Church Insurance Coverage Disputes: Preparation, Preparation, and . . . Preparation

      A claim has been made against the church for some violation of law.  As an example, for the purposes of this article, let’s say the church just received a demand and preservation letter alleging the church defamed and slandered someone through social media, sermons at the church, a letter from the pastor posted in the church’s bulletin, or on the church’s website.

      Confident that the church’s insurance will cover the situation and pay for the legal defense costs, the church calls the church’s insurer to provide proper notice of the claim.  In a horrifying response, the insurer says: “Thank you for the notice, but this claim is not covered under your policy.  Good luck.”  What does the church do next?  You are certain the church is covered for these types of matters.  Here is a brief guide on how the church should generally address the situation to preserve and protect the church’s interests.

     Some important background on church insurance policies is critical before we walk through the steps to respond to the insurer.  There are two (2) basic types of insurance policies: (i) “occurrence” policy coverage; and (ii) “claims-made” policy coverage.

     An occurrence policy provides coverage for alleged incidents (injuries) that occur during the policy year, regardless of when the claim is reported to the insurer.  Such a policy provides a separate coverage limit for each year the occurrence policy is in force. Whether the policy is active when the claim is reported to the insurer is irrelevant in assessing coverage rights.  Rather, the key here is whether the occurrence policy is active when the alleged incident occurs at the church.

     A claims-made policy insures the church for: (i) an incident occurring during the policy period; and (ii) such incident is reported as a claim while the policy is active.  The original start date of a claims-made policy (the “retroactive date”) becomes a distinct line of the policy’s initial date of coverage for the church. The original start date remains the same each year the church renews the policy. The renewed claims-made policy covers claims filed during the policy year for incidents that occurred on or after the original start date.  This is how prior years are covered under the current claims-made policy. As long as the church renews a claims-made policy, the church will continually be protected for incidents between the start date and policy expiration dates. An incident occurring before the start date receives no coverage under the policy. Accordingly, the church must ensure it timely and constantly renews the claims-made policy to maintain continuous coverage.

     In our demand letter example described above, the type of insurance policy maintained by the church will affect whether the insurer covers the claim.   If the church has an occurrence policy, the question will be whether the church’s alleged bad acts occurred when the occurrence insurance policy was effective.  Let’s assume the church started an occurrence policy in 2021, effective through the current date.  The pro-death doctor made her claim against the church in 2023, asserting that the church’s alleged bad acts occurred in 2020.  In this instance, the church’s insurer would not cover the claim even though the church has an active policy because the alleged bad acts occurred outside the policy coverage dates.

     In contrast, if the church has a claims-made policy, the question is whether the claim made against the church arose when the insurance policy was effective.  Similarly, let’s assume the church started a claim-made policy in 2021, effective through the current date.  The individual made their claim against the church in 2023, asserting that the church’s alleged bad acts occurred in 2020.  In this instance, the church’s insurer would cover the claim because the claim was initiated during the active policy coverage dates.  In this article, we make no conclusive recommendations regarding the pros and cons of the different policy options.  Such a decision is a prudential judgment for each church based on facts, circumstances, resources, and needs.

            Returning to our sample fact scenario, if the church disputes a coverage denial by the church’s insurer, we advocate the following steps to reach a resolution with the insurer:

1. 1. 1. Pray. A person who prays strives to be in communication with God, to adore Him, to praise Him, to thank Him for His gifts, to amend our offenses, and to ask for our various needs, both spiritual and temporal.  Prayer is a vital and personal relationship with the living and true God.  Start here.

1. 1. 2. Involve Legal Counsel. After prayer and reflection, the next involves contacting the church’s legal counsel.  Our law firm routinely helps churches navigate insurance questions, disputes, claims, and other policy-related matters.  Legal counsel should be prepared to help analyze the situation and guide the church through a final resolution.  You should be ready to provide legal counsel with all the available details about the claim and insurance dispute.  We often work directly with church insurers to help resolve any number of insurance concerns for church clients.  As a church, your legal counsel should comfort you in such stressful circumstances.

1. 1. 3. Examine the Entire Policy. After consulting with legal counsel, the church should carefully review the terms, conditions, and exclusions outlined in the insurance policy to understand the type of coverage and all related provisions.  This includes examining the entire policy rather than just specific riders or provisions.  A best practice for a church is the retention of a complete copy of the policy and a copy to the church’s legal counsel.

1. 1. 4. Collect Related Documents. After consulting with legal counsel, collect all relevant documents, including the insurance policy, correspondence with the insurance company, claim forms, supporting evidence, and any other relevant records related to the insurance dispute.  The more available records properly organized and maintained by the church may help the church and the church’s legal counsel better assert the church’s position regarding the dispute.

1. 1. 5. Contact the Insurance Company. After consulting with legal counsel, and likely under direct instruction by legal counsel to assert attorney-client privilege protections, connect with the church’s insurer via email and phone to discuss the dispute and seek clarification about the insurer’s position.  Provide the insurer, using the record developed with legal counsel, with a clear and concise explanation of your perspective and the reasons for your disagreement.

1. 1. 6. Document all Communications. After consulting with legal counsel, maintain detailed records of all interactions with the insurance company, including dates, times, names of individuals spoken to, and summaries of the conversations. This documentation may be invaluable if legal action is required due to the dispute escalating or failing to be resolved in a positive manner for the church.

1. 1. 7. Mediation or Arbitration. After consulting with legal counsel, explore, consider, and propose alternative dispute resolution (“ADR”) methods such as mediation or arbitration.  Some insurance policies mandate ADR as either the sole course of resolution between the parties or the mandatory first step toward resolution before initiating litigation.  Likely, the best benefit of ADR is that it seeks to prevent the church from utilizing secular courts to resolve church matters.

1. 1. 8. File a Complaint. After consulting with legal counsel, the church may wish to file a formal complaint with the applicable state and local governmental agency if the insurer refuses to amicably resolve the dispute.  Often, such a filing or even the intention to file a formal complaint prompts insurers to reevaluate the dispute and seek a satisfactory resolution.

1. 1. 9. Legal Action. As a last resort, the church may be in an unfortunate but necessary situation requiring the church to initiate legal action against the insurer to resolve the coverage dispute.   Sometimes, a formal demand letter and preservation letter from legal counsel will trigger insurer action.  In other instances, the church may need to initiate litigation in court.  Leverage the church’s legal counsel to walk together through litigation options.

     Each insurance coverage dispute (and other insurance concerns) is unique, based on applicable laws and the specific facts of the situation.  Seeking professional legal advice is crucial to understanding the church’s rights, navigating the legal landscape, and increasing the likelihood of a favorable outcome for the church.  Our law firm has an experienced and robust team of attorneys who focus almost exclusively on helping churches, ministries, private Christian schools, religious organizations, and other nonprofits.  You are welcome to contact us to discuss an insurance coverage concern or any other matter.