Notifying Your Insurer of a Loss
Failure To Notify Promptly Can Result in Loss of Coverage
BY RICHARD R. HAMMAR
Did you know that your church liability insurance policy imposes a duty on the church to notify the insurance company promptly in the event of an accident or other loss? Even more importantly, did you know that failure to do so could result in a denial of coverage for the loss? These are questions of fundamental importance, as one church learned the hard way.
A RECENT CASE
A church member was injured when he fell on church property during a funeral. At the time of the injury the church had a general liability insurance policy that required the church to give the insurance company written notice of any accident "as soon as practicable." Immediately following the accident the pastor instructed the chairman of the board of trustees to notify the churchs insurance broker about the accident. The chairman did so by calling the insurance brokers office. An employee of the broker assured the chairman that the insurance company would be duly notified. In fact, the insurance company was not notified.
Nine months later the church received a letter from an attorney for the injured member threatening to sue the church unless it paid the member a large amount of money. The church immediately turned this letter over to its insurance broker, who in turn forwarded it to the churchs insurance company. The insurance company refused to provide the church with a defense of the lawsuit or pay any amount of money based on the accident since the church had failed to provide it with written notice of the accident "as soon as practicable" as required by the insurance policy.
The church responded by suing its insurance company. It sought a court order requiring the insurance company to defend the church under the terms of the policy and to pay for any damages awarded by a jury. A trial court ruled in favor of the church, and the insurance company appealed.
THE COURTS RULING
A state appeals court reversed the trial courts decision and ruled that the insurance company had no legal duty to defend the church or pay for any jury verdict since the church had failed to notify it of the accident "as soon as practicable."
First, the court concluded that when the church gave notice of the accident to its insurance broker, it was not giving notice to its insurance company as required by the policy. Why? Because brokers are not necessarily "agents" of the insurance companies they represent. Rather, they are agents of the persons and organizations they insure. So, when the church gave notice to its broker, it was not giving notice to its insurance company since the broker was not an agent of the insurance company.
Second, the court stressed that the insurance policy required that the church provide the insurance company with written notice of any accident. Even if the broker were an agent of the insurance company, the church still failed to comply with the terms of the insurance policy since it provided the broker with oral rather than written notice of the accident.
Finally, the court concluded that the churchs 9-month delay in providing the insurance company with written notice of the accident was not "as soon as practicable" as required by the policy, and as a result the insurance company had no legal duty to defend the church or pay any jury verdict based on the churchs negligence.
IMPORTANCE TO CHURCH LEADERS
It is very important for pastors and other church leaders to be familiar with this case, for it illustrates three fundamental points:
1. Notifying your broker may not be enough. Many churches purchase their insurance through a local broker. Sometimes this person is a member of the congregation. Church leaders naturally assume that in the event of an accident or injury they can simply call this individual and everything will be "taken care of." This case illustrates that such a conclusion may not always be correct. A broker may not be deemed to be an "agent" of the insurance companies he or she represents; accordingly, when a church provides its insurance broker with notice of an accident or loss, it is not necessarily notifying its insurance company.
TIP: If you notify your insurance broker of a loss, insist on a written assurance that he or she will notify the insurance company in writing within the period of time specified in the insurance policy. If you do not hear back within a week or so, contact the broker again to follow up. Better yet, the church itself should notify both its broker and insurance company. The insurance companys address will be listed on your insurance policy. Ask the insurance company to provide you with written confirmation of receipt of your notice.
2. Written rather than oral notice. If your insurance policy requires written notice, then be sure you provide written rather than oral notice of a loss.
TIP: Church leaders should be familiar with the insurance policys provisions regarding notification of the insurance company. Is written notice required? If so, how soon after a loss? It is essential that these provisions be scrupulously followed in order to prevent a loss of coverage.
TIP: If you change insurance companies, be sure to review the new insurance policy. Do not assume it will contain the same "notice" provisions as your previous policy.
3. A reasonable time. How soon does your church insurance policy require that notice be submitted to the insurance company following an accident or loss? Be sure you know and then follow through on this requirement whenever there is an accident, personal injury, or other kind of loss.
TIP: The duty to inform your insurance company of an accident or loss arises when the injury occurs, not when a lawsuit is filed. The purpose of the notice requirement is to give your insurance company sufficient time to investigate the incident and provide a defense.
EXAMPLE: On February 15, 1997, the church board at First Church is informed by a parent that her minor child was molested by a church volunteer. The volunteer is questioned and admits having molested the child. This incident represents a potential "loss" under the churchs insurance policy, triggering a duty to inform the churchs insurance company of the loss within the period of time specified in the insurance policy. The church should inform its insurance company immediately. It is very important that the church not wait until a lawsuit is filed to notify its insurance company. Such a delay not only hinders the insurance companys ability to investigate the incident and defend the case, but it also may result in loss of coverage under the policy. This could have disastrous consequences to the church.
Richard R. Hammar, J.D., LL.M., CPA, Springfield, Missouri, has served as legal counsel to The General Council of the Assemblies of God since 1978.