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Episcopal Church in South Carolina v. Church Insurance Company of Vermont

United States District Court, D. South Carolina, Charleston Division

January 9, 2020

The Episcopal Church in South Carolina, Plaintiff,
v.
The Church Insurance Company of Vermont, Defendant.

          ORDER AND OPINION

          Richard Mark Gergel United States District Court Judge.

         This matter is before the Court on requested briefing regarding The Episcopal Church in South Carolina's ("TECSC") standing to bring claims for breach of contract, bad faith, breach of fiduciary duty, and aiding and abetting a breach of fiduciary duty against The Church Insurance Company of Vermont's ("CIC-VT") for providing a defense to various Disassociated Parishes in their litigation with TECSC. (Dkt. No. 54.) For the reasons set forth below, the Court finds that TECSC lacks standing to bring this case and dismisses this action.

         I. Background

         This case arises out of a schism in 2012 in the Historic Diocese, originally known as the "Protestant Episcopal Church in the State of South Carolina," in which certain members and parishes sought to dissociate from The Episcopal Church ("TEC"), a nationwide hierarchical church. As alleged, CIC-VT is a captive insurance company for TEC. (Dkt. No. 1 at ¶¶ 7 - 11.) The insurance company was created to provide insurance to TEC and its "provinces, dioceses, parishes, missions, agencies, institutions and other entities connected with the Church[.]" (Id. at ¶ 12.) Pursuant to its mission, CIC-VT issued a Master Policy to The Episcopal Church in South Carolina ("TECSC"), the associated diocese of TEC in South Carolina. (Id. at ¶¶ 13 - 20.) Multiple parishes within TECSC were included in the Master Policy as participants and provided a certificate number. (Id. at ¶ 16.)

         In 2012, a group, now calling themselves the Anglican Diocese of South Carolina, (the "Disassociated Diocese") purported to disassociate from TEC and multiple parishes within TECSC similarly purported to disassociate from TEC and joined the new Disassociated Diocese ("Disassociated Parishes.") Notably, multiple Disassociated Parishes were included as participants in the Master Policy issued by CIC-VT. As represented by TECSC, the premiums under the Master Policy were paid for, at least in part, by parishes. (Dkt. No. 55 at 19.) Furthermore, as alleged, the operative policies issued in 2012 were issued prior to the disassociation. (Id. at 2 n. 1; 58 at 5.)

         In 2013, the Disassociated Diocese and Disassociated Parishes sued TECSC and TEC in state court, focusing largely on state property claims. (Dkt. No. 1 at ¶ 28.) TEC and TECSC filed counterclaims and, ultimately, on August 2, 2017, the South Carolina Supreme Court held that TEC owned most of the property in dispute and found that twenty-eight of the Disassociated Parishes held real and personal property in trust for TEC. Protestant Episcopal Church in the Diocese of S.C. v. Episcopal Church, 421 S.C. 211, 265, 806 S.E.2d 82, 111 (2017), reh'g denied (Nov. 17, 2017), cert, denied sub nom. Protestant Episcopal Church in the Diocese of S.C. v. The Episcopal Church, 138 S.Ct. 2623 (2018). That case has since been remitted to the Dorchester County Circuit Court.

         Also in 2013 TECSC filed a complaint against the Disassociated Diocese in this Court, alleging that the Disassociated Diocese and Disassociated Parishes were infringing and diluting TEC and TECSC's trademarks and engaging in false advertising. See No. 2:13-cv-587- RMG. This Court has since entered judgment in favor of TEC and TECSC in that case, and the case is currently on appeal. See No. 2:13-cv-587-RMG, Dkt. Nos. 667, 671, 673.

         Throughout these litigations, CIC-VT has provided a defense to the Third-Party Disassociated Parishes insured by CIC-VT. Initially, CIC-VT denied coverage to some of the Disassociated Parishes as they were not "affiliates" of TEC, and some Disassociated Parishes sued CIC-VT in this District, seeking, in part, a declaratory judgment that CIC-VT had a duty to defend the Disassociated Parishes against the counterclaims in the state court action. (Id. at ¶ 44 - 44.) See No. 2:15-cv-2590-PMD, Dkt. No. 1 at ¶¶ 28 - 29.[1] However, the case was ultimately resolved in later 2015 by a joint stipulation of dismissal with prejudice. (Dkt. No. 1 at ¶ 43) See No. 2:15-cv-2590-PMD, Dkt. No. 30.

         On June 11, 2019, TECSC brought claims against CIC-VT for breach of contract, bad faith, breach of fiduciary duty and aiding and abetting a breach of fiduciary duty. (Dkt. No. 1.) The Complaint alleges, generally, that CIC-VT breached its contractual duties and engaged in bad faith and a breach of fiduciary duty by funding the litigation efforts of the Third-Party Parishes against TEC and TECSC, the intended beneficiary under the Master Policy. (Id.) The Complaint focuses on the allegation that, under South Carolina law and CIC-VT's corporate charter, a captive insurance company may not insure any risks other than those of its parent and affiliated companies, and that TECSC was the primary and intended beneficiary under the Master Policy. (Id. at ¶¶ 10, 16.) TECSC alleges that by funding the litigation efforts of no longer affiliated parishes, CIC-VT is liable to TECSC for the foreseeable damages from the litigation, such as lost insurance proceeds, lost value of TECSC property, and the increased costs of legal proceedings over six years. (Id. at ¶¶ 52, 58, 64, 71.)

         In responding to the Court's request for briefing of standing, TECSC asserts, generally, that it has standing to assert claims for breach of contract and bad faith as state laws regarding captive insurance companies are both explicitly and implicitly incorporated into the Policies at issue, that it has standing to allege aiding and abetting a breach of fiduciary duty as CIC-VT's funding of litigation participates in the Disassociated Diocese and Parishes' misuse of trust funds, and that it has standing to allege a breach of fiduciary duty as CIC-VT owed TECSC a fiduciary duty as a captive insurer. (Dkt. No. 55.) CIC-VT, in opposition, states that neither the Policies nor applicable law require it to abstain from providing a defense to a separate insured, and further denies that it owes any fiduciary duty to TECSC or that it aided and abetted a breach of a fiduciary duty. (Dkt. No. 58.)

         II. Legal Standard

         Dismissal for lack of standing is a legal question for the Court to decide under Fed.R.Civ.P. 12(b)(1).[2] See White Tail Park, Inc. v. Stroube, 413 F.3d 451, 459 (4th Cir 2005). There are two components to standing: Article III standing under the constitution and prudential standing which is a judicially created limit on jurisdiction. Doe v. Va. Dep 't of State Police, 713 F.3d 745, 753 (4th Cir. 2013). The party invoking federal jurisdiction, here TECSC, has the burden to demonstrate standing. See Spokeo, Inc. v. Robins, 136 S.Ct. 1540, 1547 (2016), as revised (May 24, 2016) ("The plaintiff, as the party invoking federal jurisdiction, bears the burden of establishing these elements."). To demonstrate Article III standing, a plaintiff must show that: "(1)...he or she suffered an actual or threatened injury that is not conjectural or hypothetical, (2) the injury must be fairly traceable to the challenged conduct; and (3) a favorable decision must be likely to redress the injury." Miller v. Brown, 462 F.3d 312, 316 (4th Cir. 2006) citing Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 - 61 (1992). Prudential standing, which is less clearly defined, includes "the general prohibition on a litigant's raising another person's legal rights, the rule barring adjudication of generalized grievances more appropriately addressed in the representative branches, and the requirement that a plaintiffs complaint fall within the zone of interests protected by the law invoked.'" Va. Dep Y of State Police, 713 F.3d at 753.

         III. Discussion

         For each cause of action TECSC fails to show that there is any injury or that an injury is traceable to the challenged conduct and further TECSCs claims solely attempt to raise another entity's ...


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