Insurance – CGL – Damages – Attorneys’ Fee Claim — Church Split – Advertising Injury

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Episcopal Church in South Carolina v. Church Insurance Company of Vermont (Lawyers Weekly No. 002-008-14, 17 pp.) (Patrick Michael Duffy, J.) 2:13-cv-02475; D.S.C.

Holding: The defendant-insurer only has a duty to defend the plaintiff-church in underlying litigation if the underlying complaint seeks “damages which may be covered by the Commercial Liability Coverage” i.e., monetary compensation for a person who claims to have suffered an injury that is covered by the Commercial Liability Coverage. The insurer must defend the church in the underlying litigation because the complaint seeks attorneys’ fees and alleges that the underlying plaintiffs were injured by the church’s alleged use of their registered service marks in the course of advertising the church’s services.

Defendant The Church Insurance Company’s (CIC) motion to dismiss is granted. Defendant Church Insurance Company of Vermont’s (CIC-VT) motion to dismiss is denied. Plaintiff’s motion for summary judgment as to CIC-VT is granted in part and denied in part.

Facts

The Protestant Episcopal Church in the Diocese of South Carolina, along with multiple break-away churches (collectively, “the Diocese”) filed suit in state court against plaintiff The Episcopal Church in South Carolina (TEC-SC) and against The Protestant Episcopal Church in the United States of America. In the state court action (the underlying action), the Diocese seeks a declaratory judgment concerning the Diocese’s interest in real and personal property, injunctive relief concerning TEC-SC’s alleged infringement of the Diocese’s service marks, and injunctive relief concerning TEC-SC’s alleged improper use of the Diocese’s names, styles, and emblems. The Diocese also seeks attorneys’ fees in the underlying action.

In this action, TEC-SC seeks a declaratory judgment that defendants have a duty to defend it in the underlying action. TEC-SC also asserts claims of breach of contract and bad faith.

Motions to Dismiss

TEC-SC’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 TEC-SC in the underlying action. CIC’s motion to dismiss is granted.

Construing the commercial general liability policy’s definitions of “damages” and “injury”, the court finds that CIC-VT has a duty to defend TEC-SC in the underlying action only if the underlying complaint seeks monetary compensation for a person who claims to have suffered an injury that is covered by the policy’s Commercial Liability Coverage.

The Diocese’s complaint seeks attorneys’ fees. Attorneys’ fees are monetary compensation, and the Diocese claims that it suffered an injury due to TEC-SC’s alleged trademark infringement. Accordingly, the underlying action seeks “damages” as defined by the policy.

The policy provides that CIC-VT will “pay all sums which [TEC-SC] becomes legally obligated to pay as damages due to … advertising injury to which this insurance applies … [including] advertising injury arising out of an offense committed in the course of advertising your goods, products, or services.” The Diocese’s complaint alleges that it was injured by TEC-SC’s alleged use of the Diocese’s registered service marks in the course of advertising TEC-SC’s services. Accordingly, the underlying action alleges an advertising injury as defined by the policy.

CIC-VT contends that the state court can award attorneys’ fees to the Diocese only upon a finding that TEC-SC intentionally committed the wrongful acts. The court disagrees.

It is true that S.C. Code Ann. § 39-15-1170 permits the state court to award attorneys’ fees upon finding that the other party committed the wrongful acts with knowledge or in bad faith. However, the court may also award attorneys’ fees for an otherwise unspecified reason “according to the circumstances of the case.” Although this court has not located any case law interpreting the meaning of “otherwise according to the circumstances of the case,” the statute clearly contemplates an award of attorneys’ fees based on some reason other than that a party committed the wrongful act with knowledge or in bad faith. Accordingly, this court cannot say that the allegations in the underlying complaint clearly fall within one of the policy’s exclusions.

The court finds that CIC-VT has a duty to defend TEC-SC in the underlying action. CIC-VT’s motion to dismiss is denied.

Summary Judgment

Where the underlying action alleges an “advertising injury” as defined in the policy and seeks “damages” as defined in the policy, CIC-VT has a duty to defend TEC-SC in the underlying action.

Since CIC-VT issued an insurance policy to TEC-SC, CIC-VT refused to defend TEC-SC in the underlying action, and TEC-SC has been damaged by having to defend itself in the underlying action, TEC-SC is entitled to summary judgment on its breach of contract claim.

However, TEC-SC has not proffered sufficient evidence to establish that CIC-VT’s refusal to defend was an unreasonable action or made in bad faith. Accordingly, the court denies summary judgment as to TEC-SC’s claim for insurance bad faith.

Motions granted in part and denied in part.