Are You Properly Insured for a Lawsuit?
Minimizing your financial liability
In a perfect world, lawsuits would never happen. Of course, we don’t live in a perfect world, so we must be prepared. If your church faced a legal challenge, would insurance protect you and the people God has entrusted to you? With a few crucial adjustments to your policies, you can confidently answer with a “yes.”
To understand what needs to change, it’s important to know where things can go wrong and how to make them go right. Rich Hammar, legal counsel for the General Council of the Assemblies of God, carefully tracks court cases involving religious organizations. Each year, he analyzes lawsuits across the nation to learn what issues are leading to litigation.
According to Hammar, the top three reasons churches end up in court are: sexual misconduct with a minor; property disputes; and personal injury. With that in mind, let’s consider what insurance coverage you should have to minimize financial liability in case of a suit in one of these areas.
Many insurance companies don’t even offer sexual misconduct coverage, which should be a red flag that you don’t want to do business with them. Some insurance carriers will only pay for defense in a lawsuit, and they stop paying if there is a settlement offer.
Examine the actual coverage and the specific limits that can protect your church. For sexual misconduct coverage, I would suggest a minimum of $300,000 and a $1 million limit. (The limit should be higher if you have a school affiliated with your church.)
Practice proper risk management. Nothing is more important than protecting your children and teens. Good risk management also helps protect the church against a large settlement. Check to see what your local school district is doing to protect children, such as background and reference checks. Schools set your community standard. With proper coverage and risk management strategies, your church, your children and your workers will be as protected as possible.
Most churches have property insurance, but that doesn’t mean they have the proper amount of coverage. Many don’t realize there is a coinsurance clause on their property policy. This clause encourages policy holders to carry a reasonable amount of insurance. If there is a failure to maintain the amount the clause specifies — usually at least 80 percent — the insured bears a higher proportion of the loss.
Churches should purchase coverage limits sufficient to replace or rebuild facilities with contract labor and new materials. Do not assume the amount you paid for the church or the amount of the loan is the correct value.
Ask your insurance agent to calculate the property value you need, and have the insurance company waive the coinsurance clause. If you have an older building that may not be up to current building codes, you may need to install sprinklers or add an elevator when rebuilding.
Lawsuits are expensive, and they can negatively affect your reputation.
Ask for building and ordinance coverage. This extends coverage to the following three areas: the value of the undamaged portion of the building that requires demolition, the expense attached to the demolition and removal of the undamaged building, and the increased cost of construction due to a change in building codes.
Know whether you have coverage for wind/hail, named storms, earthquakes and floods. If you are in an area prone to these events, realize your policy may have an exclusion for such insurance. Many insurance policies now specify a percentage deductible for this coverage.
General liability pays if the church is legally liable for bodily injury or property damage to others; it also pays for defense in a lawsuit. But general liability does have limitations and may not cover certain kinds of damage. Thus, your church may need additional coverage.
Be sure you have the following types of coverage:
- Pastoral counseling coverage to protect leaders against claims arising from pastoral direction.
- Director’s and officer’s coverage for officers and board members.
- Cyber liability coverage for the costs associated with restoring or replacing lost or damaged data, credit monitoring, legal fees, forensics, notifying those affected and ransomware.
- Hired and non-owned auto coverage for individuals who use personal vehicles for church business.
Avoid using 15-passenger vans. Don’t buy or rent these vehicles. The National Highway Traffic Safety Administration considers them dangerous; disregarding these warnings brings additional liability.
Don’t overlook coverage for missions trips. Some churches buy an accident medical policy, but few think of their potential liability when traveling abroad. Most general liability policies and auto policies have a coverage territory of the United States and its territories, so if someone on one of your trips suffers an injury, your church may be liable. The Assemblies of God offers Mission Assure, a program that provides foreign liability coverage and medical insurance, including repatriation back to the U.S. if someone is hurt.
It is most important to deal with an insurance agent and company who specializes in writing church insurance. Ask your agent how many churches the company underwrites and what percentage of its clients are churches.
Of course, your church’s primary concern should always be the well-being of the people to whom you minister. But part of that responsibility includes stewarding ministry resources wisely.
Lawsuits are expensive, and they can negatively affect your reputation. Make sure you are protected by having the proper insurance coverage, agent and company to minimize financial liability in a lawsuit. For more information, visit agfinancial.org/ insurance.
This article originally appeared in the May/June 2019 edition of Influence magazine.