Fourth Circuit Affirms That A Master Policyholder Has No Standing To Sue Its Insurer For Defense Costs In Litigation Against The Master Policyholder By Insured Certificate Holders
The U.S. Fourth Circuit Court of Appeals held that the master policyholder could not bring a claim against its insurer as it had not proven that it was injured. Episcopal Church v. Church Ins. Co., 997 F.3d 149 (4th Cir. 2021).
After a group of churches disassociated with the Episcopal church in South Carolina, the disassociated group sued the church to clarify its rights with respect to parish property and the church filed counterclaims against the disassociated parishes. The Church held an insurance policy as a master policyholder, with each individual parish a certificate holder under the policy. The disassociated parishes sought a defense from the insurer for the counterclaims. The insurer reimbursed those defense costs. The church then sued the insurer for breach of contract, bad faith, breach of fiduciary duty, and aiding and abetting breach of fiduciary duty for reimbursing costs to the certificate holders. The Fourth Circuit upheld the district court’s finding that the church lacked standing to bring any of its claims.
The court found that the fact that the certificate holders were no longer affiliated with the church was of no consequence, as nothing indicated that disaffiliation of a certificate holder halts or voids a properly issued policy before the policy period’s expiration, and held that the insurer properly paid defense costs for the certificate holders. The court summarily dismissed the bad-faith claim, as the church made no showing that the insurer actually breached any laws, or made any payments contrary to the church’s trust interests.
The court likewise dismissed claims that the insurer violated duties of “loyalty and care to insure risks. . . and to properly process insurance claims only for the benefit of the [master policy holder] and its affiliates.” The court evaluated the church’s mission statement and found that there was nothing in it which suggested that the insurer has to decline to defend a certificate holder to which a valid policy was issued simply because it was in litigation with the master policy holder.
Lastly, the court addressed the claim that the insurer aided and abetted the certificate holders in “breaching fiduciary duties.” The court noted that while South Carolina recognizes a cause of action for knowing participation in a breach of fiduciary duties, the theory suggested by the church would mean any insurer that defends a party alleged to have breached fiduciary duties could be sued for “aiding and abetting.” The court opined that it believed that the South Carolina Supreme Court would not “embrace a conception of ‘knowing participation’ that would effectively prevent a party accused of breaching a fiduciary duty from mounting a defense.”
