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S.C. diocese wins lawsuit against Church Insurance Co. of Vermont

S.C. diocese wins lawsuit against Church Insurance Co. of Vermont

Here’s one that has us scratching our heads a bit today at the Episcopal Cafe. A federal judge has ruled in favor of The Episcopal Church in South Carolina, ordering that its insurance company must pay for the diocese’s defense in the lawsuit brought against it by the group that broke away from the church.


We find it odd that the diocese had to sue Church Insurance Company of Vermont, an affiliate of Church Pension Group, to get the insurance company to cover these expenses, and we are wondering if any of our readers can shed light on this apparent conflict. The Episcopal Diocese in South Carolina has issued this press release:

A federal judge ruled in favor of The Episcopal Church in South Carolina on Monday, ordering that an insurance company must provide a legal defense for the local Episcopal Church diocese in the lawsuit brought against it by a breakaway group.

U.S. District Judge Patrick Michael Duffy ruled that TECSC’s commercial liability coverage in the policy issued to it by Church Insurance Co. of Vermont provides the local Episcopal diocese with coverage for “advertising injuries.”

A trademark dispute is one of the issues in the lawsuit initiated in January 2013 by former church leaders who have left The Episcopal Church but continue to claim the right to the name and service marks of the “Protestant Episcopal Church in the Diocese of South Carolina.” Because of a temporary order in that lawsuit, the recognized Episcopal diocese in this region is currently using the working name “The Episcopal Church in South Carolina.”

The ruling means that TECSC has insurance coverage for its legal defense, including costs incurred so far, in the case that is currently pending before Judge Diane S. Goodstein in Circuit Court in Dorchester County. The policy also provides coverage of up to $1 million should any damages be awarded to the plaintiffs in the breakaway group.

TECSC contacted the Church Insurance Co. of Vermont in writing last August, and was denied coverage. In September, TECSC filed the action in U.S. District Court to clarify what the policy should cover, according to Thomas S. Tisdale, Jr., Chancellor of The Episcopal Church in South Carolina.

The insurance company had argued that the breakaway group’s lawsuit does not seek to recover “damages” However, Judge Duffy ruled in favor of TECSC’s position that damages are involved because the suit asks for attorney fees, and because it seeks relief under South Carolina statutes that provide for monetary damages and attorney fees for trademark infringement.

Judge Duffy granted TECSC’s request for summary judgment on its breach of contract claim, but denied its claim for insurance “bad faith”, concluding there was not sufficient evidence to establish that the insurance company’s refusal to defend was unreasonable or a result of bad faith.

“We are delighted with this ruling and grateful that our insurance policy will be providing us with the necessary resources to continue to defend our diocese from this suit that was brought against it,” said Holly Behre, Director of Communications for TECSC.

Read the ruling here.

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J. W. McRee

It just seems to me that there is no sense in suing oneself as TEC-SC is, in essence, doing by suing CIC-VT. There is still the possibility that the insurance company may appeal.

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Jim Naughton

I can, in no way, enlarge people's understanding of the legal issues involved in the case. But how do we get to point where one of the most beleaguered communities in the church has to involve itself in a court fight an insurance agency affiliated with a church chartered institution over paying for a law suit that everyone knew was coming?

The leaders involved in this action are capable of being in regular contact with one another--yet we still somehow managed to air this disagreement in public.

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Eric Funston

John Chilton has pretty much answered the question. As a former insurance defense counsel, my initial reaction to the report was, "Where is the covered event?" I'd have to read the full order (and would like to see the briefing and read the underlying policy). Note that the suit in which this decision was made was brought BY the insurance company. It is what is known as a "declaratory relief action" seeking the court's guidance as to whether coverage should be extended; this is not an untypical sort of action when there is a disagreement between an insurer and its insured. I would have done the same thing if I'd been CIC's attorney.

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John B. Chilton

Not to answer the question, but to expand upon it (the "Underlying Action" referenced below is the trademark issue in state court):

(1) Following the link to CPG above you find "The Church Insurance Companies consists of The Church Insurance Company, The Church Insurance Company of New York, The Church Insurance Company of Vermont, and The Church Insurance Agency Corporation. We provide churches, dioceses, and institutions with multiple coverages for protecting their people and property. We also provide risk management tools and strategies."

(2) In the judge's order you read, "CIC asserts that it did not issue the Policy and thus cannot be liable for breach of contract or insurance bad faith, nor can Plaintiff prevail on the declaratory action against CIC. ... The Complaint’s lone allegation that CIC is an agent of CIC-VT is insufficient to allow the Court to draw the inference that CIC issued the Policy or had any contractual duty to defend Plaintiff in the Underlying Action."

and, finally,

(3) Also from the order, "CIC-VT makes an alternative argument that coverage is barred by the Episcopal Entities/Doctrinal Disputes Exclusion Endorsement, which excludes from coverage any doctrinal dispute between Episcopal entities as to the ownership, management, or control of any property by one entity against another. However, this exclusion does not apply to the Policy’s Commercial Liability Coverage. Instead, it applies to the Directors and Officers Liability and Entity Liability Coverage and to the Commercial Umbrella/Excess Liability Coverage. It is undisputed that Plaintiff is seeking coverage under the Commercial Liability Coverage and not under these alternate coverages. Thus, these exclusions do not bar coverage for the Underlying Action."

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