Naming Your Church as an ‘Additional Insured’
Requiring outside groups to list churches as “additional insured” in its general liability policy could lull churches into a false sense of security.
by Richard R. Hammar
Churches often allow outside groups to use or lease their premises. Obviously, an outside group’s use of church property exposes the church to potential liability for injuries that may occur. This risk escalates if the property use involves minors. Consider the following examples:
• A church leases a portion of its premises one evening per week to a local scout troop.
• A church leases several rooms to an outside group to operate a preschool.
• A church leases a room one morning each week to an outside group conducting an exercise class.
Churches respond to this risk in various ways. Many churches require the outside group to list the church’s name as an “additional insured” in its general liability insurance policy. However, a recent case in New York suggests this practice could lull churches into a false sense of security.
The New York Case
A church leased a portion of its premises for three days to an outside group conducting a dance competition. The lease required the group to name the school as an additional insured in its liability insurance policy.
A woman attending the dance competition fell and suffered injuries while walking from the church parking lot behind the school to the front entrance. She sued the church, claiming the church’s negligence caused her fall. The church contacted the outside group’s insurer and requested a legal defense against the victim’s claims and indemnification for any verdict or settlement. When the insurer refused, the church sought a court ruling.
The court noted that the insurance policy defined an “insured” to include any organization to whom the insurer was obligated, by virtue of a written contract, to provide liability insurance, “but only with respect to liability arising out of [its] operations.” In other words, the policy naming the church as an additional insured did not entitle the church to a legal defense and indemnification against any loss. The section in the policy limiting coverage to liability “arising out of [the insured’s] operations” required that there be “some causal relationship between the injury and the risk for which coverage is provided.”
The court concluded that the church failed to demonstrate the existence of such a causal relationship. The outside group’s “operations” consisted of conducting a dance competition in the school auditorium and three classrooms. Bodily injury occurring on a sidewalk outside the leased premises, in an area the outside group had no responsibility to maintain or repair, “was not a bargained-for risk.” Rather, the group’s operations at the school merely furnished the occasion for the accident.1
Relevance to Church Leaders
Many churches allow outside groups to use or lease their property. It is common for churches to require that an outside group’s insurance policy list the church as an additional insured. But as this case illustrates, such a practice will not necessarily provide coverage for the church in the event of an injury, especially one that bears no direct relationship to the nature of the outside group’s activities. This can result in an unexpected and potentially significant liability for the church.
The takeaway point is this: Church leaders should not agree to the use of their property by outside groups on the assumption that being listed as additional insured in the outside group’s insurance policy will create an effective firewall against church liability. Before allowing outside groups to use or lease church property, discuss the issue of insurance with your insurance agent, as well as legal counsel, so that you clearly understand the availability of coverage under the outside group’s policy. Also consider any additional precautions that may be necessary. Only then can you make an informed decision.
Risk Management Checklist
Before allowing outside groups to use or lease church property, consider these points:
• Use of church property by an outside group will expose the church to potential liability, especially for activities involving minors.
• There is no way to insulate a church from all risk of liability under these circumstances.
• Churches should consider several risk management options before allowing outside groups to use church property.
All general liability insurance policies have a “named insured,” which generally is the entity that procured the insurance. The named insured can add one or more other entities as “additional insureds.” Having your church’s name added as an additional insured to the general liability policy of an outside group that uses or leases church property for a specified purpose or activity is one way a church can manage the risk of liability in the event of an injury. But, as this case illustrates, it is not foolproof. Conditions apply, and church leaders need to be familiar with the conditions so they can accurately evaluate coverage. The last thing you want to do is wait for a legal challenge to arise before discovering your vulnerabilities. Avoid surprises by asking your insurance agent and legal counsel about the legalities and limitations of the additional insured option.
There are other ways to mitigate the risks associated with allowing outside groups to use church property. Consider implementing some or all of these:
• Check with the church’s insurance carrier to evaluate coverage in the event of an injury during use of church property by an outside group.
• Assess the increased risk of legal liability associated with outside groups using your property. Some risks may be too great, especially in comparison to the potential financial gains. Any activity involving minors represents the highest risk. The outside group must provide evidence of insurance in an amount that is acceptable to you.
• Have the outside group sign a facilities use agreement that provides the group with a mere license to use the property; contains “hold harmless” and indemnification clauses; and states that the church provides no supervision or control over the property during use. An attorney should prepare this document.
• Review the outside group’s liability policy to ensure that it provides adequate coverage. Be certain it does not exclude sexual misconduct. Pay close attention to the coverage limits.
• Add the church as an additional insured under the outside group’s liability insurance policy. This may not be effective in all cases, but it is worth doing since it offers a measure of protection in some circumstances.
• If the group’s activities will involve minors, have a written acknowledgment from the group that all workers have been adequately screened.
Note that release forms are generally unenforceable against minors who are injured since they have no contractual capacity to sign such a release, and their parents or guardians lack the legal authority to release a minor’s legal rights.
Allowing outside groups to use or lease facilities involves other considerations that are beyond the scope of this article. These include the application of the federal unrelated business income tax; the loss of the church’s exemption from property tax, either fully or on a prorated basis; and the potential violation of local zoning laws.
For all of these reasons, a church should seek legal counsel when considering the use of church property by one or more outside groups.
This article is excerpted from Church Finance Today, 2013, ©Christianity Today International. Used with permission.
1. Christ the King Regional High School v. Zurich Insurance, 936 N.Y.S.2d 680 (N.Y.A.D. 2012).