Insurance policy records are your friend. Really.
Copy them. Scan them. Keep them. Evidence of coverage could save your organization from demise.
By Max H. Herr
Church & Ministry Compliance Consulting
Insurance policies . . . love ‘em, hate ‘em. It’s a tenuous relationship for most of us. Don’t have any claims, yet the premiums keep going up. Have a claim or two, and we might get a nonrenewal notice. It sometimes feels like a game of heads they win, tails I lose.
As much as the advertising on radio and television by personal injury attorneys might lead you to believe otherwise, insurance companies, however, are not your enemy. I say this as both an insured and as an insurance agent who was first licensed in 1980.
I’m not different than anyone else: If my auto or homeowner’s insurance premiums rise to a certain level, I start looking for a lower premium. It’s a natural thing. But I also make sure I have the proper coverages for my needs. We live in litigious times, and I tend to carry higher limits of liability than most folks, knowing that the cost difference between minimum and maximum coverage is not that great. The tradeoff gives me peace of mind.
However, insurance is a subject most folks find complicated and confusing. And insurance contracts that are 15, 30, 50 or more pages in length don’t inspire much confidence that we even begin to know what protection we actually have. That’s as much the fault of attorneys as anyone else. And most attorneys can’t read insurance contracts either.
There is only one kind of insurance that’s written for long periods of time: life insurance (annuities are also long-term contracts, but they are classified as a life insurance product because they have a death benefit guarantee).
All other insurance policies – auto, homeowner’s, health, and commercial property & liability – are written as one-year contracts. Some are guaranteed renewable (the insurance company promises to continue the coverage without regard to claims, but the cost may increase), some are non-renewable (you have to requalify for coverage every year). Most just present a renewal premium notice, often higher than the year before for the same coverage, and you decide for yourself if you want to keep the coverage for another year or go shopping for a new policy.
If you renew, the policy number will probably stay the same as the prior year – it’s easiest for the insurance company to do this. But it is a whole new policy. Some insurance companies may pay “dividends” to customers who have stayed with them for an extended period of time. But dividends are simply a “return of excess premiums paid” that the insurance company did not need because of one or more of several business-related reasons.
“What we all tend NOT to do, however, is keep a good record of the policies we have owned in the past. ”
For most of us, it doesn’t represent much of a dilemma – we either have claims while a policy is in force or we don’t (life is better when we don’t have any claims). But for commercial policy owners, this is never a good thing. Commercial policies protect our businesses – and churches are no less a business than the corner drugstore or fast-food restaurant. And we can be sued for things that happened in the past as much as for things that happened yesterday or today.
Commercial insurance policies come in two forms: claims-made and occurrence. Theoretically, a claims-made policy only provides coverage that takes effect when a claim is reported during the policy period, regardless of when the wrongful act that gave rise to the claim took place. An occurrence policy covers claims that occurred during a policy period, regardless when the claim is made, and even if the policy is no longer in force. Some claims-made policies contain a “short-” or “long-tail retroactive period” that will cover claims that occurred in the past, even under an entirely different policy, similar to an occurrence policy, except that there must have been continuous coverage during the interim. A break in coverage will void the retroactive provision beyond that point in time.
And this is where policy record-keeping becomes critically important. Especially these days with sexual abuse litigation. With state laws that can allow a person to sue another for sexual abuse that may have occurred 20 or more years in the past, churches are especially vulnerable to such lawsuits. The problems that such civil suits present are manifold.
There might not be anyone at the church today who was there 20 years ago. There is no one with direct knowledge of an incident, no one who might have had any knowledge, even third-hand. If you cannot provide a defense against such a lawsuit, you lose. It’s called a default judgment. And, in most cases, there will be no do-overs – no appeals of the judgment unless the damage award is unreasonably excessive, and even then, the award can be left undisturbed.
Insurance companies do not appreciate being on the losing end of cases like this. That’s why their applications ask questions such as, “Have you been sued, or are you aware of any incident in the past or present that could give rise to a legal action against you?” A wrong answer to this question will surely void your policy if your church is sued for something it knew was possible. Insurance companies ask, “Do you have insurance today? What is the name of your insurance company?” and “Have you ever had a lapse in coverage in the past?” Again, wrong answers typically result in a “death penalty” – no insurance when you need it.
“Churches are notoriously bad at record-keeping. ”
They may have boxes of tithe envelopes going back 20 or 30 years, but they don’t have copies of last year’s property policy, liability policy, or workers’ compensation policy in the file cabinet, let alone copies or records of all insurance policies going back as far as the tithe envelopes. And now that 38-year-old who suppressed her memory of a sexual offense committed by the youth minister 25 years ago sues the church for a million dollars for the emotional distress she has suffered all these years.
Which insurance company will pay that claim? Which insurance company will provide the legal defense it promised in the contract? Could more than one insurance company be obligated to pay the claim? These are often easier questions to answer than, “Is there anyone at the church today who might have been around 25 years ago who could have information about this alleged event?” But without policy records, you may not be able to answer these simple questions. And if you cannot, it’s time to get out the checkbook and make an offer you can afford, because you surely don’t want this case to go to trial. You may not have any insurance company money behind you.
It helps to stay with the same insurance agent or broker for a long time, and it can be helpful to stay with the same insurance company even if the rates change over time, because it simplifies things when something happens. But it’s not a requirement.
Policy record-keeping doesn’t have to be complex – in today’s digital age, you can store a million pages of insurance contracts or other documents and your computer still weighs six pounds and takes up a few square inches of desk or floor space. You don’t necessarily need a copy of the policy – although it would help. What you do need is the name of the insurance company, the policy number, and inception and expiration dates, and, perhaps, the coverage limits – you could do this in an Excel spreadsheet or a Word document (of course, you also need to learn the word “backup”). Your broker or agent should have the same records. Your insurance companies will have the records, but you need to know which insurance companies to contact.
A good insurance agent or broker would have explained all of this to you. A great insurance agent or broker will show you how to do it. Just don’t expect your agent or broker to do it for you. That’s not their job, because it’s your responsibility.
Max Herr is president of Church & Ministry Compliance Consulting. He has more than 25 years of experience in insurance, financial services, compliance and governance, including more than 10 years as a church treasurer. Max served as the church compliance specialist for the California Southern Baptist Convention for six years.
