Episcopal Church in South Carolina, The v. Church Insurance Company of Vermont et al
ORDER granting 11 Motion to Dismiss for Failure to State a Claim; denying 12 Motion to Dismiss for Failure to State a Claim; granting in part and denying in part 14 Motion for Summary Judgment Signed by Honorable Patrick Michael Duffy on January 6, 2014.(kspa, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF SOUTH CAROLINA
The Episcopal Church in South Carolina,
Church Insurance Company of Vermont
and The Church Insurance Company,
Case No.: 2:13-cv-02475-PMD
This matter is before the Court upon motions to dismiss filed by Defendant Church
Insurance Company of Vermont (“CIC-VT”) and Defendant The Church Insurance Company
(“CIC”), and upon Plaintiff The Episcopal Church in South Carolina’s (“Plaintiff” or “TEC-SC”)
Motion for Summary Judgment. For the reasons that follow, the Court grants CIC’s Motion to
Dismiss, denies CIC-VT’s Motion to Dismiss, and grants in part and denies in part Plaintiff’s
Motion for Summary Judgment.
This case arises out of a state court action pending in the Court of Common Pleas for the
First Judicial Circuit in Dorchester County, South Carolina, Case No. 2013-CP-18-00013
(“Underlying Action”). The Underlying Action was filed by The Protestant Episcopal Church in
the Diocese of South Carolina along with multiple break-away churches (collectively, “the
Diocese”) against The Episcopal Church a/k/a The Protestant Episcopal Church in the United
States of America (“TEC”) and Plaintiff TEC-SC.1
The Underlying Action arises from a purported doctrinal dispute between the Diocese,
TEC, and Plaintiff TEC-SC.
Although the Diocese disassociated from TEC, the Diocese
continued to use the same intellectual, real, and personal property it had used prior to the split.
Plaintiff and TEC also continued to use the same intellectual property, namely trade names,
trademarks, services, and emblems. Accordingly, in order to clarify the ownership of the real,
personal, and intellectual property, the Diocese filed the Underlying Action seeking a declaration
from the state court that the Diocese’s existence and its continued use of the disputed property
were proper. The Diocese also sought an order enjoining Plaintiff and TEC from their continued
use of the same property. The second amended complaint filed by the Diocese in the Underlying
Action contains 505 numbered paragraphs and 101 pages and states three causes of action:
(1) declaratory judgment concerning the Diocese’s interest in real and personal property;
(2) injunctive relief concerning the alleged infringement of the Diocese’s service marks; and
(3) injunctive relief concerning the alleged improper use of the Diocese’s names, styles, and
Effective as of January 1, 2013, TEC-SC has been insured by Policy No. VPP0012879
(“Policy”), which was issued by CIC-VT. In addition to other types of coverage, the Policy
provides Commercial Liability Coverage, which specifically provides coverage for “Advertising
Injury Liability” under Coverage P:
We pay all sums which an insured becomes legally obligated to pay as damages
due to personal injury or advertising injury to which this insurance applies.
Plaintiff TEC-SC is recognized by The Episcopal Church in the United States as the Protestant Episcopal Diocese
of South Carolina. However, Plaintiff is doing business under the name TEC-SC for the purpose of complying with
a temporary injunction ordered by the state court.
1. We cover: . . . advertising injury arising out of an offense committed in the
course of advertising your goods, products, or services. 2. The personal injury
or advertising injury offense must be committed: a. within the coverage
territory; and b. during the policy period.2
Commercial Liability Coverage 5, ECF 1-1 at 75 of 120. The Policy defines “advertising
injury” to mean, in pertinent part: “injury (other than bodily injury, property damage, or
personal injury) arising out of one or more of the following offenses: . . . b. misappropriation of
advertising ideas or style of doing business” or “c. infringement of copyright, title, slogan,
trademark, or trade name.” Id. at 2. The Policy defines “damages” as “compensation in the
form of money for a person who claims to have suffered an injury.” Id. The Policy further
provides that CIC-VT has “the right and duty to defend a suit seeking damages which may be
covered under the Commercial Liability Coverage.” Id. at 7.
After the Underlying Action was commenced against TEC-SC, TEC-SC requested that
CIC-VT defend and indemnify it in the Underlying Action. However, CIC-VT denied coverage
on numerous grounds, including that the claims in the Underlying Action were not covered by
TEC-SC then filed the instant action against CIC-VT and CIC.
Complaint alleges three causes of action against the Defendants: (1) breach of contract;
(2) insurance bad faith; and (3) declaratory judgment that Defendants have a duty to defend and
indemnify TEC-SC in the Underlying Action.
CIC and CIC-VT filed separate motions to dismiss all claims. TEC-SC responded by
filing a motion for summary judgment as to all claims. The parties agree that there are no factual
disputes in this case and that the only disputed issues are questions of law to be determined by
this Court. The motions have been fully briefed and are ripe for judgment.
The words in bold are terms specifically defined in the Policy.
This Court has subject matter jurisdiction over this matter based on 28 U.S.C. § 1332, as
there is complete diversity of the parties and the amount in controversy exceeds $75,000.
Plaintiff TEC-SC is an unincorporated association that maintains its principal place of business
in Charleston, South Carolina. Defendant CIC-VT is a Vermont corporation with its principal
place of business in Bennington, Vermont. Defendant CIC is a New York corporation with its
principal place of business in New York, New York. Furthermore, this action concerns an
insurance contract that provides a coverage limit of $1,000,000 for defense against, and payment
of, claims for trademark infringement. Finally, Plaintiff asserts that it has spent over $75,000 to
defend itself in the Underlying Action. Accordingly, the Court concludes that it has diversity
jurisdiction over this matter.
General Principles of South Carolina Contract Law
Because this action falls under the diversity jurisdiction granted to the federal courts by
28 U.S.C. § 1332, the Court looks to the law of South Carolina to determine the standards by
which to evaluate the contract. See Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938). Under South
Carolina law, insurance policies are subject to the general rules of contract construction. B.L.G.
Enters., Inc. v. First Fin. Ins. Co., 514 S.E.2d 327, 330 (S.C. 1999). “When a contract is
unambiguous, clear, and explicit, it must be construed according to the terms the parties have
used.” Id. The court must enforce, not write, contracts of insurance and must give policy
language its plain, ordinary, and popular meaning. Id. “[I]n construing an insurance contract, all
of its provisions should be considered, and one may not, by pointing out a single sentence or
clause, create an ambiguity.” Yarborough v. Phoenix Mut. Life Ins. Co., 225 S.E.2d 344, 348
(S.C. 1976). “A contract is ambiguous when it is capable of more than one meaning when
viewed objectively by a reasonably intelligent person who has examined the context of the entire
integrated agreement and who is cognizant of the customs, practices, usages and terminology as
generally understood in the particular trade or business.” Hawkins v. Greenwood Dev. Corp.,
493 S.E.2d 875, 878 (S.C. Ct. App. 1997). “Where language used in an insurance contract is
ambiguous, or where it is capable of two reasonable interpretations, that construction which is
most favorable to the insured will be adopted.” Poston v. Nat’l Fid. Life Ins. Co., 399 S.E.2d
770, 772 (S.C. 1990).
An insurer’s obligation under a policy of insurance is defined by the terms of the policy
itself and cannot be enlarged by judicial construction. S.C. Ins. Co. v. White, 390 S.E.2d 471,
474 (S.C. Ct. App. 1990). A policy clause extending coverage must be liberally construed in
favor of coverage, while insurance policy exclusions are construed most strongly against the
insurance company, which also bears the burden of establishing the exclusion’s applicability.
M&M Corp. of S.C. v. Auto-Owners Ins. Co., 701 S.E.2d 33, 35 (S.C. 2010); Owners Ins. Co. v.
Clayton, 614 S.E.2d 611, 614 (S.C. 2005). “However, if the intention of the parties is clear,
courts have no authority to torture the meaning of policy language to extend coverage that was
never intended by the parties.” S.C. Farm Bureau Mut. Ins. Co. v. Wilson, 544 S.E.2d 848, 850
(S.C. Ct. App. 2001).
Defendants’ Motions to Dismiss
A motion to dismiss pursuant to Rule 12(b)(6) for failure to state a claim upon which
relief can be granted “challenges the legal sufficiency of a complaint.” Francis v. Giacomelli,
588 F.3d 186, 192 (4th Cir. 2009) (citations omitted); see also Republican Party of N.C. v.
Martin, 980 F.2d 943, 952 (4th Cir. 1992) (“A motion to dismiss under Rule 12(b)(6) . . . does
not resolve contests surrounding the facts, the merits of a claim, or the applicability of
defenses.”). To be legally sufficient a pleading must contain a “short and plain statement of the
claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2).
“To survive a motion to dismiss, a complaint must contain sufficient factual matter,
accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A
claim has facial plausibility when the plaintiff pleads factual content that allows the court to
draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id.
Moreover, “[d]etermining whether a complaint states a plausible claim for relief will . . . be a
context-specific task that requires the reviewing court to draw on its judicial experience and
common sense.” Id. at 679. The Supreme Court has explained that “the tenet that a court must
accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions,”
and that “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory
statements, do not suffice.” Id. at 678. “When there are well-pleaded factual allegations, a court
should assume their veracity and then determine whether they plausibly give rise to an
entitlement to relief.” Id. at 679. Thus, “[i]n ruling on a 12(b)(6) motion, a court must accept as
true all of the factual allegations contained in the complaint and draw all reasonable inferences in
favor of the plaintiff.” Kensington Volunteer Fire Dep’t, Inc. v. Montgomery Cnty, Md., 684
F.3d 462, 467 (4th Cir. 2012) (internal quotations omitted). Furthermore, “a court may consider
documents attached to the complaint or the motion to dismiss so long as they are integral to the
complaint and authentic.” Id.
A. Defendant CIC’s Motion to Dismiss
In its Motion to Dismiss, CIC argues that it is not a proper defendant in this action
because the Complaint fails to allege any actionable conduct on the part of CIC. 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 only allegation in the Complaint specifically addressing CIC is found in Paragraph 3,
in which Plaintiff alleges that “Defendant Church Insurance Company is upon information and
belief, an agent of Defendant Church Insurance Company of Vermont. Collectively, Defendants
Church Insurance Company of Vermont and its agent Church Insurance Company are referred to
herein as ‘Insurance Company.’”
Complaint ¶ 3, ECF 1.
Plaintiff also alleges that the
“Insurance Company” insured Plaintiff under the Policy, id. ¶ 6; that Plaintiff contacted
“Insurance Company” to demand that it confirm coverage under the Policy and defend and
indemnify Plaintiff in the Underlying Action, id. ¶ 11; that by letter dated August 29, 2013
(“Denial Letter”), the “Insurance Company” denied coverage under the Policy, id. ¶ 12; and that
Plaintiff’s claims arise from the “Insurance Company’s” denial of coverage, id. ¶¶ 14, 31-41.
Attached to Plaintiff’s Complaint are the Policy and the Denial Letter, neither of which contain
the name “Church Insurance Company.” Instead, the name “Church Insurance Company of
Vermont” appears in the headings of both the Policy and the Denial Letter, and the Denial Letter
is signed by the Vice President of Claims for the Church Insurance Company of Vermont. In its
response brief, Plaintiff contends that it communicated with CIC’s representatives in procuring
the insurance policy at issue and in requesting and ultimately being denied coverage thereunder.
However, the Complaint does not contain any facts detailing Plaintiff’s communications with
CIC’s representatives regarding the procurement of the Policy and the denial of coverage.
The Court concludes that, as to its claims against CIC, Plaintiff has failed to plead
“sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its
face.’” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 570). “A claim has facial
plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged.” Id. Importantly, “‘naked
assertion[s]’ devoid of ‘further factual enhancement’” will not suffice. Id. (quoting Twombly,
550 U.S. at 557). 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. Thus, the Court concludes that Plaintiff’s Complaint
fails to state claims that CIC breached an insurance contract, acted in bad faith, or has a duty to
defend and indemnify Plaintiff in the Underlying Action.
Accordingly, the Court grants
Defendant CIC’s Motion to Dismiss under Rule 12(b)(6).3
B. Defendant CIC-VT’s Motion to Dismiss
Defendant CIC-VT moves to dismiss the Complaint pursuant to Rule 12(b)(6) for failure
to state a claim upon which relief can be granted. CIC-VT primarily argues that the complaint in
the Underlying Action does not seek to recover “damages” within the purview of the Policy, and
thus CIC-VT does not have a duty to defend Plaintiff in the Underlying Action. Accordingly,
CIC-VT maintains that Plaintiff’s Complaint fails to state a claim against CIC-VT because each
cause of action in the Complaint is premised on CIC-VT’s alleged duty to defend Plaintiff.
Plaintiff responds that the Underlying Action does seek damages, as evidenced by the allegations
of injury to the underlying plaintiffs’ own intellectual property, by the request for attorneys’ fees,
and by the prayer for relief, which requests all available relief under the state trademark statute.
Because the Court finds that the Complaint must be dismissed as against CIC pursuant to Rule 12(b)(6), the Court
does not address whether the Complaint could also be dismissed as against CIC under Rule 12(b)(2).
According to Plaintiff, because S.C. Code Ann. § 39-15-1170 provides for monetary damages
and attorneys’ fees in addition to injunctive relief for violations of the trademark statute, the
prayer for relief requests damages for the alleged trademark infringement.
concludes that under the Policy, CIC-VT has a duty to defend and indemnify Plaintiff in the
“An insurer’s duty to defend is separate and distinct from its obligation to pay a judgment
rendered against an insured.” BP Oil Co. v. Federated Mut. Ins. Co., 496 S.E.2d 35, 39 (S.C. Ct.
App. 1998). Under South Carolina law, “an insurer’s duty to defend is based on the allegations
of the underlying complaint” and the terms of the policy. B.L.G. Enters., 514 S.E.2d at 330. An
insurer has no duty to defend where the facts alleged in the underlying complaint fail to bring a
claim within the policy coverage or where the damage alleged was caused by a reason
unambiguously excluded by the policy. USAA Prop. & Cas. Ins. Co. v. Clegg, 661 S.E.2d 791,
797 (S.C. 2008).
The parties agree that under the terms of the Policy, CIC-VT’s duty to defend is triggered
only where an underlying action “seek[s] damages which may be covered by the Commercial
Liability Coverage.” Commercial Liability Coverage 7. The Policy defines “damages” to mean
“compensation in the form of money for a person who claims to have suffered an injury.” Id. at
2. Thus, CIC-VT has a duty to defend Plaintiff 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 Commercial Liability Coverage.
The complaint in the Underlying Action alleges three causes of action. The first cause of
action is not relevant to the instant case because it asserts a claim against TEC only. The third
cause of action also is irrelevant because it seeks relief under statutes that provide for criminal
penalties and injunctive relief only. Thus, the Court must look to the second cause of action in
the underlying complaint to determine if the Underlying Action seeks damages against TEC-SC:
SECOND CAUSE OF ACTION
(Service Mark Infringement, [S.C.] Code of Laws §§ 39-15-1105, et seq.)
495. Plaintiffs incorporate by reference paragraphs 1-494.
496. Defendants, and those acting under its direction and control, without
the consent of the Plaintiffs, have used and caused to be used the registered
service marks of Plaintiffs in the connection with their services and have used
reproductions, copies or imitations of Plaintiffs’ registered service marks which is
likely to, and has, caused confusion, mistake and deception in that it has done so
falsely claiming to be, or have the consent of, Plaintiffs.
497. Defendants and those acting under their direction and control have
committed the acts alleged with the intent to cause confusion, mistake or to
498. The registered service marks of the Plaintiffs are famous within the
meaning of § 39-15-1165, South Carolina Code of Laws (1976).
499. The Plaintiffs are entitled to temporary and permanent injunctions
prohibiting Defendants and those acting under their direction and control from
using the registered service marks, requiring the return of all the counterfeit or
imitation service marks to an officer of the Court or to the Plaintiffs for their
destruction, and for such reasonable attorney’s fees as may be determined by the
Court all as provided by § 39-15-1170 of the South Carolina Code of Laws
Underlying Complaint ¶¶ 495-499, ECF 1-2 (emphasis added).
The second cause of action explicitly seeks temporary and permanent injunctions, the
return of all counterfeit or imitation service marks for their destruction, and reasonable attorneys’
fees. It does not explicitly allege damages in the traditional meaning of the term. See Ellett
Bros., Inc. v. U.S. Fidelity & Guar. Co., 275 F.3d 384, 387 (4th Cir. 2001) (discussing “a default
rule of contract interpretation whereby, in the absence of any contrary intent by the parties, the
term ‘damages’ in insurance contracts will be interpreted [as legal damages only] so as not to
reference equitable relief”). However, the Court need not apply the Ellett Bros. default rule of
interpretation because, unlike the policy in Ellett Bros., the instant Policy explicitly defines
“damages.” Pursuant to the unambiguous terms of the Policy, “damages” means “compensation
in the form of money for a person who claims to have suffered an injury.” Commercial Liability
Coverage 2. Thus, “damages,” as defined in the Policy, includes any monetary compensation for
a person who claims to be injured. Attorneys’ fees are monetary compensation, and the plaintiffs
in the Underlying Action who seek the attorneys’ fees claim that they suffered an injury by
Plaintiff’s alleged trademark infringement.
Accordingly, the Court concludes that the
Underlying Action seeks “damages” as defined by the Policy.
CIC-VT has a duty to defend Plaintiff in the Underlying Action if the underlying
complaint alleges an injury that is covered by the Commercial Liability Coverage. Coverage P
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.” Id. at 5. The second cause of action in the underlying complaint alleges
that the plaintiffs in the Underlying Action were injured by TEC-SC’s alleged use of their
registered service marks in the course of advertising TEC-SC’s services. Accordingly, the Court
concludes that the Underlying Action alleges an advertising injury as defined in the Policy.
CIC-VT argues that even if damages are alleged in the underlying complaint, there still is
no coverage under the Policy because the intentional and false acts alleged in the second cause of
action are specifically excluded by the unambiguous terms of the Policy. The Commercial
Liability Coverage provides the following relevant exclusions:
1. We do not pay for personal or advertising injury arising out of willful
violation of an ordinance, statute, or regulation by an insured or with the
2. We do not pay for personal or advertising injury arising out of: a. oral or
written publication of material done by or at the direction of an insured who
knew it was false; or b. oral or written publication of the same or similar material
by or on behalf of an insured that took place prior to the policy.
Id. at 10. CIC-VT contends that the underlying court can award attorneys’ fees to the underlying
plaintiffs only upon a finding that Plaintiff intentionally committed the wrongful acts. The Court
Section 39-15-1170 provides, in pertinent part:
An owner of a mark registered under this article may bring an action to enjoin the
manufacture, use, display, or sale of a counterfeit or imitation of the registered
mark, and a court of competent jurisdiction may grant an injunction to restrain the
manufacture, use, display, or sale as the court considers just and reasonable and
may require a defendant to pay the owner profits derived from or damages
suffered due to the wrongful manufacture, use, display, or sale or to pay both
profits and damages. The court also may order that the counterfeit or imitation in
the possession or under the control of a defendant be delivered to an officer of the
court or to the complainant to be destroyed. The court in its discretion may enter
judgment for an amount not to exceed three times the profits and damages or
reasonable attorneys’ fees of the prevailing party, or both, in cases where the
court finds the other party committed the wrongful acts with knowledge or in bad
faith or otherwise according to the circumstances of the case.
S.C. Code Ann. § 39-15-1170(A) (emphasis added). As CIC-VT argues, this statute 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 neither located nor been directed to any case law interpreting the meaning of “otherwise
according to the circumstances of the case,” it is clear that the statute 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.4
In conclusion, the Court finds that Plaintiff’s Complaint contains sufficient allegations to
state a claim to relief that is plausible on its face. The Complaint alleges that CIC-VT has a duty,
under the Policy, to defend and indemnify Plaintiff in the Underlying Action. The Complaint
further alleges sufficient facts to state claims that CIC-VT breached its contract with Plaintiff and
acted in bad faith when it denied coverage. Upon review of the Policy and the underlying
complaint, the Court finds that CIC-VT has a duty to defend Plaintiff in the Underlying Action
because the underlying complaint alleges both an “advertising injury,” as defined by the Policy,
and attorneys’ fees, which fall within the Policy’s definition of “damages.” Accordingly, the
Court denies CIC-VT’s Motion to Dismiss the Complaint pursuant to Rule 12(b)(6).
Plaintiff TEC-SC’s Motion for Summary Judgment
To grant a motion for summary judgment, a court must find that “there is no genuine
dispute as to any material fact.” Fed. R. Civ. P. 56(a). The judge is not to weigh the evidence
but rather must determine if there is a genuine issue for trial. Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 249 (1986). All evidence should be viewed in the light most favorable to the
nonmoving party. Perini Corp. v. Perini Constr., Inc., 915 F.2d 121, 124 (4th Cir. 1990).
“[W]here the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, disposition by summary judgment is appropriate.” Teamsters Joint Council No.
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.
83 v. Centra, Inc., 947 F.2d 115, 119 (4th Cir. 1991). Summary judgment is not “a disfavored
procedural shortcut,” but an important mechanism for weeding out “claims and defenses [that]
have no factual basis.” Celotex Corp. v. Catrett, 477 U.S. 317, 327 (1986).
A. Third Cause of Action: Declaratory Judgment
A federal court’s power to issue a declaratory judgment emanates from 28 U.S.C. § 2201,
which provides in relevant part:
In a case of actual controversy within its jurisdiction . . . any court of the United
States, upon the filing of an appropriate pleading, may declare the rights and other
legal relations of any interested party seeking such declaration, whether or not
further relief is or could be sought. Any such declaration shall have the force and
effect of a final judgment or decree and shall be reviewable as such.
28 U.S.C. § 2201(a).
Plaintiff asks the Court to declare that CIC-VT has a duty under the Policy to defend
Plaintiff in the Underlying Action. As discussed more fully above in Section II.B, under the
terms of the Policy, CIC-VT has a duty to defend Plaintiff 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 Commercial Liability Coverage. The Underlying Action seeks
attorneys’ fees, which are a form of monetary compensation. Moreover, the underlying plaintiffs
who seek the attorneys’ fees claim to have suffered an injury by Plaintiff’s alleged use of their
registered service marks in the course of advertising TEC-SC’s services. The Court concludes
that the Underlying Action thus alleges an “advertising injury” as defined in the Policy and seeks
“damages” as defined in the Policy (i.e., monetary compensation in the form of attorneys’ fees).
Accordingly, CIC-VT has a duty to defend Plaintiff because the underlying complaint seeks
monetary compensation (attorneys’ fees) for a person who claims to have suffered an injury that
is covered by the Commercial Liability Coverage (an advertising injury).
discussed above, the claims in the underlying complaint are not unambiguously excluded from
coverage by the terms of the Policy because the state court could potentially award attorneys’
fees without concluding that Plaintiff acted with knowledge or intent. Therefore, the Court
declares that, pursuant to the unambiguous terms of the Policy, CIC-VT has a duty to defend
Plaintiff in the Underlying Action.
B. First Cause of Action: Breach of Contract
To establish its claim for breach of contract, TEC-SC must show (1) the existence of a
contract, (2) its breach, and (3) the damages caused by such breach. Branche Builders, Inc. v.
Coggins, 686 S.E.2d 200, 202 (S.C. Ct. App. 2009). “Where an insurer refuses to undertake the
defense of an action against the insured based upon a claim within the coverage of the insurance
policy, it thereby breaches the contract of insurance and is liable to the insured for all damages
resulting to such insured as a direct result of such refusal and breach.” Fuller v. E. Fire & Cas.
Ins. Co., 124 S.E.2d 602, 610 (1962). The Policy issued by CIC-VT satisfies the first element of
the breach-of-contract claim. As discussed above, although CIC-VT had a duty to defend TECSC in the Underlying Action, it refused to undertake that defense. Thus, the second element has
been established. Finally, the Court finds that there is no dispute that Plaintiff has been damaged
by having to defend itself in the Underlying Action, as described in paragraph 30 of the
Complaint. Accordingly, the Court grants Plaintiff summary judgment as to its first cause of
action for breach of contract.
C. Second Cause of Action: Insurance Bad Faith
Every contract contains an implied covenant of good faith and fair dealing that neither
party will do anything to impair the right of the other to receive the benefits of the agreement.
Nichols v. State Farm Mut. Auto. Ins. Co., 306 S.E.2d 616, 618 (S.C. 1983). An insurer breaches
this covenant of good faith implied within the insurance contract if the following elements are
met: (1) the existence of a contract of insurance between the parties; (2) a refusal by the insurer
to pay benefits due under the contract; (3) resulting from the insurer’s bad faith or unreasonable
action in breach of an implied covenant of good faith and fair dealing arising on the contract; (4)
causing damage to the insured. Crossley v. State Farm Mut. Auto. Ins. Co., 415 S.E.2d 393, 39697 (S.C. 1992). “If the insured proves the insurer’s conduct was willful or in reckless disregard
of his rights under the contract, the insured also may recover punitive damages.” Id. at 397.
Generally, under South Carolina law, an “insured may recover damages for a bad faith denial of
coverage if he or she proves there was no reasonable basis to support the insurer’s decision to
deny benefits under a mutually binding insurance contract.” Cock-N-Bull Steak House, Inc. v.
Generali Ins. Co., 466 S.E.2d 727, 730 (S.C. 1996). Stated differently, if there is an objectively
reasonable ground for contesting an insurance claim, there is no bad faith in the denial of it.
Mixson, Inc. v. Am. Loyalty Ins. Co., 562 S.E.2d 659, 661 (S.C. Ct. App. 2002). “Whether such
an objectively reasonable basis for denial exists depends on the circumstances existing at the
time of the denial.” State Farm Fire & Cas. Co. v. Barton, 897 F.2d 729, 731 (4th Cir. 1990)
(interpreting South Carolina law).
Plaintiff has established the first, second, and fourth elements of its bad faith claim.
However, the Court concludes that Plaintiff has not presented sufficient evidence to establish that
CIC-VT’s refusal to defend was an unreasonable action or made in bad faith. The parties’
briefing does not squarely address the reasonableness of CIC-VT’s action, and the Court will not
speculate on this record as to whether or not CIC-VT had a reasonable basis for refusing to
defend Plaintiff in the Underlying Action. Accordingly, the Court denies summary judgment as
to Plaintiff’s claim for insurance bad faith.
In conclusion, the Court declares that CIC-VT has a duty to defend Plaintiff in the
Underlying Action. The Court grants summary judgment in favor of Plaintiff on its breach-ofcontract claim against CIC-VT but denies summary judgment on Plaintiff’s bad-faith claim.
For the foregoing reasons, it is ORDERED that CIC’s Motion to Dismiss is GRANTED
and that Defendant CIC-VT’s Motion to Dismiss is DENIED. It is further ORDERED that
Plaintiff’s Motion for Summary Judgment is GRANTED IN PART and DENIED IN PART.
AND IT IS SO ORDERED.
January 6, 2014
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