If your church carries liability insurance for its officials, you should review the policy every year. When conducting an annual review of your liability insurance policy, the church should look at the coverage amounts and limitations. This is important because you want to ensure you have adequate coverage for potential claims.
Most insurance policies state the maximum the policy will pay for claims in a period. The maximum amount is often phrased as an aggregate total for all claims. To determine if the maximum is adequate, consider the number of officials under the policy and how much coverage is available for each.
In a real life example, let’s think about a church that has an aggregate $1 million limit on its liability insurance policy. The policy covers the pastor, trustees and deacons. Altogether, twenty persons share the same aggregate coverage. If all of the officers of this church are named in lawsuits in one year, the average coverage available for each official is $50,000.
Lawsuits can take a long time to resolve. It is not unusual for a law firm to charge $200 per hour for representation. At the rate of $200 per hour, the $50,000 coverage for each church official will buy 250 hours of defense. Depending on the risks a church faces, church officials could believe that this amount of protection may be inadequate.
Taking this example further, a church should look at limitations in their policies. Some policies include a limitation of liability coverage for each individual claim. So in spite of the aggregate limit, the claim limitation further curbed how much resources would be available for each official.
In one case, I found a church policy with a $5,000 limitation per claim. At $200 per hour, the number of hours available for each officer is further reduced to 25 hours. The church officials had reason to believe the liability insurance coverage was inadequate.
Every church should review their liability insurance policy annually. Talk with your insurance agent and attorney to help determine if you have the right amount of coverage.