To protect your church, you must anticipate — and mitigate — risk transfer related to third-party facilities use
By RaeAnn Slaybaugh
For many churches, offering the use of their facilities to outside groups is an excellent source of income. It’s also a great way to send a welcoming message to the surrounding community.
However, the same open-door atmosphere that makes a church a church can present real risks if the right policies, paperwork and protection aren’t in place.
When a church rents its facilities for special events or community gatherings, a lot of thought and planning goes into preventing property damage. This makes sense. If, for example, a third party exceeds capacity during its use of the facilities, it creates a lot of extra wear and tear on the buildings. And when a church must shut down to perform repairs on its buildings, it has obvious ministry (and financial) repercussions.
But there are plenty of risks outside of property damage that need to be considered. These include abuse incidents; professional liability risks; and the most prevalent risk: slips and falls.
It’s all familiar territory for Mike Nester, product manager at Philadelphia Insurance Companies (PHLY). Case in point: an hour before he talked with Church Executive for this article, Nester was notified of a slip-and-fall on a church property which happened during a class led by a third party on the church premises.
“There was no use agreement in place, just a handshake,” Nester points out. “So, the church’s policy is going to end up paying for it.”
These kinds of verbal-only agreements are a recurring problem with third-party church use. Issues even arise when a community group or neighboring business is simply “borrowing” a church parking lot.
“We’ve seen slips and falls in these lots where, even though the church is closed, it’s being brought into a claim,” Nester points out. “It’s just because there’s no written agreement that we can refer back to.”
Relying on a handshake agreement alone also extends to business use of a church’s property. Nester recalls a claim in which a third party rented part of a church to use as an office space. When its operations expanded — unbeknownst to church leaders — these uses were excluded from the third party’s insurance. In the end, it was the church’s policy that picked up the costs.
“All these risks are basically just part of a package insurance policy,” Nester explains. “And that’s why, as a church’s insurer, we want the other entity to have insurance in place, as well.”
Written agreements: key components
For Nester and his team at PHLY, having a “paper trail” — ideally an insurance policy on file for the third party, as well as a written agreement between the church and the third party — is extremely helpful when an incident occurs.
“With churches, there’s a lot of reliance on implied trust; we just want something in hand that we can reference, to help the church collect these great sources of rental income but also protect it from any risks associated with those activities, Nester says.”
To this end, PHLY offers a third-party use agreement template for its church policy holders.
“A lot of it is just stating, ‘We’re holding the church harmless of any liability,’” Nester explains. “We hope the third party will sign it, saying it has its own property and general liability insurance in place.”
Moreover, he says, the church should be added as an additional insured on the third party’s policy: “This way, there’s a link for risk transfer if a claim ever does come through.”
Reputational damage is a real risk
Getting a paper trail in place is just one component of a comprehensive third-party use policy. As Nester explains, church leaders must also get more curious about what’s happening on their campuses when these groups are present.
Why? Because having a written agreement and the third party’s insurance policy on file does little to protect against reputational damage resulting from improper use of a church’s facilities.
“Often, church leaders feel like it’s enough to gather the right contracts and documents and then just mind their own business,” Nester says. “But there’s too much risk in that hands-off approach. Think about it: the other entity doesn’t have its name plastered everywhere for the public to see; the church does.”
For this reason, he cautions against renting or lending church facilities to groups that refuse to sign a third-party use agreement and/or provide a copy of its own property and liability insurance. He also encourages churches to limit the use of their facilities to third parties whose values align with their own or are, at least, neutral.
A proactive, protective approach
None of this guidance is meant to imply a church should avoid use of its facilities by outside groups; such a mindset would be antithetical and unrealistic. Yet, as with any church management activity, adhering to risk management best practices is critical.
“I totally understand why churches would want to rent their facilities; I really do,” Nester acknowledges. “And there are ways to do it right; they just need to have proper communication in place with these other entities, and just be a little curious what’s going on with the third party.”
