In Episcopal Church in S.C. v. Church Ins. Co. of Vt., ___ F.3d ___, No. 20-1143, 2021 WL 1823279 (4th Cir. May 7, 2021), the Fourth Circuit Court of Appeals affirmed a District Court's ruling rejecting the standing of the Episcopal Church to sue its captive insurance company.
Central to this decision is the Court's clear definition of "captive insurance companies":
Captive insurance companies operate just like ordinary insurers in nearly every respect. However, their distinguishing feature—what makes them “captive”—is that they may only cover the risks of their parent companies and related entities.
Episcopal South Carolina Church, 2021 WL 1823279, at *1.
Church Insurance Company of Vermont is the captive insurance company of the Mother Episcopal Church and it provides coverage for a number of parishes that broke away and formed their own, new Episcopal Diocese of South Carolina (known to the Court in this case as "the Disassociated Parishes"). This insurance company is "wholly owned by the Church Pension Fund, a freestanding nonprofit affiliated with the Mother Church." Episcopal South Carolina Church, 2021 WL 1823279, at *1.
As a result of its coverage duties to the breakaway Episcopalian parishes who held certificates, i.e., policies of insurance which the Church Insurance Company had issued, the Church Insurance Company reimbursed some of the defense fees of the breakaway Episcopalians. Since it was doing its duties under the policies (certificates) of insurance it issued including to the breakaways, the Mother Church (the original Episcopal Diocese of South Carolina) has no standing to sue the carrier for the claims it alleged against the carrier for breach of contract, bad faith and unfair dealing, or breach of fiduciary duty and aiding and abetting breach of fiduciary duty, the Federal Courts in South Carolina held.
Sometimes it pays for a captive to be independent, after all.
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