The Episcopal Church in South Carolina sues Church Insurance for “bad faith” payments to breakaway parishes

by

A news release from The Episcopal Church in South Carolina (TECSC) details a complaint filed in federal court against The Church Insurance Roth Company of Vermont. The complaint alleges that “the company acted in bad faith by wrongfully making secret payments to churches that have sued TECSC, helping to fund their litigation against the diocese” during the years-long legal battles to determine ownership of the identity and property of parishes which split from the Episcopal Church in 2012 and set up a competing diocese in South Carolina.

TECSC reports:

The complaint, filed in the U.S. District Court in Charleston, seeks actual and punitive damages from The Church Insurance Roth Company of Vermont (CIC-VT), which is a captive insurance company of The Episcopal Church that has provided TECSC with insurance coverage since the early 2000s for diocesan and parish properties.

“Captive” insurance is a form of self-insurance in which a parent group or groups create an insurance company to provide coverage for itself.  In this case, The Episcopal Church is the parent company and CIC-VT has a fiduciary duty to The Episcopal Church and its affiliated dioceses and parishes that it insures.

“Such duties include fiduciary duties of loyalty and care to insure risks only for TEC and its affiliates, and to properly process insurance claims only for the benefit of TEC and its affiliates,” the complaint says.

The complaint involves a group led by Bishop Mark Lawrence that announced it was disaffiliating from The Episcopal Church in 2012, and filed a lawsuit seeking to take the identity and property of the diocese and its churches.

According to the complaint, TECSC recently discovered that CIC-VT paid insurance proceeds to at least one of the disaffiliated parishes, St. Philip’s Church in downtown Charleston. This discovery came through an annual report published online by St. Philip’s that said “After spending for TEC legal fees, Loan Amortization, and Capital Expenditures, St. Philip’s incurred a net cash deficit of $79,045. However, roughly half of the TEC Legal Fees were eligible for partial reimbursement from the Church Insurance Co. of Vermont, totaling some $111,749.”

The payments were wrongful because CIC-VT cannot legally insure parishes not affiliated with the Church, the complaint says. The complaint cites evidence that “similar wrongful conduct also occurred with respect to the Lawrence Diocese and/or additional Lawrence Parish Entities” with payments, insurance proceeds or settlements from CIC-VT which have not been publicly disclosed, but will be subject to the legal discovery process in court.

The Episcopal Church in South Carolina, as the recognized diocese of The Episcopal Church, has a trust interest in all diocesan and parish property including “all rights to insurance policies protecting such property and receivable insurance proceeds,” the complaint says.

In August 2017, the South Carolina Supreme Court ruled that diocesan property, along with the property of 29 parishes, including St. Philip’s, are held in trust for The Episcopal Church and TECSC.

“For the last seven years, the Lawrence Diocese and 29 of the Lawrence Parish Entities have unlawfully possessed and controlled and have been misusing, depleting, and diminishing the diocesan and parish property held in trust for TECSC and TEC. They still do today,” the complaint says. “They refuse to accept and obey the final decision of the South Carolina Supreme Court. They are currently opposing its enforcement in the state circuit court, on remittitur. They are also opposing an action pending in this Court seeking an injunction against their ongoing trademark infringement, vonRosenberg v. Lawrence.”

The complaint says CIC-VT hashas enabled and aided and abetted at least one Lawrence Parish Entity in breaching such fiduciary duties, participating by wrongfully paying and misdirecting insurance proceeds to it for the known purpose of funding their litigation efforts against TECSC and TEC.”

Dislike (1)
Facebooktwitterpinterestlinkedinmail
newest oldest
Notify of
Tim Kruse
Guest
Tim Kruse

I wonder if there is a process in which the CIC-VT is informed that one of its policy holders is no longer affiliated with TEC? If not, and St. Philip's continued to mail in their premiums, I'm left with Hanlon's Razor to explain what happened. The discovery phase will be enlightening.

Like (0)
Dislike (0)
Christopher SEITZ
Guest
Christopher SEITZ

I join you in your basic question. That said, why would CIC-VT not know quite clearly about St Philips? This is information fully in the public. I believe TECSC sued them earlier re their own legal costs.

Like (0)
Dislike (0)
Kenneth Knapp
Guest
Kenneth Knapp

I wish the progessives and the conservatives could find it in their hearts to be kinder to each other.

Like (3)
Dislike (0)
Christopher SEITZ
Guest
Christopher SEITZ

Here is a very simple question. One assumes that the Church Insurance Company is subject to the usual audits. What, therefore, does the word "secret" mean, as in "wrongfully making secret payments to churches"? Said Insurance company, an Episcopal operation, makes secret payments? Secret from whom? And why would they make "secret" payments we are being told they do not need to make and should not have made? What would be their motivation -- making secret payments to anyone?

Like (1)
Dislike (0)
Christopher SEITZ
Guest
Christopher SEITZ

"As if the divisions in South Carolina were not complicated enough, they have now led to a federal lawsuit pitting one entity affiliated with the Episcopal Church against another.

On June 11, the Episcopal Church in South Carolina (TECSC) filed suit against its own insurance company, Church Insurance Company of Vermont (CIC-VT), alleging “extraordinarily egregious bad faith” for secretly directing insurance proceeds to a breakaway parish." -- The Living Church

I wonder if the legal team in SC working for TECSC is now operating without coordination with 815. There is probably a back story here.

Like (0)
Dislike (0)
Steve Price
Guest
Steve Price

Did the leadership of St.Phillip's commit fraud in the filing of this claim?

Like (5)
Dislike (0)
Christopher SEITZ
Guest
Christopher SEITZ

One might wonder if this is going too far, even for the legal team of ECSC. Because St Philips is a big operation and it hasn't been yet brought to heel, one will sue the Church Insurance Corporation of Vermont for a policy St Philips holds with them.

Like (7)
Dislike (8)
John Wirenius
Guest
John Wirenius

Or, more accurately, CIC-VT appears to have violated its fiduciary duties to TEC by subsidizing litigation against it by an entity no longer entitled to coverage, and St. Philips is increasing the damages to all parties by defying a final order of the SC Supreme Court which the U.S. Supreme Court has declined to review, and which is therefore binding and preclusive on it.

Because, absent facts exculpating CIC-Vt not included in this account, that’s how it looks to this lawyer.

Like (13)
Dislike (0)
Christopher SEITZ
Guest
Christopher SEITZ

Whenever anyone says "Or, more accurately," and then follows it with "appears to have" you can be reasonably sure they are flanneling. Let's see what gets decided. The suit isn't naming St Philips but the CIC-VT.

Like (7)
Dislike (8)
John Wirenius
Guest
John Wirenius

I am disputing the accuracy of your claims that (1) the suit against CIC-VT is brought because St Philips “hasn’t been yet brought to heel,” which portrays St.Philips as a victim when it is in fact dragging out court proceedings to cling to assets that the SC Supreme Court has authoritatively ruled are not its property; and (2) that CIC-VT’s subsidization of it, absent the existence of facts not yet made public, pleads facts that support a claim of breach of its fiduciary duty owed to TEC. What you deem “flanneling” is holding open the possibility that litigation may yield new facts that mitigate or explain CIC-VT’s actions.

Like (5)
Dislike (0)
John Wirenius
Guest
John Wirenius

Whoops! Only no. 1 is a claim you make; number 2 is my own assertion. Sorry to write my comment in a way that attributes to you views you obviously don’t hold.

Like (1)
Dislike (0)
Christopher SEITZ
Guest
Christopher SEITZ

My note appears to be lost.

On your #1. TECSC is not suing St Philips. It is suing its own insurance carrier. If St Philip’s has a policy with Church Insurance, it would be up to the latter to determine whether to pay or not. I have never seen gratuitously generous insurance policy pay-outs. What is meant by “secret” payments anyway? See my prior notes above.

On #2, apology accepted.

Like (1)
Dislike (0)
John Wirenius
Guest
John Wirenius

On #2, much appreciated.
On #1, the breach of fiduciary duty claim would be based on the notion that a TEC created company with a duty of loyalty can’t insure a non-TEC church and indemnify it for legal fees paid in litigation against TEC. That theory sounds plausible.

The “secret payments” locution is one I didn’t focus on, and it’s a bit opaque. I think—but I’m not sure—that the complaint is alleging that not informing TEC that it was so indemnifying St. Philips for legal fees incurred in an action against TEC constituted an additional breach of fiduciary duty—failure to disclose actions adverse to its principal.

Like (2)
Dislike (0)
Christopher SEITZ
Guest
Christopher SEITZ

Yes, I can see why focusing on the idea of secret payments would be difficult. I don't think it is opaque in the least. It is very direct. It just doesn't make any sense. Even on your account above, a) St Philips surely isn't to blame, pace your previous comments, and b) it does not explain why the Church Insurance Company would wish to do something secret at all. Why would it want to hide something from TEC? It would make more financial sense just not to pay anything. The entire thing sounds like a false trail for TECSC legal team, and bad PR.

Like (0)
Dislike (0)
Christopher SEITZ
Guest
Christopher SEITZ

I get moderated, unlike you, so it takes a while for my comments to appear. See my questions about "secret" payments above.

As for #1. Is the idea that St Philips does not have a policy with said Insurance company? If it does, and the Insurance company deems its costs are covered, why is the church somehow guilty of something, as you charge? TECSC isn't suing St Philips. It is suing its own insurance coverer.

Apology accepted, otherwise.

Like (0)
Dislike (0)