Insurance Planning for Religious Institutions

Andy Lott


February 3, 2020

Many churches and religious organizations find it difficult to understand the types of insurance coverage they need. As a result, many fail to take a comprehensive approach to protecting themselves from the unique risks and exposures they face today. While churches need coverage for theft, damage and accidents, they must also have a customized risk management plan in place to address fine arts, pastoral care, active threats, sexual misconduct and other exposures.

Cyber Liability

Religious organizations are not immune to cyberrisks. IT systems require monitoring, security policies and protocols, and adherence to specific rules and government regulations. Many churches have no IT support professionals on staff and no means of ensuring data security procedures and policies are implemented and followed. This leaves them vulnerable to cybercrime, which can threaten business continuity and create financial and legal liabilities.

Cyber liability policies protect churches from data breach exposure, covering associated expenses such as notification, defending claims by state regulators, fines and penalties, credit monitoring, and losses resulting from identity theft. These policies also protect churches against losses from business interruption, computer fraud, data loss or destruction, and cyber extortion.

Errors and Omissions

Many clergy members provide spiritual counseling and are trusted to provide guidance and advice to their congregants. This leaves their organizations vulnerable to liability for physical or emotional injury to congregation members who feel negatively impacted by such guidance. Pastoral counseling liability coverage, a type of errors and omissions insurance, can protect pastors and churches from professional negligence claims. These nonstandard policies are written specifically for a church’s particular risks and can help religious organizations weather lengthy cases and potentially catastrophic losses resulting from professional liability claims.

Active Threat

With their mission to be open and welcoming, houses of worship are particularly vulnerable to armed intruders and active threat situations. The rising prevalence of such tragedies has increased demand for coverage designed to protect religious institutions from the financial ruin that can happen in their wake. Active threat policies cover expenses that typically are excluded from general liability coverage, such as legal liability (victim lawsuits), business interruption coverage, physical damage coverage (building repairs), and medical expenses as well as costs for cleanup and recovery and media consultants to assist with crisis management.

Insurers are also taking steps to help religious organizations manage risk by creating seminars and informational guides aimed at educating their staff members on developing security and response plans. Organizations should also try to create a strong relationship with local law enforcement for additional support.

Sexual Misconduct

Sexual misconduct liability is a type of coverage that addresses risk associated with physical or emotional injury resulting from sexual abuse, molestation or exploitation. Sexual abuse of a child is the top reason churches go to court, according to Richard R. Hammer, senior editor of Church Law & Tax, who has tracked cases for over 20 years. This underscores the importance for organizations that deal with the public to carry abuse and molestation coverage to mitigate the cost of defending a sexual misconduct claim. Defense of these claims can cost hundreds of thousands of dollars and potentially result in bankruptcy for those without coverage.

To obtain this type of coverage, churches must prove they have performed background checks on employees and volunteers. Insurers also may require those with schools and day-care centers to have rules in place mandating a specific teacher-to-student ratio and rules that prohibit an adult employee from being alone with a child.

Directors and Officers

The leaders of nonprofit organizations face the same exposure to lawsuits as those at for-profit corporations. Although some states have legislation protecting nonprofits, religious organizations should still consider directors and officers (D&O) insurance. There are some cases where the laws spell out specific activities for which immunity is intended, opening up the possibility that a claim could fall outside the protection intended by the statute. The potential financial damage from D&O claims supports a risk management approach that includes this coverage for all churches.

Fine Arts

Parishioners tend to apply high spiritual value to sacred items in the church. Some are historic and rare, which makes them even more difficult to replace in the event of a loss. For religious organizations, leaders must also look at these items from a business point of view and consider how they would be replaced or repaired if damaged. As part of a comprehensive risk management plan, fine arts insurance should be secured for items such as religious artifacts, statuary, paintings, stained glass, prayer books and other valuable property.

Commercial Vehicle

Many churches have buses or vans that are used to transport congregation members and guests to events, which exposes them to serious liability. Religious organizations that do so should have commercial vehicle insurance that includes collision, liability, comprehensive, uninsured/underinsured motorist coverage, vehicle medical payments coverage, personal injury protection, and vehicle physical damage coverage.

Inland Marine

Inland marine coverage is for church property that congregation members take off-site. For example, members often use items such as musical instruments, sound systems, tools and rental equipment in locations other than the church. Inland marine ­policies cover loss or damage to items in this scenario.

Religious organizations have different insurance needs depending on factors such as the size of the congregation, age and number of church buildings, and services offered. Some coverages like business owner’s insurance policies are basic for any business. However, religious organizations should work with their agents to assess their unique risk exposures and determine the specialized coverage they need to protect their congregation and assets.

Andy Lott is a managing partner with Insurance Office of America (IOA) and a managing partner of IOA’s proprietary insurance process, RiskScore.
Andy Lott is a managing partner with Insurance Office of America (IOA) and a managing partner of IOA’s proprietary insurance process, RiskScore.