Church Governance and Board Liability: Protecting Your Church’s Leadership
How Governance Structure, Fiduciary Duties, and Insurance Work Together to Protect the People Leading Your Church
Your Church Board Faces Real Legal Liability
Most church board members serve because they care about their congregation. They are not professional directors, corporate officers, or legal experts. But the law treats them with many of the same fiduciary responsibilities as directors of any nonprofit organization.
When a church board makes a decision about finances, employment, property, or programs, that decision carries legal weight. If something goes wrong, board members can be held personally liable for allegations of mismanagement, negligence, or breach of fiduciary duty. This is true even when the board member acted in good faith.
Church governance is not just an internal organizational matter. It is a risk management issue that directly affects what insurance coverage a church needs and how claims are handled when they arise.
What Is Church Governance Risk?
Church governance risk refers to the legal, financial, and operational exposures that arise from how a church is organized, how decisions are made, and how leadership is held accountable. It includes:
Board Structure and Bylaws
A church’s bylaws define how the board operates, how decisions are made, how leaders are selected and removed, and how conflicts are resolved. When bylaws are outdated, unclear, or inconsistently followed, the church is exposed to claims alleging that leadership acted outside its authority or failed to follow its own governing documents.
Are your bylaws current and do they reflect how the church actually operates?
Do they define clear authority for financial decisions, hiring, and property transactions?
Is there a defined process for removing a board member or resolving disputes?
Do they address conflicts of interest?
Fiduciary Duties
Church board members have fiduciary duties to the congregation, similar to directors of any nonprofit. The three primary duties are:
Duty of Care: Board members must make informed decisions. This means attending meetings, reviewing financial reports, asking questions, and staying engaged. A board member who rubber-stamps decisions without review can be held liable.
Duty of Loyalty: Board members must put the church’s interests above their own. This includes avoiding conflicts of interest, disclosing financial relationships, and not using church resources for personal benefit.
Duty of Obedience: Board members must ensure the church operates within its stated mission and in compliance with applicable laws. This includes proper tax reporting, employment law compliance, and adherence to the church’s own bylaws.
Financial Oversight
Churches handle significant amounts of money through tithes, offerings, capital campaigns, and grants. Board members are responsible for ensuring that funds are managed properly, budgets are followed, and financial reporting is transparent. Common financial governance failures that lead to claims include:
Lack of financial controls or audit procedures
Unauthorized spending by staff or leadership
Embezzlement or fraud that goes undetected due to weak oversight
Failure to file required tax documents (Form 990, payroll taxes)
Commingling of restricted and unrestricted funds
Employment Decisions
Churches that hire and fire staff are subject to employment law, with some exceptions under the ministerial exception doctrine. Board members who participate in hiring, termination, compensation, or HR policy decisions can face claims related to wrongful termination, discrimination, harassment, or retaliation. Employment-related claims are among the most common and expensive sources of church litigation.
Pastoral Authority and Accountability
In many churches, the senior pastor holds significant authority over operations, finances, and personnel. When that authority is not balanced by board oversight, the church faces elevated risk. Governance structures should define the boundaries of pastoral authority and create accountability mechanisms that protect both the pastor and the congregation.
How Governance Affects Your Church Insurance
Insurance and governance are directly connected. The quality of your church’s governance directly affects what coverage you need, what claims you’re likely to face, and whether your insurance will respond when you need it.
Directors & Officers (D&O) Insurance
D&O insurance is the primary coverage that protects church board members and leadership from claims related to their governance decisions. It covers legal defense costs and settlements arising from allegations of:
Mismanagement of church funds
Breach of fiduciary duty
Wrongful termination or employment disputes
Failure to maintain adequate insurance
Decisions that result in financial harm to the church or third parties
Without D&O coverage, board members may be personally liable for legal costs and damages. Many church leaders are not aware of this exposure until a claim is filed.
Employment Practices Liability Insurance (EPLI)
EPLI covers claims related to employment decisions: wrongful termination, discrimination, harassment, retaliation, and failure to promote. For churches with staff, this coverage is essential. Employment claims are among the most frequent and costly claims churches face, and they often involve board members who participated in the employment decision.
Fidelity / Crime Coverage
Fidelity coverage (also called crime coverage or employee dishonesty coverage) protects the church from financial losses caused by theft or embezzlement by employees or volunteers. Churches that handle significant cash, manage large budgets, or run capital campaigns should review this coverage carefully. Strong financial governance practices (dual signatures, regular audits, segregation of duties) reduce risk and may lower premiums.
The Connection: Better Governance = Better Insurance Outcomes
Churches with strong governance practices are less likely to face claims, more likely to have coverage that responds properly, and better positioned to negotiate competitive premiums. Insurers look at governance as a risk factor. A church with clear bylaws, active board oversight, written financial policies, and documented employment procedures presents a lower risk profile than a church without these structures in place.
Governance Practices Every Church Board Should Have
Regardless of church size, these governance practices reduce risk, improve insurance outcomes, and protect board members from personal liability:
Written, current bylaws that reflect how the church actually operates today
Regular board meetings with documented minutes and attendance records
Annual financial review or audit conducted by someone independent of day-to-day financial operations
Conflict of interest policy with annual disclosure statements from all board members
Written employment policies covering hiring, termination, compensation, harassment, and grievance procedures
Defined pastoral authority limits specifying what decisions require board approval
Background check and screening policies for all staff and volunteers working with minors or vulnerable adults
Annual insurance review to ensure coverage matches current operations and governance structure
Frequently Asked Questions About Church Governance and Board Liability
Can church board members be sued personally?
Yes. Church board members can be named personally in lawsuits alleging mismanagement, breach of fiduciary duty, employment violations, or negligent oversight. While state nonprofit statutes provide some protections, they do not eliminate personal liability in all cases. D&O insurance provides a financial safety net for board members facing these claims.
What is Directors & Officers (D&O) insurance and does our church need it?
D&O insurance protects church leaders and board members from claims related to their decisions and oversight of the church. It covers legal defense costs, settlements, and judgments. Any church with a governing board, employees, or significant financial operations should carry D&O coverage. It is one of the most commonly overlooked coverages in church insurance programs.
How do outdated bylaws create insurance risk?
When bylaws don’t match how the church actually operates, it creates a gap between what leadership is authorized to do and what they are actually doing. If a claim arises and the insurer finds that leadership acted outside the authority granted by the bylaws, coverage may be disputed. Current bylaws that reflect actual operations protect both the church and its insurance position.
What is the difference between D&O insurance and general liability insurance?
General liability covers bodily injury and property damage claims arising from church operations (slip-and-fall, event injuries, etc.). D&O covers claims against leadership for their decisions and management of the church (financial mismanagement, employment decisions, governance failures). They protect against completely different types of claims, and a church needs both.
Does the ministerial exception protect our church from all employment claims?
The ministerial exception prevents courts from interfering with a church’s selection of its ministers, but its scope is narrower than many churches assume. It does not protect against all employment claims, and it does not apply to non-ministerial staff. Churches should not rely on the ministerial exception as a substitute for proper employment practices and EPLI coverage.
How often should a church review its governance structure?
At minimum, church governance documents (bylaws, policies, financial procedures) should be reviewed annually and whenever there are major changes such as leadership transitions, staff growth, new programs, building projects, or multi-campus expansion. An annual governance review alongside an annual insurance review ensures both are aligned.
What governance practices do insurers look at when underwriting church coverage?
Insurers evaluate board structure, financial oversight procedures, employment practices, child safety policies, background check protocols, and the existence of written policies and procedures. Churches with documented governance practices generally qualify for better coverage terms and more competitive premiums.
Request a Church Insurance Review
If you’re unsure whether your current policy truly protects your church, we can help. Hale Street Insurance specializes in insurance for churches and faith-based organizations. We’ll review your current coverage, identify gaps, and help you secure protection designed for ministry operations.
Call us at 978.712.0111 or email jake@halestreetinsurance.com to get started.