherwise authorized to work in the profession. State bar associations, for example, have certain education requirements and demand a certain level of performance on a bar examination before an individual can be licensed to practice law. On an annual basis, such associations require the payment of dues and often the completion of continuing legal education in order for an attorney to retain his license. State bar associations are empowered to monitor attorneys’ behavior and to discipline them as they see fit, including the revocation of an attorney’s license to practice law (disbarment). Yet no one would suggest that, by virtue of this right to control an attorney’s working life, the bar association is his employer, or even one of his employers.

Further, we are somewhat concerned about venturing into the religious arena in adjudicating cases such as this one, and interpreting what really are church matters as secular matters for purposes of determining a minister’s tax status. The doctrinal and disciplinary control exercised by the General and District Councils, or available for their exercise, “is guided by religious conviction and religious law, not by employment relationships, and … should be considered impermissible or immaterial in determining the employment status of a religious minister.”

Such cases are significant. They recognize that the mere presence of authority to exercise control over some ecclesiastical activities of a minister or church is not enough of a relationship to impose legal liability on the denomination. Unfortunately, the bylaws or other internal rules of many denominations define the relationship with local churches and clergy in a way that suggests far more “control” than actually exists. For example, many denominational documents speak generally of an almost unlimited authority to “control” or “supervise” the activities of affiliated churches or clergy, when in fact no such control was intended. Using unlimited language of “control” or “supervision” should be scrupulously avoided, if such authority does not exist. Words such as control or supervision have legal connotations, and should not be used without qualification unless unlimited authority in fact exists.

2. Notice of Wrongful Conduct

In many cases victims of sexual misconduct involving clergy have argued that a denominational agency is legally responsible for a minister’s actions because it was aware of, or should have been aware of, the minister’s wrongful conduct. Some courts have noted that denominations often have clearly prescribed internal rules for bringing charges against ministers who engage in inappropriate conduct, and that the only way for such denominations to be “on notice” of a minister’s dangerous propensities is if a charge is filed and processed under the denomination’s system of clergy discipline. Without a formal charge or complaint being brought, the denomination is not officially on notice and cannot be liable for the minister’s subsequent acts.

Case study

An Indiana court ruled that a denominational agency was not liable on the basis of negligent supervision or negligent retention for the molestation of a minor by a pastor.²⁶⁶When the victim was an adult, she sued her church and denomination, claiming that they were responsible for the pastor’s actions on the basis of several theories, including negligence. The court concluded that the national church was not liable for the pastor’s acts of molestation, even if it had some knowledge of them, if the disciplinary procedure outlined in its bylaws was not activated by the victim. It concluded, “The [national church], which is only affiliated with the local church and [regional agency] through its constitution and judicial procedures, was not informed. The evidence … does not indicate that [the woman] invoked the judicial procedures, which is the only mechanism by which the [national church] could have taken action against [the pastor]. According to the judicial procedures, the [regional agency] forms a committee to investigate alleged misconduct upon the submission of a complaint signed by two or more persons. Only after this investigation is completed and the [regional agency] determines that the evidence warrants a trial does the [national church] become involved. [The woman] has not alleged … that she or anyone else ever filed a complaint against [the pastor] with the [regional agency]. Therefore, the [national church] could not have disciplined [the pastor]. Accordingly, we conclude that because the evidence does not show that the [national church] was aware of [the pastor’s] actions, summary judgment in favor of the [national church] is proper on [the woman’s] claims for negligent hiring, supervision, and retention.”

3. Lack of an Actual Agency Relationship

One of the principal grounds cited by plaintiffs’ attorneys in seeking access to the “deep pockets” of a denomination is agency. If a minister or lay worker can be classified as an “agent” of a denomination, then the denomination may be legally responsible for his or her acts occurring within the scope of employment. The courts have consistently rejected agency as a basis for making denominational agencies accountable for accidents occurring in local churches.

Section 1 of the Restatement of Agency (an authoritative legal treatise) specifies that “agency is the fiduciary relation which results from the manifestation of consent by one party to another that the other shall act on his behalf and subject to his control, and consent by the other so to act.” The Restatement further specifies that “the one for whom action is taken is the principal,” and “the one who is to act is the agent.”

Section 219 of the Restatement of Agency specifies that an employer is subject to liability “for the torts of his servants committed while acting in the scope of their employment.” This form of vicarious liability was discussed fully earlier in this chapter. The important point here is that clergy serving local churches rarely will be considered to be agents or “servants” (i.e., employees) of a parent denomination, since they will satisfy few if any of the factors indicating an agency relationship enumerated in the Restatement of Agency.²⁶⁷To illustrate, a Missouri court ruled that a Catholic priest was not an agent of the Archdiocese of St. Louis with respect to his anti-abortion torts. The court observed:

When questioned about the duty of a priest in the Archdiocese concerning protesting abortions at abortion clinics, the Archbishop stated “there’s no such duty prescribed of any priest.” Neither was it a priest’s duty to “trespass unlawfully on property to express opposition to abortion. …”

[The priest’s] activities were not within the direction of his superiors or the Church. Moreover, they were neither authorized, usual, customary, incidental, foreseeable, nor fairly and naturally incidental to his duties. … There is nothing in the … directions or authorizations of the Archbishop … nor under canon law to indicate that it is or was a priest’s duty to engage in such activities.²⁶⁸

Can a denomination be legally responsible for the obligations of an affiliated church on the ground that the church is its “agent”? Such a conclusion is highly unlikely for many denominations. One authority has observed:

Generally, absent fraud or bad faith, a corporation will not be held liable for the acts of its subsidiaries. There is a presumption of separateness the plaintiff must overcome to establish liability by showing that the parent is employing the subsidiary to perpetrate a fraud and that this was the proximate cause of the plaintiff’s injury. Merely showing control, in the absence of an intent to defraud or escape liability, is insufficient to overcome that presumption. Further, although wrongdoing by the parent need not amount to plain fraud or illegality, the injured party must show some connection between its injury and the parent’s improper manner of doing business—without that connection, even when the parent exercises domination and control over the subsidiary, corporate separateness will be recognized. Thus, under ordinary circumstances, a parent will not be liable for the obligations of its subsidiary.²⁶⁹

Under general principles of agency law, an agency relationship requires (1) a manifestation of consent by a denomination to its affiliated churches that they shall act on its behalf and subject to its control, (2) consent by the affiliated churches to act as the denomination’s agents, and (3) control exerted by the denomination. A fourth requirement that is implicit in the Restatement’s definition of agency is some direct benefit to the principal.²⁷⁰

Those national and regional denominational agencies that have no authority to supervise the activities of affiliated churches obviously cannot be liable for the churches’ obligations or activities on the basis of agency. As noted in the preceding section, some denominations retain a limited authority with regard to specified ecclesiastical functions of affiliated churches. This limited “authority” clearly is not an adequate basis for denominational liability for the activities of affiliated churches. As one authority has observed: “Whether the parent so dominates the activities of the subsidiary as to establish an agency relationship is a question of fact determined primarily by the degree of control the parent has over the subsidiary. Generally, for the parent to be held liable for the subsidiary’s acts this control must be actual, participatory, and total.“²⁷¹Few if any denominations exercise this degree of control over affiliated churches.²⁷²

A number of courts have rejected the allegation that churches are “agents” of the denomination with which they are affiliated. To illustrate, a federal appeals court rejected the claim that the Assemblies of God denomination exerted sufficient “control” over affiliated churches to warrant denominational liability for the activities of its churches.²⁷³The national offices and a regional office of the Assemblies of God were sued in 1981 for failure to supervise the fundraising activities of an affiliated church. The church had created a trust fund in 1973 as a means of financing a new church building and related facilities. The fund consisted of unsecured deposits solicited from both church members and nonmembers. According to the trust agreements and certificates of deposit used in connection with the fund, the deposits could be withdrawn after one year, with interest. Eventually, the fund had assets of over $7,000,000 which had been deposited by some 1,100 persons. In 1978, state banking authorities served the fund with a cease and desist order for operating a bank without a license. A subsequent run on the fund resulted in its collapse. In 1979, the church filed a petition for relief under Chapter 11 of the Bankruptcy Code.

In 1981, a class action suit was filed in federal district court naming the national Assemblies of God offices (the “General Council”) and one of its regional divisions (“District Council”) as defendants. The suit was brought against the national and regional offices because of an automatic stay by the bankruptcy court prohibiting the plaintiffs from suing the church directly. Specifically, the class action complaint alleged that the church had committed securities fraud in violation of state and federal law by selling securities without proper registration, and that the national and regional offices were derivatively responsible for the securities fraud as “control persons” under section 20(a) of the Securities Exchange Act. Section 20 provides:

Every person who, directly or indirectly, controls any person liable under any provision of this title or any rule or regulation thereunder shall also be liable jointly and severally with and to the same extent as such control person to any person to whom such control person is liable, unless the controlling person acted in good faith and did not directly or indirectly induce the act or acts constituting the violation or cause of action.

To substantiate their allegation of control person liability, the plaintiffs cited several factors, including the following: (1) the General Council and District Council issued ministerial credentials to the church’s pastor; (2) the General Council and District Council retained control over the pastor’s activities by their power to discipline him and withdraw his credentials; (3) the General Council could withdraw the church’s certificate of affiliation for improper conduct, and, by failing to do so, it ratified the church’s securities fraud; (4) the General Council and District Council and their missionary activities were beneficiaries of some church contributions; (5) by permitting the church to affiliate itself with the Assemblies of God, the General Council and District Council permitted the church to hold itself out as being under their general supervision; and (6) the church was covered by the group federal income tax exemption issued by the IRS to the General Council and all its “subordinate units.”

The plaintiffs conceded that the General Council and District Council did not participate in or even know of the church’s activities until the state banking authorities issued the cease and desist order in 1978, and therefore were not liable under a strict reading of section 20(a). However, they relied on cases in which the courts have concluded that “broker-dealers” participate in the securities fraud of agents by failing to enforce a reasonable system of supervision.

The General Council and District Council filed motions for summary judgment on a variety of grounds, included the following: (1) they were not “control persons” within the meaning of section 20(a) since (a) under the organizational documents, practice, and theology of the Assemblies of God, they were powerless to exercise control over local churches, (b) their lack of knowledge and participation constituted a “good faith” defense, (c) the stringent broker-dealer standard had no application to religious organizations, and (2) the First Amendment’s free exercise of religion clause prohibited a civil court from requiring a religious denomination to exercise a degree of control over its affiliated churches contrary to its practices, organization, and theology. The General Council noted that judicial imposition of a duty to supervise the financial affairs of its 11,000 churches in the United States, despite long-established practice and theology to the contrary, would force it to change its polity in order to avoid unlimited liability for the obligations of all of its churches. It noted that the Supreme Court has frequently observed that judicial manipulation of the polity or internal organization of church bodies violates the First Amendment.²⁷⁴

In 1985, a federal district court granted the motion for summary judgment filed by the General Council and District Council.²⁷⁵The court concluded that the defendants could not be guilty as control persons under section 20(a) of the Securities Exchange Act since they did not know of or participate in the activities of the church. The court was not willing to extend the more stringent “broker-dealer” standard (i.e., failure to adequately supervise constitutes participation) to the defendants “since there are some significant differences between the broker-dealer context and the church structure at issue here.” In particular, the court observed that “it is generally recognized that broker-dealers have a high degree of control over their agents,” unlike the relationship between the defendants and local Assemblies of God churches. Further, the defendants were nonprofit entities and thus significantly differed from the typical broker-dealer. Most importantly, however, the court stressed that “the Assemblies of God … was founded on the principle that local churches would be sovereign, self-governing units, and are given wide discretion in operating their affairs.” This relationship falls short of the “control” contemplated by section 20(a). The plaintiffs appealed this decision, and a federal appeals court agreed with the district court that the Assemblies of God national and regional offices were not responsible for the activities of an affiliated church. The court observed:

[W]e find the evidence that [plaintiffs] present regarding the power or influence of General Council insufficient to establish “control” under section 20(a). [Plaintiffs] argue that the General Council maintains control by licensing ministers; however, there is no evidence indicating how such control is exercised once a minister has been licensed. [Plaintiffs] contend that the General Council exercises control over a minister’s “promotion” to larger congregations; however, each local church has independent power to select its ministers. Moreover, the General Council was not required to approve the [church’s] fundraiser. Indeed, there are no facts at all suggesting a nexus between [the church] and General Council regarding the transaction.²⁷⁶

The court further noted that the local church “did not act as the agent of the national church in this transaction. [The local church] did not receive compensation from the national church for the sale. More importantly, the sale was solely for the benefit of [the local church] with no direct benefit going to the national church.”

The case is important, for it illustrates that a principal may have liability only for those specific activities of an agent over which the principal has the authority to exert control. It also suggests that an agency relationship requires some element of direct benefit to the principal. This is an important observation, since in many cases the activity allegedly creating denominational liability on the basis of agency is of no direct benefit to the denomination.²⁷⁷

Several other courts have rejected the contention that local churches or other institutions are agents of a denomination.²⁷⁸

4. Lack of an “Apparent Agency” Relationship

Even if a church or minister is not an actual agent of a national or regional denominational agency, it is possible for the denomination to be liable for their activities on the basis of apparent agency. Most states recognize the theory of apparent agency. Under this theory, a person or organization can become the “agent” of another though no actual agency relationship in fact exists. Section 267 of the Restatement of Agency, which has been adopted by many states, specifies:

One who represents that another is his servant or other agent and thereby causes a third person justifiably to rely upon the care or skill of such apparent agent is subject to liability to the third person for harm caused by the lack of care or skill of the one appearing to be a servant or other agent as if he were such.

An official comment to this section further specifies that [t]he mere fact that acts are done by one whom the injured party believes to be the defendant’s servant is not sufficient to cause the apparent master to be liable. There must be such reliance upon the manifestation as exposes the plaintiff to the negligent conduct.

Some persons injured by the activities of a local church or pastor have sued a parent denomination on the basis of apparent agency. The argument is that the denomination has “held out” the local church or pastor as its agent, and thus is responsible for injuries or damages that are caused by their activities. This argument has been rejected by a number of courts.²⁷⁹To illustrate, an Indiana state appeals court ruled that 65 plaintiffs who brought a class action lawsuit against a federation of Lutheran churches failed as a matter of law to establish apparent agency.²⁸⁰The plaintiffs all had purchased “life care” contracts in a “Lutheran” nursing home organized as a separate nonprofit corporation but actively supported and promoted by the federation of churches. The corporate board consisted of 15 members, including 9 laypersons and 6 ministers—all of whom had to be members of federation churches. The corporate charter stated that the corporation was a “joint agency” of federation churches. Federation churches became members of the corporation, and they approved the articles of incorporation, bylaws, and initial board. The venture never attracted sufficient funding, and the corporation eventually declared bankruptcy.

The court concluded that the individual Lutheran churches in the federation were not legally responsible for the bankrupt corporation’s liabilities on the basis of “apparent agency.” It noted that the “essential element” of apparent agency is “some form of communication, direct or indirect, by the principal, which instills a reasonable belief in the mind of the third party” that another individual is an agent of the principal. The plaintiffs argued that apparent agency was established by use of the name “Lutheran” in the nursing home title and in promotional literature. Such conduct “led life membership purchasers to believe the [nursing] home had the support and financial backing of the Lutheran Church in general and the participating congregations in particular.” In rejecting the application of apparent agency, the court observed that

use of the word “Lutheran” in the name of the retirement home did not exhibit the degree of control by the churches necessary to create an apparent agency. While delegates from the churches may have been involved in the formation of [the nursing home corporation], it was ultimately the decision and responsibility of [the corporation] and its board of directors to use the word “Lutheran” in the name of the home. The same is true of the promotional materials. … Therefore, not only was the evidence insufficient to establish a manifestation by the churches to the plaintiffs, it was devoid of proof that [the nursing home corporation’s] operations were controlled by the churches.²⁸¹

In another significant ruling, a Texas state appeals court concluded that the Assemblies of God was not responsible for the activities of local churches or clergy on the basis of apparent authority.²⁸²An injured plaintiff had alleged that apparent agency was established by the denomination’s “holding out” of local churches and clergy as its agents. The plaintiff claimed that this “holding out” occurred through “the ordination and licensing of ministers, accepting money from local churches, use of the ‘Assembly of God’ name by local churches, and publishing [a denominational magazine].” The court acknowledged that a national church can be legally accountable for the acts of a local minister or church on the basis of “apparent agency” if the national church “holds out” the church or minister as its agent or otherwise causes third parties to reasonably believe that the local church or minister is in fact an agent of the national church. The court concluded that the alleged methods by which the Assemblies of God “held out” its churches and ministers as its “agents” did not establish liability on the basis of apparent agency. With regard to the denomination’s ordination and licensing of clergy, the court noted that the authority to ordain and discipline ministers was limited, and that “by plaintiff’s close association with the local church and the Assembly of God religion, it is reasonable to believe that she had notice of these limitations on the [national church’s] power to ordain and license.”

The court rejected the plaintiff’s claim that the financial contributions of local churches to the national church demonstrated that the national church was involved in an apparent agency relationship with the local churches (and was therefore responsible for their misconduct). It emphasized that the financial contributions were voluntary, and “would not reasonably lead a prudent person to believe that the local church was an agent of the [national church].” Further, there was no evidence whatever that the plaintiff was even aware that the local church made contributions to the national church, and therefore it was not possible to say that she “relied” on such conduct as indicating an agency relationship.

The court rejected the plaintiff’s claim that the local church’s use of the “Assembly of God” name demonstrated an apparent agency relationship. The sovereignty granted local churches in the General Council’s bylaws rendered it impossible that a reasonable person would conclude that a local church was an agent of the General Council. The court observed that “the local church’s autonomy is not affected by the authorized use of ‘Assembly of God,’ and no apparent agency arises from this use.” Similarly, the court rejected the claim that the national church’s denominational magazine created an apparent agency relationship with its local churches, since “the bylaws do not indicate that the [magazine] makes representations about the local church in any way, but only publicizes the doctrine of the Assembly of God religion. This does not constitute a sufficient ‘holding out’ which would generate a reasonable belief that the local church was an agent of [the national church].”

Further, in rejecting the plaintiff’s claim that the denomination used “less than ordinary care” in discharging its “continuing duty” to monitor and supervise its clergy, the court observed that the national church “exercises no supervisory powers over the local ministers” and “is not responsible for the day-to-day oversight of the ministers.” Since the national church had no duty to supervise clergy, “it is impossible that lack of supervision … was a substantial factor in causing plaintiff’s injuries.”

5. Lack of an Alter Ego Relationship

A few attempts have been made to establish denominational liability for the activities of affiliated churches on the basis of the alter ego theory. One court, in rejecting the application of this theory to the Catholic Church, described it as follows:

The requirements for applying the “alter ego” principle are thus stated: It must be made to appear that the corporation is not only influenced and governed by that person [or other entity], but that there is such a unity of interest and ownership that the individuality, or separateness, of such person and corporation has ceased, and the facts are such that an adherence to the fiction of the separate existence of the corporation would, under the particular circumstances, sanction a fraud or promote injustice. … Among the factors to be considered in applying the doctrine are commingling of funds and other assets of the two entities, the holding out by one entity that it is liable for the debts of the other, identical equitable ownership in the two entities, use of the same offices and employees, and use of one as a mere shell or conduit for the affairs of the other.²⁸³

One authority states that the alter ego theory requires ” … complete domination, not only of the finances, but of policy and business practice with respect to the transaction so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; and (2) such control must have been used by the defendant to commit fraud or wrong, to perpetrate the violation of the statutory or other positive legal duty, or dishonest and unjust act in contravention of the plaintiff’s legal rights; and (3) the aforesaid control and breach of duty must proximately cause the injury or unjust loss.”²⁸⁴

Obviously, few if any churches would be deemed an “alter ego” of an affiliated denomination under these tests. One court rejected an attempt to hold a denomination liable for the activities of an affiliated church on the ground that the denomination and its churches were “inextricably intertwined.”²⁸⁵

6. Parent-Subsidiary Relationship

There is considerable confusion regarding the liability of a “parent” corporation for the actions of a “subsidiary” corporation. The courts have generally ruled that separately incorporated “subsidiaries” of a parent corporation are independently liable for their own actions, and this liability cannot be imputed to the parent. To illustrate, the United States Supreme Court issued a ruling in 1996 that addressed directly the liability of parent corporations for the acts of subsidiaries.²⁸⁶The Court noted that “it is a general principle of corporate law deeply ingrained in our economic and legal systems that a parent corporation is not liable for the acts of its subsidiaries,” and that “the mere fact that there exists a parent-subsidiary relationship between two corporations [does not make the parent] liable for the torts of its affiliate.”

Similarly, a leading treatise on corporation law contains the following statement with regard to the liability of one corporation for the actions of another corporation:

Generally, absent fraud or bad faith, a corporation will not be held liable for the acts of its subsidiaries. There is a presumption of separateness the plaintiff must overcome to establish liability by showing that the parent is employing the subsidiary to perpetrate a fraud and that this was the proximate cause of the plaintiff’s injury. Merely showing control, in the absence of an intent to defraud or escape liability, is insufficient to overcome that presumption. Further, although wrongdoing by the parent need not amount to plain fraud or illegality, the injured party must show some connection between its injury and the parent’s improper manner of doing business—without that connection, even when the parent exercises domination and control over the subsidiary, corporate separateness will be recognized. Thus, under ordinary circumstances, a parent will not be liable for the obligations of its subsidiary.²⁸⁷

The Supreme Court has acknowledged that a parent corporation may be liable for the actions of a subsidiary corporation (the corporate “veil” can be “pierced”) “when the corporate form would otherwise be misused to accomplish certain wrongful purposes, most notably fraud.” Many other courts have concurred that one corporation may be liable for the actions of another corporation in exceptional circumstances. These include the following:

A federal appeals court provided a useful list of factors to consider in determining whether or not a “parent” corporation is legally responsible for the liabilities and obligations of a “subsidiary” or affiliate.²⁸⁸While this case involved a parent and subsidiary business corporations, the court’s conclusion will be directly relevant to denominational agencies that are sued as a result of liabilities of subsidiary or affiliated corporations. Here is the list of twelve factors to be considered:

(1) the parent corporation owns all or a majority of the stock of the subsidiary

(2) the corporations have common directors or officers

(3) the parent and the subsidiary have common business departments

(4) the parent and the subsidiary file consolidated financial statements and tax returns

(5) the parent corporation finances the subsidiary

(6) the parent corporation caused the incorporation of the subsidiary

(7) the subsidiary has grossly inadequate capital

(8) the parent corporation pays the salaries or expenses or losses of the subsidiary

(9) the subsidiary has substantially no business except with the parent corporation

(10) the parent uses the subsidiary’s property as its own

(11) The daily operations of the two corporations are not kept separate

(12) the subsidiary does not observe the basic corporate formalities, such as keeping separate books and records and holding shareholder and board meetings

Denominational agencies are routinely sued as a result of the actions or obligations of affiliated churches. It is important to recognize that ascending liability in such cases is not automatic. The person bringing the lawsuit must establish a legal basis for imposing liability on the parent organization. The twelve factors mentioned in this case demonstrate that finding a parent organization legally responsible for the acts or liabilities of a subsidiary can be very difficult.

7. First Amendment Prohibition of Civil Court Manipulation of Ecclesiastical Polity

As formidable as the preceding defenses are, the most significant defense available to many denominations is provided by the First Amendment to the United States Constitution. Judicial recognition of a duty on the part of a denomination to supervise the activities of affiliated churches, clergy, and lay workers, where no such authority exists, would violate the First Amendment religion clauses since it would amount to governmental manipulation of the polity of a sovereign religious organization. The ultimate question in such cases is whether a civil court, consistently with the First Amendment’s religion clauses, can impose a duty on a denomination to supervise and control affiliated churches, clergy, or lay workers when the theology, history, practice, and organizational documents of the denomination forbid such control. Stated simply: Can a court “connectionalize” an essentially congregational association of churches? The answer to both questions is no. The United States Supreme Court has often stated that the civil courts may not affect ecclesiastical doctrine or polity:

But it is a very different thing where a subject-matter of dispute, strictly and purely ecclesiastical in its character—a matter over which the civil courts exercise no jurisdiction—a matter which concerns theological controversy, church discipline, ecclesiastical government or the conformity of the members of the church to the standard of morals required of them—becomes the subject of its action. It may be said here, also, that no jurisdiction has been conferred on the tribunal to try the particular case before it, or that, in its judgment, it exceeds the powers conferred upon it.²⁸⁹
Legislation that regulates church administration, the operation of the churches, the appointment of clergy … prohibits the free exercise of religion. … Watson v. Jones … radiates, however, a spirit of freedom for religious organizations, and independence from secular control or manipulation, in short, power to decide for themselves, free from state interference, matters of church government as well as those of faith and doctrine.²⁹⁰
First Amendment values are plainly jeopardized when church property litigation is made to turn on the resolution by civil courts of controversies over religious doctrine and practice. If civil courts undertake to resolve such controversies in order to adjudicate the property dispute, the hazards are ever present of inhibiting the free development of religious doctrine and of implicating secular interests in matters of purely ecclesiastical concern.²⁹¹
To permit civil courts to probe deeply enough into the allocation of power within a church so as to decide where religious law places control over the use of church property would violate the First Amendment in much the same manner as civil determination of religious doctrine. Similarly, where the identity of the governing bodies that exercises general authority within the church is a matter of substantial controversy, civil courts are not to make the inquiry into religious law and usage that would be essential to the resolution of the controversy. In other words, the use of the Watson approach is consonant with the prohibitions of the First Amendment only if the appropriate church governing body can be determined without the resolution of doctrinal questions and without extensive inquiry into religious polity.²⁹²
The fallacy fatal to the judgment of the Illinois Supreme Court is that it … impermissibly substitutes its own inquiry into church polity. … To permit civil courts to probe deeply enough into the allocation of power within a hierarchical church so as to decide religious law governing church polity would violate the First Amendment. … For where resolution of disputes cannot be made without extensive inquiry by civil courts into religious law and polity, the First and Fourteenth Amendments mandate that civil courts shall not disturb the decisions of the highest ecclesiastical tribunal within a church of hierarchical polity, but must accept such decisions as binding on them in their application to the religious issues of doctrine of policy before them. … In short, the First and Fourteenth Amendments permit hierarchical religious organizations to establish their own rules and regulations for internal discipline and government. …²⁹³

The implication of the above-cited precedent is unequivocal—government action that seeks to manipulate or distort the internal organization and government of a religious denomination violates the constitutional guarantee of free exercise of religion. A civil court is therefore without power to impose a duty of supervision and control upon a congregational association of churches over its affiliated entities contrary to the doctrine, history, and organizational documents of the association in order to redress injuries allegedly caused by the activities of an affiliate. In many cases, a judicial “connectionalizing” of denominational polity would be particularly repugnant since it would present a denomination with the following alternatives: (1) continue to honor its practice of not supervising or interfering with the activities of local churches, even though it will be legally responsible for all such local churches activities; or (2) in fact conform its polity to that of a hierarchical denomination and begin scrutinizing the activities of churches and clergy. Surely no court could be so insensitive to the constitutional guarantee of free exercise of religion or the principle of separation of church and state.

8. “De Novo” Review for Violations of Constitutional Rights

The United States Supreme Court ruled in 1964 that the courts have a duty to “make an independent examination of the whole record” when constitutional rights are at stake, to be sure that there is no “forbidden intrusion” on the field of First Amendment protections.²⁹⁴The Court reiterated this principle in a 1984 ruling,²⁹⁵in which it observed:

The simple fact is that First Amendment questions of “constitutional fact” compel this Court’s de novo review. … The requirement of independent appellate review … is a rule of federal constitutional law. It emerged from the exigency of deciding concrete cases; it is law in its purest form under our common law heritage. It reflects a deeply held conviction that judges—and particularly members of this Court—must exercise such review in order to preserve the precious liberties established and ordained by the Constitution. … Judges, as expositors of the Constitution, must independently decide whether the evidence in the record is sufficient to cross the constitutional threshold that bars the entry of any judgment that is not supported by clear and convincing proof … ²⁹⁶

This precedent may be more appropriate at the appellate court level. But the implication is clear—courts (presumably even state trial judges) must independently review the record before them and make whatever rulings are required to protect federal constitutional rights. Such rights should not be left to the whim of juries.

9. The “Bar Association” Analogy

In recent years, a number of lawsuits have attempted to hold denominational agencies legally accountable for the acts of ministers that they ordain or license. The argument is that the act of issuing credentials to a minister, and the retention authority to discipline or dismiss a minister for misconduct, constitutes sufficient “control” to make the denomination liable for the minister’s actions. In most cases, such efforts will fail. It is true that many denominational agencies ordain or license ministers; require ministerial credentials to be renewed annually; and reserve the authority to discipline or dismiss clergy whose conduct violates specified standards. In some cases, ministers are required or expected to provide annual contributions to the denomination. However, in most cases, the denomination retains no authority to supervise or control the day-to-day activities of ordained or licensed ministers. It may be authorized to discipline or dismiss a minister following an investigation, but ordinarily it has no authority to independently monitor or supervise the day-to-day conduct of ministers, and no such authority is ever exercised. It is important to point out that most denominations are “delegated powers” institutions, meaning that they can only exercise those powers that have been delegated to them by their constituent members in their governing documents. If these documents confer no authority to monitor and supervise the day-to-day activities of clergy, the denomination is prohibited from doing so.

The authority of many denominations to license and ordain clergy, require annual renewals of ministerial credentials, and discipline or dismiss clergy found guilty of specified misconduct, is precisely the same authority that is exercised by state professional accrediting organizations such as the bar association. Like such denominational agencies, the bar association has the authority to license attorneys, require annual renewals, and discipline or dismiss attorneys for proven misconduct in violation of professional standards. In addition, many require annual contributions. However, this limited authority does not give the bar association any right to control or supervise the day-to-day activities of attorneys, and it is for this reason that no bar association has ever been sued on account of the malpractice or misconduct of a licensed attorney. State bar associations have never been sued or found liable for the numerous incidents of attorney misconduct and malpractice that occur each year, and religious organizations should be treated no differently.

An identical analogy can be made to any professional licensing organization (e.g., physicians, CPAs, veterinarians, dentists, nurses, morticians), since they all exercise about the same degree of control—they license and retain the right to discipline or dismiss for violations of a professional code of conduct, but they have no authority to supervise the day-to-day activities of licensees.

The civil courts are beginning to recognize this principle. In a leading case, a federal appeals court has recognized the “bar association analogy” directly.²⁹⁷The court, in addressing the question of whether Rev. Alford, an Assemblies of God minister, was an employee of the national church (“General Council”) and one of its regional agencies (“District Council”), made the following observation:

The General Council’s and District Council’s right to control Alford during the relevant years extended primarily to their function in awarding credentials to ministers like himself. Generally, the church has established certain criteria that must be met for an individual such as Alford to obtain credentials initially and to renew that status annually. There are standards for the education a minister must acquire (which he must obtain and pay for himself) and for his performance on certain tests. Other requirements include subscribing to the doctrinal statement of the Assemblies of God, which sets forth the religious beliefs of the church, its ministers, and its members, and to the form of church government. Ordained ministers must preach thirteen times a year, but topics are not decreed by the regional or national organizations. Ministers holding credentials cannot preach in churches other than Assemblies of God churches without permission of the District Council. Ministers may be disciplined for what the church considers failure to follow church doctrine and for lapses in personal conduct, and may, in fact, have their credentials revoked. With some exceptions not relevant here, a minister must tithe to both the regional and national organizations. Attendance at certain meetings is expected, but not required. Thus it is apparent that, while the regional and national churches had doctrinal authority to exercise considerable control over Alford as regards his beliefs and his personal conduct as a minister of the church, they did not have “the right to control the manner and means by which the product [was] accomplished.”

The [trial court] and the United States make much of the fact that Alford, as a minister holding credentials, was “amenable” to the General Council and to the District Council in matters of doctrine and conduct. But this is not unusual in such a profession, and actually is merely a shorthand way of describing the parent church’s doctrinal and disciplinary control discussed above. The control exercised by the regional and national organizations, and their right to control Alford, was no more nor less than most professions require of individuals licensed or otherwise authorized to work in the profession. State bar associations, for example, have certain education requirements and demand a certain level of performance on a bar examination before an individual can be licensed to practice law. On an annual basis, such associations require the payment of dues and often the completion of continuing legal education in order for an attorney to retain his license. State bar associations are empowered to monitor attorneys’ behavior and to discipline them as they see fit, including the revocation of an attorney’s license to practice law (disbarment). Yet no one would suggest that, by virtue of this right to control an attorney’s working life, the bar association is his employer, or even one of his employers.

Obviously, the importance of this case cannot be overstated. It will effectively refute, in many cases, attempts by plaintiffs to hold denominational agencies accountable for the acts of their ordained and licensed ministers.

Case studies

A Minnesota appeals court applied the bar association analogy in concluding that a regional and national church (the “church defendants”) were not liable for the sexual misconduct of a pastor since the relationship between them and credentialed clergy (which resembled the relationship between state bar associations and licensed attorneys) was too attenuated to justify the imposition of liability on the church entities for clergy misconduct. The court concluded that the fact that the church defendants “set certain standards for ministers, and can be involved in disciplinary proceedings, does not automatically mean a true employment relationship exists” that would support the imposition of liability on the church entities for the misconduct of ministers. The court drew an analogy to the relationship between attorneys and the state supreme court. In Minnesota, the supreme court “through the Rules of Professional Conduct, sets forth the rules and standards by which lawyers must adhere. If these rules are violated, the court may discipline the responsible attorney. But this relationship between the supreme court and the disciplined attorney is not an employment relationship. There has to be something more.” Similarly, the church defendants in this case had “limited control over the pastor.” But, “the congregation, not the umbrella entity, has the responsibility for hiring and firing the pastor, setting forth the terms and conditions of employment, supplying the pastor with parsonage, vacation and supplies, and paying the pastor. [It] is the congregation, not the [church defendants] which employs the minister.”²⁹⁸
The Alabama Supreme Court compared an attempt to impute legal liability to a denomination as a result of the misconduct of a minister “to situations where a young man may be in a seminary and the seminary is asked to supply a preacher or a minister for a congregation. The fact that the young minister may have some alma mater does not make the seminary responsible for his behavior in the event he elects to commit a burglary or some other act which he might consider to be ordained by divine aegis or providence. It would not in and of itself make the seminary responsible for his behavior.”²⁹⁹

Key point. Any regional or national church that issues ministerial credentials, and that disciplines ministers who violate a code of conduct, can use the bar association analogy. It is a powerful and compelling argument. The bottom line is this—no bar association has ever been sued, much less found liable, for the malpractice of an attorney; why should religious organizations be treated differently? The First Amendment would be a bar to any such disparate treatment.

10. The Single Employer Doctrine

Some courts have applied the “single employer” theory to impute liability to a parent organization for the acts and liabilities of a subsidiary. One of the first courts to recognize this theory noted that “superficially distinct entities may be exposed to liability upon a finding they represent a single, integrated enterprise: a single employer.”³⁰⁰The court gave the following definition, which has since been applied by many other courts:

Factors considered in determining whether distinct entities constitute an integrated enterprise are (1) interrelation of operations, (2) centralized control of labor relations, (3) common management, and (4) common ownership or financial control.

One court noted that “a finding that the corporations are a single employer requires evidence of control suggesting a significant departure from the ordinary relationship between a parent and its subsidiary—domination similar to that which justifies piercing the corporate veil. Plaintiff only makes a conclusory statement that the evidence presented in the [exhibits] establishes material and genuine issues of fact. That fails to meet the requirement to identify specific evidence in the record and to articulate the precise manner in which that evidence supports his or her claim.”³⁰¹The court then addressed each of the four factors mentioned in the Trevino test (see above), and provided helpful clarification:

With respect to the first factor, interrelation of operations, the court notes that [the parent and affiliate] had separate offices and employees. [The parent] was headquartered in Atlanta, Georgia while [the affiliate] was based in Fort Worth, Texas. … The court found no indication that operations were more interrelated than is normal for a parent and subsidiary. The first factor therefore provides no support for a finding that [the parent and affiliate] were a single employer.

The second factor concerns centralized control of labor relations, and particularly the parent’s involvement in the employment decision that gives rise to the cause of action. Plaintiff makes a conclusory allegation that [the parent] “was a final decision maker in the daily employment decisions of [the affiliate] but supports this only with a generic reference to the summary judgment record as a whole. By contrast [the parent company] provides an affidavit that asserts that it “did not involve itself in the day-to-day employment practices or decisions” of [the affiliate] including reviewing applications for employment, hiring/termination decisions, and performance evaluations. Further, the summary judgment record does not show any involvement by [the parent company] in terminating plaintiff—the key employment decision in this action. … The second factor therefore provides strong evidence that [the parent and affiliate] were not a “single employer.”

The third factor, common management, also provides no support for plaintiff’s position. … The fact that officers of a subsidiary eventually report, through several intermediate steps in the chain of command, to an officer of the parent is the corporate norm, rather than “a significant departure from the ordinary relationship between a parent and its subsidiary.” Further [the parent company] provides evidence that [it and its affiliate] have never had common directors and had only one officer in common (out of thirteen) at the time of the events that gave rise to this action. This level of “common management” is certainly no more than “the ordinary relationship between a parent and its subsidiary,” and quite likely less. The third factor does not help establish plaintiff’s theory that [the parent company and its affiliate] were a “single employer.”

The last factor to be considered is common ownership or financial control. Because [the affiliate] was a wholly-owned subsidiary of [the parent company] this factor supports plaintiff’s contention. Common ownership or financial control, however, is insufficient by itself to support a finding that two corporations constitute a single employer.

Only one court has applied the “single employer” concept to religious organizations.³⁰²The case involved a disability discrimination complaint brought against a church and its affiliated private school by a woman who claimed that she was not hired as a music director because of her disability. The issue was whether enough employees (15) existed to trigger application of the Americans with Disabilities Act. The church and school each had fewer than 15 employees, but the EEOC claimed that the two entities, and a church-operated preschool, should be treated as a “single entity” for purposes of counting employees and assessing liability.

In deciding whether or not the church, school, and preschool were a “single, integrated enterprise,” a federal district court applied a four-part test announced by the Supreme Court in a 1965 ruling.³⁰³This test focuses on the following four factors: (1) interrelation of operations; (2) common management; (3) centralized control of labor relations; and (4) common ownership or financial control. This is virtually identical to the four factors applied by the federal appeals court in the Trevino case (see above). The court clarified that “the absence or presence of any single factor is not conclusive,” and that “control over the elements of labor relations is a central concern.” The court cautioned that a plaintiff “must make a substantial showing to warrant a finding of single employer status,” and that “there must be sufficient indicia of an interrelationship between the immediate corporate employer and the affiliated corporation to justify the belief on the part of an aggrieved employee that the affiliated corporation is jointly responsible for the acts of the immediate employer.” The court referred to an earlier federal appeals court case finding that the entities must be “highly integrated with respect to ownership and operations” in order for single employer status to be found.

The district court concluded that the three entities should not be treated as single employer or entity because they were not sufficiently interrelated. The case was appealed, and a federal appeals court reversed the district court’s ruling on the ground that there was insufficient evidence to support the trial court’s conclusion that the church, school, and preschool should not be treated as a single employer in applying the 15 employee requirement. Of most significance to the appeals court was the fact that the record did not reveal whether or not the church, school, and preschool were one corporate legal entity, or three separate entities.

The appeals court acknowledged that no other court has ever addressed the application of the Supreme Court’s four-factor test to religious organizations:

The cases in which we have applied the [4 factor test] have all involved business corporations. We have found no cases in this circuit or elsewhere applying the test to a religious corporation. Because a religious corporation can possess unique attributes … it may be the case that even where there are multiple religious entities, aggregation (or non-aggregation) of employees in employment discrimination cases should not be resolved under [this test]. Although we express no opinion on the question, we note that the question to be answered by the [trial] court on remand may be [the first time any court has addressed this question].

This case is important for two reasons. First, the court noted that no other case has applied the Supreme Court’s four factor test of single entity status to religious organizations. This test is essentially identical to the Trevino test described above. Second, the court suggested that applying the single entity concept to religious organizations may implicate constitutional concerns.

11. Joint and Several Liability

One of the most unfair aspects of our legal system is the principle of “joint and several liability.” Under this principle, which is recognized by most states, any defendant in a lawsuit may be liable for the entire amount of a plaintiff’s damages regardless of the degree of fault. This principle often is directed at churches and denominational agencies. To illustrate, assume that Bob drives a church van to a church activity and that several members of the youth group join him. Assume further that Bob’s negligent driving results in an accident in which several persons are injured. A lawsuit is filed naming Bob, his church, and a parent denomination as defendants. A jury determines that Bob was 98 percent at fault, and the church and denomination each 1 percent at fault. The jury awards a total of $1 million to the victims. If Bob has no money to pay such an award, the church and the denomination are each individually (or jointly) liable for the entire $1 million judgment even though their respective degree of fault was only 1 percent each. This system is unfair, since legal liability is assigned solely on the basis of the ability to pay without regard to the degree of fault.

The morally inappropriate basis for the rule of joint and several liability has been recognized by several courts. To illustrate, the Kansas Supreme Court observed:

There is nothing inherently fair about a defendant who is 10 percent at fault paying 100 percent of the loss, and there is no social policy that should compel defendants to pay more than their fair share of the loss. Plaintiffs now take the parties as they find them. If one of the parties at fault happens to be a spouse or a governmental agency and if by reason of some competing social policy the plaintiff cannot receive payment for his injuries from the spouse or agency, there is no compelling social policy which requires the codefendant to pay more than his fair are of the loss. The same is true if one of the defendants is wealthy and the other is not.³⁰⁴

The good news is that several states have limited the principle of joint and several liability. In fact, most states have either eliminated joint and several liability, or have limited it significantly.³⁰⁵

12. Policy Reasons for Limiting Vicarious Liability of Nonprofit Defendants

As discussed earlier in this chapter,³⁰⁶the policy considerations supporting vicarious liability (under both respondeat superior and agency) rest upon the fundamental principle of risk allocation. That is, a principal or employer has the unique ability to allocate the risks of inevitable injuries suffered by the consumers of its products and services through price adjustments. By increasing its prices, the employer allocates the risk of injuries to the consumers of its products and services. As reasonable as this policy may be in the context of “for-profit” employers, it has no application whatever to most nonprofit employers who have no ability to allocate risk to consumers through price increases. Certainly this is true of religious organizations, which obviously cannot “adjust their prices” to allocate risks to the “consumers” of their products or services. Further, as mentioned earlier in this chapter, religious organizations cannot effectively allocate risks through obtaining liability insurance, since such insurance is increasingly difficult for religious organizations to afford or obtain, and many risks are excluded from coverage or have limited coverage.

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