In a denomination (or a rose by any other name…conference, fellowship, or whatever word is used), the governing documents will determine the relationship between the denomination and the local church. Typically, in most states, the practice generally is that both the denomination and the local church are separate non-profit corporations. In some states, the local church may be an unincorporated association, which is also a type of legal entity. However, the governing documents of the denomination, and maybe, too, the local church regardless of its form, may make the local church a type of “trustee” holding its property for the benefit of the denomination. In such organizations, if the local church dissolves or departs from the denomination, the title to property reverts to the denomination. In other words, the denomination and the local church may be separate entities but not necessarily equal.
In Church Mutual Insurance Company v Guideone Specialty Mutual Insurance Company, Slip Op. (Cal. App. 2021), the local church ceased to exist and the property reverted to the denomination pursuant to the denominational governing documents. During the short interval while the property was, in effect, owned by both before the reverted title could be filed of record, the building was destroyed by fire. The denomination’s insurer paid the loss but sought contribution, subrogation or indemnification by the insurer of the local church. The trial denied the claim. The appellate court affirmed the trial court. The appellate court held that the denomination and the local church, as an unincorporated association, had an “agency relationship.” But, that did not automatically make the two entities the same entity for insurance purposes, even if the denominational governing documents were cast in terms of “unity” of both. In other words, too, the Church Mutual policy did not name the local church as an insured and the Guideone policy on the local church property did not name the denomination as an insured. Thus, the denomination was not covered by both policies (and neither was the local church covered by both policies).
Just as the best practice is for the title of property to reflect a denomination’s reversionary interest, so too is it the best practice for the denomination to be named as an additional insured on the property insurance policy purchased by the local church. Both practices are hard to install and police over time. Denominations should work with their insurers to offer a “package” that contains such endorsements to their local churches. Insurance purchases are typically an after thought both at the denominational and local church levels. Thus, at both levels economies of scale through combined bargaining power are lost and higher premiums are habitually paid.