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Risk Management and Insurance |
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This chapter includes a discussion
of the types of insurance churches and middle governing bodies
should secure; leading companies that offer insurance; and, recommended
minimum standards. Various helpful checklists appear at the end
of the chapter. |
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Insurance |
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The Book of Order directs
all churches, synods, and presbyteries to obtain adequate property
and liability insurance coverage to protect the facilities, programs,
and officers including members of session, staff, boards of trustees
and deacons, and elected and appointed officers (G-12.0306, 11.0308,
and 10.01020, respectively). While there are many risks that
must be considered and a wide array of insurance types, securing
insurance is not an impossible task. Working with agents and other
resources, a board of trustees, session, or middle governing body
can ensure it has adequate coverage in place.
Along with this manual a copy of Risk Management for Churches
is provided. This helpful and easy to use resource is authored
by Richard Hammar, J.D., L.L.M., CPA and published by Christian
Ministry Resources. Additional copies may be purchased by calling
(800) 222-1840. The price is $9.95 per copy, plus shipping and
handling. Do not copy Risk Management for Churches
or any excerpts from it. No permission has been secured to make
copies.
Insurance policies should be reviewed annually for adequacy
and completeness. Coverages should be adjusted upward as property
values increase. As costs increase, churches often find themselves
underinsured because coverages have been held steady while inflation
has increased property values. Periodic appraisals of the property
can help to update the coverage to reflect current values. Coverage
that increases automatically by a set inflation factor is also
available. Casualty (liability) coverage should be reviewed
periodically as well. Should a change in use be implemented,
such as opening a day care center, school, or other new program,
be sure to review potential liability insurance needs with the
church’s insurance agent and to adjust coverages accordingly.
Give the agent at least 30 days notice before an event or
starting a new program. This will give the insurance company
time to review the new risk, give a response, and provide a
quote on any additional charges. It is important that a binder
or endorsement be obtained before the event or program begins.
You may wish to contact your agent within ten days of the original
notification to ask for an update.
The reasons why insurance coverage should receive high priority
and review include the following:
- the recognition of the varied risks faced by the church,
with special attention to fund-raising events, acquisition
of new property, leased property, counseling services, and
fiduciary responsibilities
- increase in building costs and the purchase of new property
- the need for specialized coverage for day care and counseling
- fluctuating annual premium costs
- expanding ministry of many churches
The following should be used as a guideline for establishing
insurance practices:
- an annual review of the church’s insurance program
- an annual safety inspection of the buildings with fire
officials to identify hazards that may cause personal injury,
fire, or other loss of property. Check with your local fire
department. Typically, they are happy to assist you with a
voluntary inspection and ideas to prevent fires
- a detailed inventory of all furniture and equipment, kept
current with additions and deletions of items. A photographic
inventory of all furniture, equipment, and rooms of the church
is an excellent inventory record. Videotapes have been used
effectively by some churches. All inventory reports should
be kept off the church property in a bank safe-deposit box
or similar secure location
- a periodic building appraisal to update the value of all
property, at least every three years
- At least two quotations when purchasing or renewing insurance
coverage. Contact your agent at least ninety days prior to
the expiration of your policy to provide quotes.
- A determination of actual annual premium costs for budget
development.
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Types
of Insurance |
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Property
Insurance |
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Property insurance is designed
to cover buildings and personal property for loss or damage. The
property policy may be amended to include the following coverages:
newly acquired property, property in transit, stained glass windows,
valuable papers, loss of business income, extra expense, computer
equipment and boiler and machinery. This is just a partial list
of coverages that may be available, check with your insurance
agent for a complete list of coverages.
Property insurance limits on your policy should be adjusted
upward as property values increase. Churches often find themselves
underinsured because coverages have been held steady while inflation
has increased property values. To prevent underinsured losses,
periodic appraisals of the property can enable the church to
update the coverage to reflect current values. Property insurance
limits can also be automatically set by an inflation factor.
Check with your insurance agent about this option. |
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General
Liability |
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Casualty (general liability) coverage
is designed to protect the insured from losses in which they are
legally liable arising out of the ownership of property or activities
from your premises. General liability policies should be reviewed
periodically and should include coverage for slips and falls and
other bodily injuries, property damage of others, products liability,
completed operations, libel and slander, false arrest, employee
benefits liability, contractual liability, and other types of
claims usually covered by this policy. It is important to verify
that employees, directors, trustees, officers, and volunteers
are covered under this insurance policy. Most general liability
policies restrict coverage to the United States, its territories,
and Canada. For any travel outside of these areas, contact your
insurance agent prior to the start of the trip.
The general liability policy is usually provided on an occurrence
basis as opposed to a claims made basis. This is preferred because
the occurrence is covered under the policy in force at the time
of the accident, regardless of when the claim is reported or
the suit is filed. Some coverages, however, are traditionally
provided on a claims made basis, such as directors and officers
coverage and employee benefit liability. Under claims made coverage,
the claim must be reported during that policy period or any
extended reporting period specified by the policy. The extended
reporting period, commonly referred to as a "tail,"
frequently is for one year following the policy term. When claims
made and coverage is provided, it is important to have a "retroactive
date" that covers previous time periods in addition to
the current policy term. Review the claims made coverage option
with your insurance agent.
As changes occur in use of church property, such as opening
a day care center, school, or other new program, the church's
insurance agent should be notified of the changes in exposure.
The new uses of property may result in new liability risks that
will need to be addressed. Contact the insurance agent at least
thirty days in advance of the event or new program. This will
give the insurance company time to review the new risk, give
a response, and provide a quote on any additional charges.
It is important that a binder or endorsement be obtained before
the event or program begins. |
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Sexual
Misconduct Liability |
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Most general liability policies
exclude sexual abuse or molestation and pastoral professional
liability. Both coverages can be purchased by endorsement or on
a separate policy. Check with your insurance agent for availability
of these coverages. It is wise to secure these coverages. It is
a good practice to review your general liability policy's exclusions
and limitations with your insurance agent to avoid uninsured claims. |
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Pastoral
Professional Liability |
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Pastoral Professional Liability
is designed to cover liability for pastoral counseling services.
The church should be included in the definition of the named insured
as well as the pastoral professional and any other professional
staff. There are many definitions of coverage under this form.
Review with your insurance agent definitions as well as the exclusions
in the contract carefully. |
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Workers'
Compensation |
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The purpose of workers' compensation
insurance is to give greater protection and security to the worker
in case of injury, illness, or death occurring in the course of
employment. Worker's compensation provides, as a matter of right,
for the payment of benefits to employees injured on the job. The
amounts paid are set by state law for covered occupational injuries
or disease. The compensation award is, in nearly all situations,
the covered employee’s exclusive remedy against the employer.
The laws in most states provide for fixed awards to employees
or their dependents upon a showing of employment-related injury.
Payment for injuries or illness is not based on determination
of fault or negligence, with a few exceptions, on the part of
the employer. Some states go beyond simple establishment of the
right to worker’s compensation and provide insurance systems,
either under state supervision or otherwise. Under these laws,
methods are usually prescribed that allow employers and workers
to accept or reject the compensation system. Several states have
provided workers' compensation funds that coincide with the coverage
required by law. In most states, employers who refuse to come
within the provisions of the workers' compensation law are denied
the customary defenses to actions for injury by the injured employee.
It is not the purpose of this manual to compare the workers'
compensation laws of the various states, other than to point
out that these laws differ not only in detail but in major features
as well. In evaluating considering workers' compensation coverage,
the following considerations are particularly important:
- Persons covered and type of employment
- Injuries and diseases covered
- Benefits provided
- Civil law and administrative requirements and options —
including limitations on the ability of injured parties to
sue the employer for damages
- Method of securing benefits
The workers' compensation laws of every state require the employer
to secure payment of compensation benefits. Jurisdictions may
require either the purchase of insurance with a state fund,
a private insurance company, or a qualified self-insurance program.
Workers' compensation insurance is provided through a Workers'
Compensation and Employer's Liability Policy. Two types of basic
coverages are afforded by this type of policy: one provides
actual worker’s compensation benefits, and the other insures
the employer for liability when employees or dependents are
able to sue for such problems as employer negligence and unsafe
working conditions. The combination of these two coverages is
intended to provide the employer with protection against liability
that may arise out of the employee-employer relationship due
to occupational injury and disease. Supplementary coverages
are available to cover the needs of employers that are not satisfied
by the basic coverage. Ask your insurance agent about the supplemental
coverages available and to identify the supplemental coverages
required by your state. |
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Umbrella
Liability |
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Consider purchasing an umbrella
(excess) liability policy, which provides excess limits over the
primary general liability, auto liability, and the employer’s
liability section of workers' compensation policies. An umbrella
policy will be activated when the underlying primary limits are
exhausted or exceeded by a single loss. Umbrella policies are
issued with an aggregate limit, which is the most the policy will
pay during a one-year policy term, regardless of the number of
claims. Umbrella policies are purchased in coverage multiples
of $1 million increments. All churches are encouraged to purchase
umbrella policies especially those with owned vehicles, day nurseries,
or schools. |
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Minister's
Personal Liability |
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Many ministers live in manses furnished
by and insured by the local church. If a homeowner's policy is
provided with the church named as additional insured, the policy
should be written to protect the minister and her or his family
for both personal liability and damage to their personal property.
Even when the manse and personal property is insured under the
church policy, there is still a need for a tenant's homeowner
policy for the minister and her or his family. For example, family
events/activities would not be covered under the church policy
unless the activity was considered part of the minister's responsibilities.
Ministers who own or rent homes should consult an insurance agent
regarding the coverages needed. |
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Employee
or Volunteer Dishonesty |
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Employee dishonesty coverage provides
protection against employee theft. Employee dishonesty coverage
provides for losses of money, securities, and other property caused
by theft or forgery of an employee of the insured, acting alone
or in collusion with others. Make sure to check with your insurance
agent to ensure that volunteers are covered under your employee
dishonesty policy. It is recommended to include volunteers.
The Book of Order provides a minimum standard of financial
procedures (G-10.0401) for local sessions that can help to prevent
employee dishonesty claims. The procedures are listed below.
- The counting and recording of all offerings by at least
two duly appointed persons, or a fidelity bonded person;
- The keeping of adequate books and records to reflect all
financial transactions, open to inspection by authorized church
officers at reasonable times;
- Periodic reporting of the financial activities to the board
or boards vested with financial oversight at least annually,
preferably more often;
- A full financial review of all books and records relating
to finances once each year by public accountant or public
accounting firm or a committee of members versed in accounting
procedures. Such auditors should not be related to the treasurer
(or treasurers).
Other ways to minimize your exposure include:
At least 2 individuals should be responsible for taking up the collection. The collected monies should be held in a secure area until counted and deposited.
Counting should be done by at least 3 unrelated individuals in a secure area.
Individuals responsible for collecting, counting and depositing monies should be rotated on a weekly basis.
Responsibilities and function of monies should be divided so that no one person has control over all functions of the monies transaction. For example, the individual who makes the bank deposit or pays invoices should not be responsible for reconciling the bank statement.
Check books should be stored in a secure place.
Bank statements should be reviewed on a regular basis.
Authorized signer of checks should not be the same person who reconciles the accounts.
Reporting of financial records to congregations should be done at least quarterly. Congregations should be informed on how their money is being spent.
Terminology in this section is meant to provide general guidance
and is not intended to require or not require specific audit procedures
or practices as understood within the professional accounting
community. Also see the section titled Suggestions for Accounting
Procedures to Reduce Susceptibility to Loss, later in this chapter. |
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Suggestions for handling employee theft
- Report loss to churches insurance carrier and legal council immediately. Follow procedures as set forth by both. Your insurance carrier may have specific protocol in this type of loss.
- Report the loss to local authorities for investigation, so that appropriate charges can be brought.
- Inform session in a closed meeting of the outcome of the investigation.
- Once investigation has been concluded, inform the congregation of the outcome of the investigation. This should be in a closed meeting as well. By keeping the session and congregation informed of the process will help to keep the trust within the church community.
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Automobile
Liability |
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Automobile liability provides coverage
to the insured for bodily injury and property damage claims arising
out of the ownership, maintenance, use, loading or unloading of
church-owned vehicles. Physical damage coverage for owned vehicles
is insured separately. In many cases, the pastor and/or volunteer
uses his or her own vehicle for church activities. In the event
of an accident, the policy covering the vehicle provides the primary
coverage, but it is very important for the church to have non-owned
automobile liability coverage. The church's non-owned auto liability
policy may also provide excess coverage if the automobile owner's
coverage is not adequate. Hired car coverage is for the same coverage
if a rental vehicle is used. Non-owned and hired car coverages
are separate coverages that must be requested at issuance of the
automobile liability policy. Issues involving rental vehicles
can be very complex; consult your insurance agent prior to renting
the vehicle. |
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Directors
and Officers |
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This coverage protects the officers,
directors, and trustees of the organization against damages from
claims resulting from negligent or wrongful acts in the course
of their duties subject to the terms and conditions of the policy
and the circumstances involved. However, directors and officers
coverage does not provide coverage for third party bodily injury
or property damage claims because these would be covered by other
policies. The insuring agreement, named insured, and exclusions
should all be reviewed thoroughly when purchasing a policy. The
directors and officers policy may be extended to cover the organization
itself (entity coverage) and to cover employment practices liability.
Both of these additions are recommended. Directors and officers
coverage is almost always written on a claims made form with defense
costs inside the limits of protection. |
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Business Travel Accident Insurance |
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Churches who have individuals that travel at the church’s request both domestically and internationally should consider purchasing business travel accident insurance. This coverage provides accidental death and dismemberment insurance for individuals traveling on church business. The policy should also address the needs for travel outside the United States such as repatriation of remains and medical evacuation. This insurance can be purchased in various amounts of coverage and options. Check with your insurance professional to determine your business travel accident needs. |
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Insurance for Travel Abroad |
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As more and more churches sponsor trips abroad, insurance needs to be factored into the trip. While the trips have educational and spiritual value, they are not done without risks. One way to offset some this risk is through travel accident insurance. The insurance is an accidental death and dismemberment policy that should also include repatriation of remains and medical evacuation while traveling outside the United States. Depending on your trip other coverage may be necessary for travel abroad. Some additional insurance coverage to consider are: foreign commercial liability, commercial foreign automobile liability and foreign workers compensation and sickness insurance. Always check with your personal health care provider before traveling outside your policy area. Please contact your insurance professional to discuss your travel plans and to determine your insurance needs. |
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Employment
Practices Liability |
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Employment practices liability
provides coverage for employment related issues arising out of
employee hiring, termination, or employment. Contact your insurance
agent to discuss if these coverages are available under your directors
and officers policy or whether they can be purchased under a separate
employment practices liability policy. Employment litigation is
one of the fastest growing areas of the law and this coverage
is recommended. |
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— Files marked with this icon can
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the free Acrobat Reader. For best results, right-click the link
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save the document to your desktop for viewing and printing.
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