A federal court in South Carolina recently held that a lawsuit seeking attorneys’ fees triggered an insurer’s duty to defend pursuant to policy wording providing coverage for claims seeking coverage for “compensation in the form of money for a person who claims to have suffered an injury.” Episcopal Church in South Carolina v. Church Insurance Company of Vermont, 2014 WL 37225 (D. S.C. Jan. 6, 2014). 

Several break-away Episcopal churches sought a declaratory judgment against the insured Episcopal Church in South Carolina that the break-away churches’ existence and continued use of disputed property were proper. After the Episcopal Church’s insurer denied the insured’s tender of the defense of this lawsuit, the Episcopal Church sued alleging breach of contract and bad faith and seeking a declaration that the insurer had a duty to defend and indemnify the insured. The insurer filed a motion to dismiss, arguing that the underlying lawsuit did not seek “damages” as the term was defined by the policy. 

Denying the insurer’s motion to dismiss, the court noted that the insurer’s duty to defend was triggered where an underlying action sought “damages” which may be covered, with the term “damages” defined as “compensation in the form of money for a person who claims to have suffered an injury.” Amongst their various causes of action, the break-away churches sought temporary and permanent injunctions against the insured, including “reasonable attorney’s fees” related to alleged trademark infringement. Because break-away churches were seeking monetary compensation for alleged “advertising injury,” i.e., trademark infringement (which typically is not “advertising injury”), the court concluded that the insurer’s defense obligation was triggered. The court also granted the insured’s motion for summary judgment on the breach of contract and declaratory judgment claims. As to the insured’s bad faith claim, the court found that there was a question as to the reasonableness of the insurer’s refusal to defend, and thus denied the insured’s motion for summary judgment with respect to that claim.