Introduction to Church Risk Management

Dec. 3, 2009 | by Michael Boutot

For those who remember the old TV series “Dragnet”, Joe Friday was often heard saying “Just the facts” (actually, if you are a true fan of Dragnet, you few will know that the real statement Joe Friday would make is “All we want are the facts, ma’am”, but that is another story).  I want to start off by sharing some interesting statistical facts as relate to churches.  These stats come from a host of sources over the past few years.  Let’s look at the impact of churches in America:

• Over 400,000 churches or places of worship
• Over 140 million Americans claim to have ties to a church
• In a recent Gallup poll, nearly 120 million Americans (over 40%) stated they attended a church/place of worship the prior weekend
• There are 217 church denominations listed in the 2006 “Yearbook of American and Canadian Churches”
• In 2007 the Roman Catholic Church reported over 69 million members in America
• Southern Baptists are the largest protestant group in America with over 16 million members in America
• There are over 600,000 clergy serving in America
• There are 1,210 Protestant churches in America with a weekly attendance of 2,000 people or more.
• All but five states have congregations with more than 2,000 people in attendance on a Sunday
• The four states with the greatest concentrations of mega-churches were California (14 percent), Texas (13 percent), Florida (7 percent), and Georgia (6 percent)

Earlier this year we at ICSARM launched the new LinkedIn group called “Church Risk Management.”  Shortly thereafter we began hosting a weekly blog with an organization called the “Risk & Insurance Management Society”, or RIMS for short.  Now we have joined several other bloggers in the Church Central blogosphere realm. 

Now, let me pull this around to the subject of “Church Risk Management”.  To start that discussion, we need a little introduction on just basic insurance.  As stated above, research suggests there are over 400,000 churches in America.  Many Americans are involved in some capacity with a local church, even if it is just visiting there a couple times a year.  In recent years we have become intrigued by what has become known as the “mage-church” syndrome, those churches with thousands of members.  Yet according to statistics, the “median” church in America only has 75 active members and 1 full-time staff purpose.  In other words, these are very small businesses in the scope of what we would call “insurance” or “risk” exposures. 

There are hundreds of thousands of churches that do not have the staffing nor expertise to know where to go and what to do when it comes to submitting or managing an insurance claim.  Another element that is very unique to the church risk management industry is the issue of personnel.  Interestingly enough, the “average” church has basically one full-time staff person, which is usually the pastor.  Remember, in most instances, this pastor is trained in church and pastoral matters, not business; not insurance; not risk management; not litigation.  So where does his support come from…it comes from volunteers.  Think about it, a multi-billion dollar industry, with the exception of the mega-churches listed above, being run by volunteers.  Please don’t get me wrong, I am not suggesting they are not qualified or equipped for what they are doing.  However, I am suggesting that such a design is almost an automatic exposure for risks and litigation. 

Let’s also face another reality.  We talk about “risk management” because we want to help a business (or in this case a church) reduce their risk exposures.  Yet 30 years ago that simply meant to help control insurance premium costs and protect certain assets of the business or church.  Today, we help to reduce risks so that we in turn can reduce law suits.  There was a time when few people would even consider suing a church. Those days are long gone.

Thousands of churches are sued every year in the United States, usually by their own members. These lawsuits are typically triggered by power struggles, sharing confidential information, questionable counseling practices, sexual misconduct, or church discipline.

These conflicts can be converted into a variety of legal claims, including: violation of corporate bylaws, breach of confidentiality, defamation, breach of fiduciary responsibility, negligent hiring, supervision or retention of employees or volunteers, invasion of privacy, or infliction emotional distress.

Losing a lawsuit can result in devastating damages awards. Yet even when a church wins in court, it usually pays an enormous price in terms of legal fees, lost time and energy, distraction from ministry, and congregational dissension over the underlying causes of the conflict.

Money has become a major factor in church litigation. Legal actions against churches typically allege multi-million dollar damages. As large verdicts against churches receive front-page coverage, more people are tempted to see lawsuits as a way to financial gain.  Sadly enough, lawyers are even being trained how to target and proceed with legal actions against churches.

The American preoccupation with individualism also has contributed to the increase in litigation in the U.S., as has our diminished respect for authority and our embracing of relative morality. These changing attitudes have resulted in a general antagonism toward the concepts of responsibility, accountability, and discipline found in the church.

These attitudes are not confined to people outside the church. Many professing Christians prize individualism and independence more than they do responsibility and accountability. As a result, they are easily offended if their church attempts to correct unbiblical behavior. As many churches discover, it doesn't take much for that offense to turn into the kind of anger that triggers a lawsuit.

Churches are often shocked to discover that they can be sued even when they sincerely believe they have done nothing wrong. And once an action is filed, they cannot simply say the complaint is unjustified and then ignore it. If the church does not respond with a full defense, it will lose automatically by default judgment and be subject to financial damages.

The direct legal cost of defending against even a simple lawsuit can easily climb into hundreds of thousands of dollars. Most church's legal defense costs are paid on a set hourly rate. Some are paid on what is called a “flat-fee” program by the insurance company.  Every time you talk with your attorney, the clock is ticking and your bill is increasing. Even if your church wins the lawsuit, it usually does not recover even a dime of its legal costs. Thus, even legal victories come at a high cost. When a church loses such a lawsuit, awards for actual damages can easily exceed $100,000. Punitive damages awards (basically a punishment over and above the verdict) can be even higher, climbing into the millions of dollars.

Even apart from these financial burdens, litigation can pull a church down like a monstrous whirlpool. Lawsuits—even the threat of lawsuits—inevitably cause major, irresistible disruptions in a church. A lawsuit demands a great deal of time, energy, and attention from key leaders, thus pulling them away from important ministry responsibilities. Litigation can also attract damaging publicity and divide a congregation, as members argue over who is to blame for the problem and how the suit should be handled. And like a whirlpool, it can spin for years, until the legal process runs its course of complaints, motions, depositions, hearings, trial, judgments, and appeals.

Even when a church is incorporated, its pastor and officers still can be found to be personally liable for damages awards in lawsuits related to counseling, confidentiality, sexual misconduct or church discipline. If insurance does not cover the entire award, a prevailing plaintiff can recover his damages from a single church leader, who may then be compelled to sue his fellow officers to force them to share that cost.

Good insurance usually covers most of the financial costs associated with a lawsuit; however, it is sometimes insufficient to fully cover large damages awards. Moreover, insurance can never compensate a church for the lost time, strife, frustration, and diversion from ministry that is necessitated by a lawsuit.  Also, depending on the nature of the policy, personal exposure against the pastor might not be covered by the church’s insurance policy nor a personal insurance policy, leaving a pastor at serious risk and exposure of losing everything.

The moral of this ominous litany is quite simple: It is not good enough for your church to do things so well that you will prevail in a lawsuit, because even if you win, you have lost too much. Instead, today your church must do everything so well that you will prevent lawsuits from ever being filed.

With that said, let me encourage you to continue following this blog as we seek to address issues related to church risk management, to include evaluating insurance coverages; providing risk assessment tools; and assisting with litigation management guidelines for your church and church staff.

Michael R. Boutot
Executive Director
Institute for Church Safety & Risk Management, LLC
(662) 322-6713

Disclaimer. This article page does not constitute legal advice. This is a rapidly changing area of the law. You should consult a lawyer if you have any questions about your reporting duties. On-line legal information can become out of date and are subject to legal interpretation depending on particular facts and circumstances.

Topics: Administration , Law

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