Churches beware: Liability insurance a must

Editor's note:This is part of a continuing series on what churches can do to protect from the unanticipated. Earlier parts of the series focused on Church fires: Damage, recovery, prevention.

While a contractor can tell with some certainty the cost per square foot to rebuild a burned church building, a defense attorney cannot tell you with certainty what to expect in a serious liability lawsuit.

The worry of fire or natural disaster that destroys the property is easy for church stewards to recognize, but the concerns of potential liability actions charging physical or mental damage are not always as obvious until the unanticipated occurs.

General liability insurance is necessary for any business, with or without a storefront. That is true for churches as well.

Most general liability insurance policies for nonprofit organizations - which is where churches are categorized - protect the corporate entity, its subsidiaries and affiliates, its executive officers, employees and volunteers for their actions on behalf of the organization. These policies are designed to protect against civil liability for bodily injury, property damage or personal injury to others.

These are the assumptions in this kind of policy:

• The claim in a lawsuit must seek compensation because of injury or damage.
• The injury or damage must have been fortuitous and have occurred during the policy term.
• The policyholder must be liable for the injury or damage.

There also are costs that most churches would not think about. For instance, a general liability policy also covers funds required to defend the insured policyholders, such as legal and expert-witness fees, reasonable costs to secure other witnesses for court appearance, post-judgment interest and appeal-bond premiums. These "supplementary payments" are normally payable in addition to the stated limit of liability. A conventional general liability policy has no deductible.

Premises, contracts, injuries and more

The ideal general liability policy provides a broad range of coverage for a variety of operational risks. That is why it is called a broad-form contract. This type of policy commonly includes:

• Premises and operations liability, attributable to aspects of the physical plant or daily operations. Examples: A visitor trips on a cracked sidewalk (premises liability) or boisterous, unsupervised children knock down an older parishioner (operations liability).
• Contractual liability for injury or damage assumed by oral or written contract. Example: The municipal parks and recreation department asks the church to defend and pay a bodily injury claim pursuant to signing a facilities-use agreement for a church picnic at a city park.
• Personal injury liability for false arrest, detention or malicious prosecution; libel, slander or defamation; and invasion of an individual's right of privacy. Example: A community member sues after the church newsletter publishes controversial statements about her.
• Advertising injury liability for plagiarism or piracy of one's copyright or trademark. Example: Another business claims the policyholder's logo is confusingly similar to its own.
• Legal liability for fire damage to someone else's property while the policyholder is occupying it. Example: A cabin sustains fire damage originating from a smoldering cigarette during a retreat.
• Incidental medical malpractice liability for a non-medical professional's rendering of, or failure to render, medical aid. Example: A pastor administers cardiopulmonary resuscitation with an adverse outcome.
• Products liability for injury or damage caused by a "product" made or sold by the policyholder. Example: A child sustains an injury by a pre-owned toy purchased at a church rummage sale.
• Medical payments liability for cost of medical treatment, payable without regard to or concession of policyholder's liability. Example: The church offers to cover emergency-room bills after a parishioner falls on icy steps.

Churches must be even more specific

Churches must expand a broad-form general liability policy to address significant church-related exposures:

• Pastoral counseling liability risk is physical or emotional injury attributable to a clergyperson's acts, errors or omissions during counseling of a spiritual nature. Example: A couple alleges that marital counseling further injured their relationship.
• Sexual misconduct liability risk is physical or emotional injury because of sexual abuse, molestation or exploitation. Example: A minister initiates a sexual relationship with a parishioner to whom he or she has provided pastoral guidance.
• Cemetery operations (including columbaria) liability risk is physical or emotional injury because of an act or omission in connection with the cremation, burial, disinterment or temporary care of any deceased human body. Example: Cremains held for temporary safekeeping until burial are misplaced.
• Teachers' liability risk is bodily injury or property damage arising out of teaching activities, including the administration of corporal punishment.

Some things not covered

Although the typical general liability policy contains a variety of situations not covered by the contract, here are some of the most noteworthy exclusions:

• Liability arising in connection with ownership, maintenance, operation, use, loading or unloading of automobiles, aircraft and large watercraft.
• Employment-related liabilities, including obligations under Workers' Compensation, unemployment or disability benefits laws and work-related claims under common law by employees or their family members.
• Damage to property owned, used or occupied by the policyholder, or property in an insured's care, custody or control.
• Liability resulting from the willful violation of laws addressing discrimination, humiliation, harassment or wrongful termination because of race, creed, age or sex.
• Fines, penalties, punitive or exemplary damages typically awarded to punish willful, wanton or reckless behavior (gross negligence).
• Liability arising from pollution, nuclear energy or asbestos.

Finding the right insurance is a challenge. As your guiding principle, remember the words once told me by a wise trustee:

"All insurance policies are the same until you have a claim."

*Stephens is vice president of marketing and risk-management services for The Church Insurance Agency Corporation, a service provider to United Methodist Insurance. United Methodist Insurance is a wholly owned, nonprofit subsidiary of the General Council on Finance and Administration of The United Methodist Church.