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

• Published date: 30 August 2021
• Subject Matter: Insurance, Insurance Laws and Products
• Law Firm: Phelps Dunbar
• Author: Machaella M. Reisman

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.

...