CLASSIFYING RISK

By Linda D. Ferguson, CPCU

CHURCHES--ONE CLASSIFICATION
MANY EXPOSURES

Some church-related activities require coverage
beyond the code that classifies houses of worship

When money is raised through an activity [at the church] ... a separate business operation is taking place and separate charges should be considered.

Recently I attended a seminar at a large church outside of Lexington, Kentucky. It was an easy structure to locate--but hard to believe that it is a church. The building's additions seem to go on forever. I learned from an outside sign that there was a school in part of the building. When I entered at the office level, a friendly person at the visitor kiosk directed me to the appropriate meeting auditorium. There was a corridor similar to an airport corridor with overhead signs indicating restrooms, sanctuary and other important places. At the end of this corridor was a wonderful restaurant with a buffet serving area and seating comparable to many family restaurants. I caught sight of some men playing basketball in a gymnasium as I walked past an opened door. Although I never ventured beyond the auditorium, restrooms and restaurant, I'm sure there were many other activities taking place.

Maybe this doesn't describe the worship centers you attend. Some churches are very small and may meet in a shopping center or storefront building. Some don't even have their own building but pay to hold services once or twice a week at a school, YMCA, funeral home, drive-in or other community center. Those with buildings may have a worship space only or may have classesrooms, fellowship halls, gymnasiums or more. Synagogues and mosques also come in assorted sizes with a variety of services offered.

What does this have to do with classifying risk?

All of these worship centers are classified under the same code: 41650 - Churches or Other Houses of Worship.

Although the classification contains three footnotes, they don't really seem to help distinguish the exposures.

First, all burial sites located in the same premises are included at no additional charge. So any church that has a cemetery would not be required to use a cemetery code. However, if the cemetery were located across the street, or the church moved and left the cemetery at the old location, a separate code and rate would be needed.

Second, all members are considered additional insureds and the form CG 20 22 must be attached to provide them the additional insured status. Watch the wording--it states church members--not church attendees or volunteers.

Third, only two items need to be separately rated: camps and private residences.

If clergy families occupy the private residences there is no charge, but if the residences are owned and occupied by others, a charge must be made.

All things considered, this doesn't seem quite fair, does it? The one-day-a-week, morning-worship-only church pays the same as the seven-day-a-week church with multiple activities and exposure to loss.

The Premium Audit Advisory Service seems to have the same concern. The approach recommended in the manual is to charge separately for activities that generate funds for the congregation such as day care, bake sales, carnivals, bazaars, craft shows, and sponsored meals.

How can this be justified when the footnotes don't say to make separate charges? Refer back to the General Liability Manual Rule 25 called Classifications. Section B. Assignment Of Classifications explains how to classify a risk. It states that more than one classification assignment may be necessary for risks with multiple business operations.

When a church has a nursery and day care in place to care for the children of parents participating in worship and educational opportunities, the nursery and day care are part of the church operations and no separate charge is necessary. However, when the day care is operating separate from adult-related activities and is generating an income, a separate operation is taking place, so a charge should be made.

No matter how large or how small, when money is raised through an activity, no matter how noble the cause, a separate business operation is taking place and separate charges should be considered.

Before classifying and rating the church, it is important to be aware of the activities that are a part of it. With recent passage of federal faith-based initiative legislation, more churches are becoming involved in community service activities which are considered separate from their church operations. While the activities may take place in the church and may be faith-based, there are limitations as to the proselytizing that can take place and, therefore, they must be separate from the normal church operations. These activities may then require separate classifications and premium especially when money is being generated for the operations. Therefore, a church that operates a free after-school program would be part of the church classification, while one that operates under the auspices of the government and receives government monies should be charged separately.

Schools that are operated by the church and are open to the general public would be charged separately, but schools that are conducted for members only and are operated as a part of the worshiping community would not.

Another new operation is counseling. While many pastors have provided limited counseling over the years, some churches are now becoming counseling centers that offer many services and charge set fees. Staff may specifically be hired for the counseling roles. The center may be free-standing or operated in conjunction with another counseling operation.

Is a church a business? No, but sometimes yes. While the primary function is the worship of God, when other operations develop to provide services for a fee, a business is created and premium must be charged for the added exposures. *

The author

Linda D. Ferguson, CPCU, has 30 years of underwriting experience with national commercial lines carriers. She now operates a consulting business, Pleasant Street Consulting Company, in Newtonsville, Ohio. She can be reached at ldfcpcu@hotmail.com