Episcopal Church in S.C. v. Church Ins. Co. of Vt. & the Church Ins. Co.

• Decision Date: 06 January 2014
• Docket Number: Case No. 2:13–cv–02475–PMD.
• Court: U.S. District Court — District of South Carolina
• Parties: The EPISCOPAL CHURCH IN SOUTH CAROLINA, Plaintiff, v. CHURCH INSURANCE COMPANY OF VERMONT and The Church Insurance Company, Defendants.

993 F.Supp.2d 581

The EPISCOPAL CHURCH IN SOUTH CAROLINA, Plaintiff,

v.CHURCH INSURANCE COMPANY OF VERMONT and The Church Insurance Company, Defendants.

Case No. 2:13–cv–02475–PMD.

United States District Court,

D. South Carolina,

Charleston Division.

Jan. 6, 2014.

Thomas S. Tisdale, Jr., Jason Severin Smith, Hellman Yates and Tisdale, Charleston, SC, for Plaintiff.

Steven J. Pugh, Richardson Plowden and Robinson, Columbia, SC, Samia Hanafi Nettles, Richardson Plowden and Robinson, PA, Charleston, SC, for Defendants.

ORDER

PATRICK MICHAEL DUFFY, District Judge.

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.

BACKGROUND

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 emblems.

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.

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 the Policy. TEC–SC then filed the instant action against CIC–VT and CIC. TEC–SC's 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.

JURISDICTION

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.

ANALYSIS

I. 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, 58 S.Ct. 817, 82 L.Ed. 1188 (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., 334 S.C. 529, 514 S.E.2d 327, 330 (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., 266 S.C. 584, 225 S.E.2d 344, 348 (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., 328 S.C. 585, 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., 303 S.C. 182, 399 S.E.2d 770, 772 (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, 301 S.C. 133, 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., 390 S.C. 255, 701 S.E.2d 33, 35 (2010); Owners Ins. Co. v. Clayton, 364 S.C. 555, 614 S.E.2d 611, 614 (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, 344 S.C. 525, 544 S.E.2d 848, 850 (S.C.Ct.App.2001).

II. 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, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (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...