From Casetext: Smarter Legal Research

Davis v. Bancinsure, Inc.

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF GEORGIA NEWNAN DIVISION
Mar 20, 2013
CIVIL ACTION FILE NUMBER 3:12-cv-113-TCB (N.D. Ga. Mar. 20, 2013)

Summary

applying Georgia law

Summary of this case from BioHealth Med. Lab., Inc. v. Cigna Health & Life Ins. Co.

Opinion

CIVIL ACTION FILE NUMBER 3:12-cv-113-TCB

03-20-2013

GEORGE G. DAVIS, et al., Plaintiffs, v. BANCINSURE, INC., Defendant.


ORDER

Plaintiffs, who are former directors and officers of Southern Community Bank ("SCB") and insureds under a directors' and officers' insurance policy ("D&O policy"), brought this action seeking a declaratory judgment that their insurer, Defendant BancInsure, Inc., is obligated to provide coverage for claims that the Federal Deposit Insurance Corporation, as receiver for SCB ("FDIC-R"), intends to assert against them. Before the Court are the parties' cross-motions for summary judgment [18 & 19] and Plaintiffs' motion for a preliminary injunction [3].

I. Background

On July 27, 2012, Plaintiffs filed this action along with a motion for a preliminary injunction requiring BancInsure to provide Plaintiffs coverage under the policy. Subsequently, the parties decided to consolidate Plaintiffs' motion for a preliminary injunction with preliminary motions for summary judgment and submitted a proposed scheduling order and statement of stipulated facts. The Court approved the proposed order on September 7, staying discovery pending disposition of the limited preliminary summary judgment issues. Those issues include: (1) whether Plaintiffs complied with the policy's requirement that they provide BancInsure with sufficient notice of the FDIC-R's claims within the policy's notice period; (2) whether the policy's "insured v. insured" exclusion applies to the FDIC-R's claims against Plaintiffs; and (3) even if the "insured v. insured" exclusion applies, whether the policy obligates BancInsure to advance and/or reimburse Plaintiffs for the costs of defending the FDIC-R's claims against them.

The parties have stipulated to the following facts. BancInsure issued a D&O policy to SCB with a policy period of March 1, 2007 to March 1, 2010. Plaintiffs, who are former officers and directors of SCB, are each insured persons under the policy.

On September 26, 2008, the FDIC issued a cease and desist order, informing SCB and Plaintiffs that the FDIC and Commissioner "had reason to believe that the Bank had engaged in unsafe or unsound banking practices and had committed violations of law and/or regulations." Among those unsafe and unsound practices listed was "operating with hazardous loan underwriting and administration practices."

On May 13, 2009, David Coxon, former president and CEO of SCB, sent BancInsure a letter to notify it that "there may be Claims made against Southern Community or its current or former directors, officers, employees, institution affiliated parties and/or other individuals." Coxon went on to state that he specifically anticipated claims of wrongful acts because "[i]nvestors, regulators, and creditors could be disappointed with the financial performance of Southern Community, especially its financial deterioration and/or potential closure, conservatorship, receivership and/or bankruptcy." On June 16, Coxon sent BancInsure a separate, additional notice of potential claims that might be asserted against Plaintiffs. This letter included a list of potential allegations that might be made against Plaintiffs and listed twelve loans from which alleged losses could potentially arise.

On June 19, 2009, the Georgia Department of Banking and Finance closed SCB and named the FDIC as receiver. Over two and a half years later, on February 23, 2012, the FDIC sent subpoenas duces tecum to Plaintiffs. On March 2, Plaintiffs notified BancInsure of the subpoenas and requested coverage under the policy. On April 12, BancInsure sent Plaintiffs a letter denying their request, asserting that (1) a claim had not been made within the policy coverage period; (2) Plaintiffs had not provided sufficient notice to allow a claim made outside the coverage period; and (3) the policy's "insured v. insured" exclusion applied to any potential claims by the FDIC-R.

On May 17, 2012, the FDIC-R sent a letter notifying Plaintiffs that it had been authorized to bring a civil action against them for negligence and gross negligence regarding Plaintiffs' "authorization of twenty-two loans that led directly to approximately $42.68 million in losses." Attached to the letter was a chart detailing the names of the borrowers, the loan amounts, the approval dates of the loans, and the loss amounts of the loans at issue. Of the twenty-two loans, twenty were made by borrowers identified by Plaintiffs in their June 16 letter. To date, the FDIC-R has not initiated litigation against Plaintiffs.

On June 11, 2012, Plaintiffs and the FDIC-R entered into a six-month tolling agreement that tolled the statute of limitation for the FDIC-R to initiate a lawsuit against Plaintiffs until December 11, 2012. On October 4, 2012, Plaintiffs and the FDIC-R entered into a second tolling agreement, extending the tolling period until March 11, 2013. The parties then extended the tolling period a third time until May 11, 2013.

On June 27, 2012, Plaintiffs' counsel sent BancInsure a letter, disagreeing with its denial of coverage and arguing that even if the "insured v. insured" exclusion applied, BancInsure would be obligated to advance defense costs pursuant to the policy. BancInsure responded by again denying coverage and denying any responsibility for Plaintiffs' defense costs. This suit followed.

II. Discussion

A. Legal Standard

Summary judgment is appropriate when "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." FED. R. CIV. P. 56(a). There is a "genuine" dispute as to a material fact if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." FindWhat Investor Grp. v. FindWhat.com, 658 F.3d 1282, 1307 (11th Cir. 2011) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). In making this determination, however, "a court may not weigh conflicting evidence or make credibility determinations of its own." Id. Instead, the court must "view all of the evidence in the light most favorable to the nonmoving party and draw all reasonable inferences in that party's favor." Id.

"The moving party bears the initial burden of demonstrating the absence of a genuine dispute of material fact." Id. (citing Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)). If the moving party would have the burden of proof at trial, that party "must show affirmatively the absence of a genuine issue of material fact: it 'must support its motion with credible evidence . . . that would entitle it to a directed verdict if not controverted at trial.'" United States v. Four Parcels of Real Prop., 941 F.2d 1428, 1438 (11th Cir. 1991) (quoting Celotex, 477 U.S. at 331). "If the moving party makes such an affirmative showing, it is entitled to summary judgment unless the nonmoving party, in response, 'come[s] forward with significant, probative evidence demonstrating the existence of a triable issue of fact.'" Id. (quoting Celotex, 477 U.S. at 331).

However, where the nonmoving party would have the burden of proof at trial, there are two ways for the moving party to satisfy this initial burden. United States v. Four Parcels of Real Prop., 941 F.2d 1428, 1437-38 (11th Cir. 1991). The first is to produce "affirmative evidence demonstrating that the nonmoving party will be unable to prove its case at trial." Id. at 1438 (citing Celotex, 477 U.S. at 324). The second is to show that "there is an absence of evidence to support the nonmoving party's case." Id. (quoting Celotex, 477 U.S. at 323). If the moving party satisfies its burden by either method, the burden shifts to the nonmoving party to show that a genuine issue remains for trial. Id. At this point, the nonmoving party must "'go beyond the pleadings,' and by its own affidavits, or by 'depositions, answers to interrogatories, and admissions on file,' designate specific facts showing that there is a genuine issue for trial." Jeffery v. Sarasota White Sox, Inc., 64 F.3d 590, 593-94 (11th Cir. 1995) (quoting Celotex, 477 U.S. at 324).

B. Analysis

"The construction of a contract is a question of law for the court." O.C.G.A. § 13-2-1. Thus, issues regarding a contract's interpretation may be resolved by the court at summary judgment. Mountain Aire Realty, Inc. v. Birdie White Enters., Inc., 593 S.E.2d 900, 902 (Ga. Ct. App. 2004). In Georgia, insurance contracts are interpreted by ordinary rules of contract construction. Smith v. Stoddard, 699 S.E.2d 712, 715 (Ga. Ct. App. 2008).

1. Whether Plaintiffs Satisfied the Policy's Notice Requirements

The policy only covers claims made during the coverage period of March 1, 2007 through March 1, 2010. The FDIC-R has not yet filed a lawsuit against Plaintiffs, and thus, a claim made based on the FDIC-R's potential suit will not be made within the coverage period. However, pursuant to section IX.B of the policy, such a claim will nevertheless be treated as made within the policy period if certain conditions are met. That section provides:

If, during the Policy Period, any Insured Person or the Company (1) receives written or oral notice from any party that it is the intention of such party to hold any Insured Person responsible for a specific alleged Wrongful Act, or (2) becomes aware of any circumstances that may give rise to a Claim against any Insured Person responsible for a specific Wrongful Act; and, as soon as practicable, gives written notice of the potential Claim to the Insurer as referenced in subsections (1) and (2) above, which notice is in any event received by the Insurer no later than thirty (30) days following the end of the Policy Period, and such notice includes (1) the reason for anticipating such Claim, (2) the nature and date of the alleged Wrongful Acts, (3) the alleged injury, (4) the names of the potential claimants and any Insured Person involved in the alleged Wrongful Acts, and (5) the manner in which any Insured Person or the Company first became aware of the potential Claim, then
any Claim, the potential of which was specifically identified as required above, shall, for the purposes of this Policy, be treated as Claims made during the Policy Period.
Plaintiffs contend that because the May 13 and June 16, 2009 letters satisfied section IX.B's notice requirement, any claim by the FDIC should be treated as if first made during the policy period. Plaintiffs argue that the information in their letters, as well as the FDIC cease and desist order they attached to the May 13 letter, fulfilled all five of the policy's notice requirements. BancInsure responds that Plaintiffs failed to give notice of specific wrongful acts, and instead merely speculated that a claim might be made due to the fact that the bank was closed and/or subject to criticisms prior to its closure.

BancInsure relies on the Eleventh Circuit's decision in Resolution Trust Corp. v. Artley, 24 F.3d 1363 (11th Cir. 1994), in support of its contention that Plaintiffs did not provide sufficient notice of the FDIC's claims. In Artley, the plaintiff trust corporation filed an action against former bank officers and directors for negligence, gross negligence, breach of fiduciary duties, and breach of contract. The officers and directors then filed a third-party complaint against their insurer, seeking coverage under their D&O policy in the event that the trust corporation prevailed against them. Much like the facts here, the claim was not made during the life of the policy, but the policy contained a provision allowing coverage for later-made claims where notice was provided within the policy period. According to the provision at issue:

[if] the Insureds . . . become aware of any event or circumstance which may subsequently give rise to a claim being made against the Insureds in respect of such alleged wrongful act, and shall during the policy period give written notice to the company containing (a) a description of the specific wrongful act, (b) the name of the individual or individuals alleged to have committed the act, and (c) the date of the alleged act or event, then this policy will apply to any claim or claims subsequently arising therefrom.
Id. at 1366.

The court held that under the policy's unambiguous language, the insureds were required to provide notice of the wrongful acts giving rise to a claim. The officers and directors argued that through the provision of financial reports and a letter from the bank to the Federal Home Loan Bank Board ("FLHBB") responding to the FLHBB's criticisms of the bank's lending practices, certain loans, and the bank's management incentive program that paid employee bonuses for making loans, they had satisfied the policy's notice requirement. The court disagreed, explaining that although the documents demonstrated that the bank's loan portfolio was troubled and that the FLHBB was concerned about the bank's lending practices, the documents did not fulfill the notice requirements because they did not state what specific acts occurred, name those who committed the acts, or provide the date the events took place.

Relying on Artley, BancInsure argues that Plaintiffs must identify specific dates on which allegations of wrongful acts were made, who made such allegations, who committed the alleged wrongful acts, and specific dates when the wrongful acts were committed. But Artley does not hold that such specifics are required. Instead, what Artley makes clear is that in order to provide notice pursuant to the policy, Plaintiffs must (1) identify specific wrongful acts, and (2) supply all information required by the policy. Unlike the directors and officers in Artley, Plaintiffs did not simply attempt to provide constructive notice by forwarding third-party documents to their insurer; they also drafted a letter in which they specifically set out to fulfill the requirements of section IX.B. Unfortunately for Plaintiffs, however, their efforts still fell short.

For a claim by the FDIC to be treated as having been made within the policy period, Plaintiffs were required to provide notice of five categories of information while the policy was in effect. Those categories include:

(1) the reason for anticipating such Claim, (2) the nature and date of the alleged Wrongful Acts, (3) the alleged injury, (4) the names of the potential claimants and any Insured Person involved in the alleged Wrongful Acts, and (5) the manner in which any Insured Person or the Company first became aware of the potential Claim.

The policy defines wrongful acts as "any actual or alleged error, misstatement, misleading statement, act or omission or neglect or breach of duty by an Insured Person acting solely in their Insured Capacities." Thus, to constitute a wrongful act, the act must either be an "actual" act or one that has been "alleged." A review of both letters shows that Plaintiffs failed to fulfill the policy's notification requirements because they did not identify any actual or alleged error, misstatement, misleading statement, act or omission or neglect or breach of duty, and did not provide all five categories of requested information.

First, Plaintiffs argue that they identified the reason for anticipating suit by the FDIC in their May 13 letter when they stated,

Investors, regulators and creditors could be disappointed with the financial performance of Southern Community, especially its financial deterioration and/or potential closure, conservatorship, receivership and/or bankruptcy. Southern Community's financial situation may exacerbate the propensity for Claims related to Southern Community's business strategies, actions by the Board of Directors ("Board"), management decisions, and operations as described more fully below.
However, this statement merely reflects Plaintiffs' general sentiment that several parties could potentially bring a host of suits based on SCB's deteriorating financial situation. The statement provides little information as to why Plaintiffs might actually anticipate a suit by the FDIC specifically. Noticeably absent is any threat by the FDIC that it intended to file a lawsuit.

As to the requirement that they identify the nature and date of the alleged wrongful acts, Plaintiffs argue that they fulfilled this requirement by stating, "We expect that counsel for any receiver . . . will scrutinize every expenditure and every sale or disposition of Southern Community's assets in an effort to support allegations of, among others, negligence or breach of duty." But Plaintiffs' anticipating that a receiver would scrutinize SCB's expenditures, sales and disposition does not identify any specific wrongful acts.

Plaintiffs also argue that by attaching the FDIC cease and desist order, which specifically stated that SCB had been ordered to cease and desist "operating with hazardous loan underwriting and administration practices," they further identified wrongful acts. However, without a threat from the FDIC-R that it intended to hold Plaintiffs liable for such actions, Plaintiffs' attaching the cease and desist order did not provide notice of specific wrongful acts. See Artley, 24 F.3d at 1368 ("As for FHLBB's criticisms, we agree with the Ninth Circuit's holding that 'the term "claim" should not be interpreted so broadly as to include a regulatory agency's request [that] the insured comply with regulations' absent a threat by the agency to hold the insured liable.") (quoting Cal. Union Ins. v. Am. Diversified Sav., 914 F.2d 1271, 1276-78 (9th Cir. 1990)); see also Resolution Trust Corp. v. Ayo, 31 F.3d 285, 290-91 (5th Cir. 1994) (notice requirement not met by insured's provision of regulatory reports detailing acts or omissions that could give rise to claims); McCullough v. Fid. & Deposit Co., 2 F.3d 110, 112-13 (5th Cir. 1993) (insurer's receipt of bank's annual report referencing a cease and desist order that related to acts that could have given rise to claims did not constitute adequate notice).

Curiously, Plaintiffs do not argue—either in their brief in support of their motion for summary judgement or their brief in opposition to BancInsure's motion—that the June 16 letter provided notice of alleged wrongful acts. In that letter, Plaintiffs included a list of twelve borrowers and asserted that they anticipated losses to be alleged based on loans to those specific borrowers. The list of borrowers is the closest that Plaintiffs come to identifying specific wrongful acts. However, even considering the list, Plaintiffs' efforts still fall short because Plaintiffs failed to identify any specific wrongful acts related to the issuance of those loans. Cf. FDIC v. Interdonato, 988 F. Supp. 1 (D.D.C. 1997) (finding notice sufficient where insureds identified "(1) violations of [the bank's] loan policy, (2) inadequate financial support, (3) violation of sound credit principles, (4) loans made on false representations by [the borrower], (5) disbursement of funds despite defects in title documentation and despite the failure of the customer to receive the automobiles, and (6) the misapplication of loans made to fund the resale of repossessed automobiles, with the effect that two loans were secured by the same automobile."). Although the June 16 letter included a laundry list of potential allegations that could give rise to claims of wrongful acts, the allegations were general. Moreover, Plaintiffs did not contend that the FDIC or any other party had made such allegations or that the allegations concerned the loans made to the twelve borrowers listed in the letter.

Moreover, "operating with hazardous loan underwriting and administration practices" is not a specific wrongful act. As explained by the Fifth Circuit in McCullough, 2 F.3d at 112, the notice required in a claims-made policy must be specific:

If the policy requirement for notice of specified wrongful acts is relaxed, then policy coverage actually expands. For example, if notice that an insured attorney has a poor docket control system is accepted as coverage triggering notice of the attorney's wrongful act, the attorney's malpractice coverage would be triggered for any number of suits predicated on missed deadlines.
In McCullough, the court held that absent "notice of the particular subsidiary involved, the particular agents, officers, or directors involved, the time period during which the events occurred, the identity of potential claimants, and the specific unsound practices made the basis of the [cease and desist order from the Office of the Comptroller of the Currency]," the insureds failed to provide sufficient notice of specific wrongful acts. Id. Here, Plaintiffs' informing BancInsure that SCB had been cited by the FDIC for operating with hazardous loan underwriting and administration practices merely referenced general mismanagement. Plaintiffs failed to identify the particular practices at issue or the underlying specific wrongful acts that had resulted in the order.

Turning to the policy's third requirement, Plaintiffs were to identify the "alleged injury." Plaintiffs argue that they satisfied this requirement when stating, "We anticipate that the alleged injury for Claims based upon the alleged Wrongful Acts, as identified below, will be for financial harm, whether through investment losses, losses claimed by regulators, or losses by customers or other constituents that had a financial interest in Southern Community." Just as Plaintiffs failed to identify any alleged wrongful acts, they failed to identify any injury alleged by the FDIC-R. That is because at the time of Plaintiffs' letters, the FDIC had not alleged any injury based on the loans. In fact, the FDIC did not allege any injury until nearly three years later, in its May, 17, 2012 notification to Plaintiffs that it had been authorized to bring a civil action against them for negligence and gross negligence based on their authorization of twenty-two loans that led to approximately $42.68 million in losses. Thus, rather than providing notification of an alleged injury, Plaintiffs merely speculated as to the universe of injuries that potential claimants might allege.

Under the fourth notice requirement, Plaintiffs were to identify "the names of potential claimants and any Insured Person involved in the alleged Wrongful Acts." In the May 13 letter, Plaintiffs stated, "The regulators of the Holding Company and/or the Bank, including the SEC, the FDIC, the Board of Governors of the Federal Reserve System . . . , and/or Georgia Department of Banking and Finance . . . may bring Claims against the Insured Persons and or Southern Community . . . ." The June letter reiterated that the FDIC was a potential claimant, stating that "Claims may be made by the [FDIC] or shareholders, among others, asserting that losses have occurred based on allegations of the following, which could give rise to Claims of Wrongful Acts." Thus, the letters did identify the FDIC as a potential claimant. The letters did not, however, identify the names of any insured persons involved in the wrongful acts. Although the May 13 letter stated that Plaintiffs were concerned that "bank regulatory authorities will continue to explore potential Claims against the directors [and] officers," the letter failed to link the directors and officers to any wrongful acts that would form a basis for a claim by the FDIC-R.

Finally, Plaintiffs contend that they identified the manner in which they became aware of a potential claim by the FDIC when they stated in the May 13 letter that they were alerted to potential claims when "examining the FDIC Cease and Desist Order dated September 26, 2008, which is attached, and the FDIC Report of Examination dated as of December 31, 2007." How these two documents notified Plaintiffs of potential claims is unclear, especially considering that neither one included a threat by the FDIC to hold Plaintiffs liable for any losses suffered as a result of the bank's failure to comply with regulations. Cf. Resolution Trust Corp. v. Am. Cas. Co., 874 F. Supp. 961, 964 (E.D. Mo. 1985) (finding notice sufficient where insureds provided FHLBB supervisory agent's statement that "if [certain] projects result in losses, which he hoped they would not, he would make every effort to place the responsibility from these losses directly on the board of directors"). Based on the Eleventh Circuit's holding in Artley, 24 F.3d at 1368, that "the term 'claim' should not be interpreted so broadly as to include a regulatory agency's request that the insured comply with regulations absent a threat by the agency to hold the insured liable," the Court does not find that Plaintiffs' reviewing of the FDIC's order was sufficient to alert it of claims that the FDIC-R would bring once appointed receiver.

As to the June 16 letter's listing of twelve borrowers involved in transactions that could lead to claims against Plaintiffs, Plaintiffs failed to identify why they anticipated claims related to these specific borrowers.

Nevertheless, Plaintiffs argue that their notice is sufficient when compared to other cases and cite as an example FDIC v. Interdonato, 988 F. Supp. 1 (D.D.C. 1997). There, the court construed a notice provision in a D&O policy similar to the one at issue here and held that the insured director had provided sufficient notice. However, Interdonato is distinguishable on several grounds. First, the policy in that case did not involve as many requirements as the policy here. Second, the Interdonato court compared cases like Artley, which require notice of a wrongful act, with cases that require only notice of an occurrence. Based on the specific policy language, the court held that the policy required only notice of an "occurrence." But here, like the policy in Artley, Plaintiffs were required to provide notice of a specific wrongful act—not just a notice of an occurrence. Third, the insureds in Interdonato provided much more specific notice than Plaintiffs. The insured's letter provided the following details regarding "target[ing] a particular situation," i.e., the loan that was the basis of the claim:

(1) violations of [the bank's] loan policy, (2) inadequate financial support, (3) violation of sound credit principles, (4) loans made on false representations by [the borrower], (5) disbursement of funds despite defects in title documentation and despite the failure of the customer to receive the automobiles, and (6) the misapplication of loans made to fund the resale of repossessed automobiles, with the effect that two loans were secured by the same automobile.
Id. at 7. Here, Plaintiffs provided a list of loans that might form the basis for claims asserted by the FDIC-R. However, in contrast to the letter in Interdonato, Plaintiffs' letter did not contain any details regarding the loans at issue.

By drafting a letter to accompany the FDIC cease and desist order, Plaintiffs undoubtedly provided more information than the insureds in Artley, who merely attached the FHLBB letter and a quarterly report. Their notice, though, was nonetheless insufficient because despite their attempt to provide detailed information, Plaintiffs' letter did little more than document the bank's "declining financial strength, poor lending practices, and mismanagement." Artley, 24 F.3d at 1368. As explained in Artley, were the Court to accept Plaintiffs' letter as sufficient notification, it "would destroy the notification requirements at the heart of a claims made policy— that coverage triggers only upon notice of the wrongful act." Id. (citing Serrmi Prods., Inc. v. Ins. Co. of Pa., 411 S.E.2d 305, 307 (Ga. Ct. App. 1991)).

Thus, the Court concludes that Plaintiffs did not provide sufficient notice and therefore no claim was made or could be considered made within the policy's coverage period. As a result, Plaintiffs' motion for summary judgment will be denied and BancInsure's motion will be granted.

2. Whether the "Insured v. Insured" Exclusion Applies

Even if Plaintiffs had fulfilled the notice requirements, a claim by the FDIC-R would still be barred by policy exclusion V.11, the "insured v. insured" exclusion. Section V of the policy regarding exclusions provides:

The Insurer shall not be liable to make any payment for Loss in connection with any Claim made against the Insured Persons based upon, arising out of, relating to, in consequence of, or in any way involving: . . .

11. a Claim by, or on behalf of, or at the behest of, any other Insured Person, the Company, or any successor, trustee, assignee or receiver of the Company except for:

(a) a shareholder's derivative action brought on behalf of the Company by one or more shareholders who are not Insured Persons and make a Claim without the cooperation or solicitation of any Insured Person or the Company;
(b) any wrongful termination of employment action brought by a former officer of the Company against any Insured Person;

(c) unlawful discrimination against any Insured Person on any basis prohibited by applicable law including but not limited to sexual or other forms of harassment . . . .
(Emphasis added.) BancInsure contends that this exclusion expressly excludes coverage of a claim by the FDIC-R. The Court agrees.

Courts have split on the issue of whether "insured v. insured" exclusions in D&O policies apply to claims brought by the FDIC as receiver of the failed bank. Compare Mt. Hawley Ins. Co. v. FSLIC, 695 F. Supp. 469, 484 (C.D. Cal. 1987), and Powell v. Am. Cas. Co., 772 F. Supp. 1188, 1191 (W.D. Okla. 1991) (both finding no coverage because FDIC as receiver steps into shoes of failed bank), with Am. Cas. Co. v. FDIC, 791 F. Supp. 276, 277-78 (W.D. Okla. 1992), St. Paul Fire & Marine Ins. Co. v. FDIC, 765 F. Supp. 538, 548 (D. Minn. 1991), Fid. & Deposit Co. v. Zandstra, 756 F. Supp. 429, 432-34 (N.D. Cal. 1990), Am. Cas. Co. v. FSLIC, 704 F. Supp. 898, 901 (E.D. Ark. 1989), and Branning v. CNA Ins. Cos., 721 F. Supp. 1180, 1184 (W.D. Wash. 1989), FDIC v. Nat'l Union Fire Ins. Co., 630 F. Supp. 1149, 1152, 1157 (W.D. La. 1986) (all refusing to apply "insured v. insured" exclusion).

Inexplicably, neither party cited any of these cases, which rule on the exact issue in this litigation: whether an "insured v. insured" policy exclusion applies to claims by the FDIC as receiver.

"[T]he majority view [holds] that the FDIC, although it has stepped into the shoes of [a failed bank], is not barred from bringing suit by the pertinent provision." Am. Cas. Co. I, 791 F. Supp. at 277. "The doctrines often used to justify a finding of coverage when receivers sue directors and officers of a failed bank relate to ambiguities in the insurance contract, the insured's reasonable expectations of coverage, and the unconscionability of a finding of no coverage." See Melanie K. Palmore, "Insured v. Insured" Exclusions in Director and Officer Liability Insurance Policies: Is Coverage Available When Chapter 11 Trustees and Debtors-in-Possession Sue Former Directors and Officers, 9 BANKR. DEV. J. 101, 114 (1992).

However, none of the cases making up the majority view involved policy language expressly providing that the exclusion applied to successors, receivers, assignees and trustees. In American Casualty Co., 791 F. Supp. at 278, the court found the lack of specific policy language referring to a receiver to be controlling. The court explained, "[T]he exclusion provision contains no expressed reference to the FDIC or to any successors, assigns or receivers. Such language could easily have been made a part of the policy exclusion if it was so intended and, in fact, has been on numerous other occasions." Id. Here, BancInsure included a provision doing just that—excluding claims brought by a receiver.

The facts at issue are therefore similar to those in State ex rel. Wagner v. United National Insurance Co., 761 N.W.2d 916 (Neb. 2009). There, the court considered a regulatory exclusion that barred coverage for "any type of legal or equitable action which such Agency has the legal right to bring as receiver, conservator, liquidator or assignee of the assured." Id. at 920. Because the terms of the insurance policy were clear and unambiguous, the court enforced the policy's exclusion as barring coverage of claims brought by a liquidator.

Likewise, the policy here expressly excludes actions by entities acting in a certain capacity, specifically receivers, successors, assignees and trustees. Although the provision at issue does not explicitly refer to regulatory agencies acting in such a capacity as the provision in Wagner did, its language is unambiguous in identifying what claims are not covered by the policy. "Where the terms are clear and unambiguous, and capable of only one reasonable interpretation, the court is to look to the contract alone to ascertain the parties' intent." Fireman's Fund Ins. Co. v. Univ. of Ga. Athletic Ass'n, Inc., 654 S.E.2d 207, 209 (Ga. Ct. App. 2007). Applying the policy's plain language, the Court finds that exclusion V.11 excludes from coverage claims brought by a receiver of SCB. Thus, the FDIC-R's claims are not covered by the policy.

Notably, Plaintiffs do not argue that the policy provision is ambiguous. They merely contend that "[c]ourts have split on whether such exclusions apply to suits by receivers, with each suit hanging on the precise language at issue in the policy." Despite Plaintiffs' acknowledgment that there is a split of authority regarding suits by receivers, the only case they cite in support of their argument that exclusion V.11 does not apply to the FDIC-R's suit is a case involving a chapter 7 trustee suit, Wilson v. Vanderlick (In re Central Louisiana Grain Co-op, Inc.), 467 B.R. 390 (Bankr. M.D. La. 2012). There, the provision at issue did not expressly exclude suits brought by trustees. Instead, it excluded claims "by, on behalf of, or in the right of the Insured Entity in any capacity." Id. Thus, the court considered whether the suit by the trustee was brought by or on behalf of the insured company. Finding that the trustee was asserting claims in the right of the bankruptcy estate rather than the right of the insured entity, the court refused to apply the exclusion to the trustee's claims.
Unlike the provision in Wilson, the exclusion here expressly excludes suits brought by a receiver. In the absence of any argument from Plaintiffs as to why the Court should apply the reasoning of Wilson to this case, rather than enforce the policy's plain language, the Court applies the policy as written.

Recently, in Progressive Casualty Insurance Co. v. FDIC, No 1:12-cv-1103-RLV, at 5 (N.D. Ga. Jan. 4, 2012), this Court held that an "insured v. insured" policy provision did not apply to claims made by the FDIC as receiver. There, the policy provision at issue excluded claims brought by or on behalf of the failed bank. The court found this language ambiguous. Here, in contrast, the "insured v. insured" provision explicitly excludes not only claims brought by or on behalf of the bank, but also claims by or on behalf of receivers.

In an effort to avoid this result, Plaintiffs contend that when read as a whole, the policy shows that Plaintiffs negotiated for coverage of regulatory claims brought by the FDIC. Specifically, they argue that because the policy included a regulatory exclusion endorsement deleting a regulatory exclusion and including language related to claims made by a deposit insurance organization, the FDIC-R's claims are covered despite exclusion V.11.

The regulatory exclusion endorsement provides:

SECTION V. EXCLUSIONS of the Policy is hereby amended by the deletion of the following Exclusion:

12. [any Claim] based in or upon any action or proceeding brought on behalf of any federal or state regulatory or supervisory agency or deposit insurance organization ("Agency").
This exclusion shall include, but not be limited to, any type of legal action which any such Agency may bring as receiver, conservator, trustee, liquidator, rehabilitator or in any capacity, whether such action or proceeding is brought in the name of such Agency or by or on behalf of such Agency in the name of any other entity or solely in the name of any third party;
Notwithstanding the Limit of Liability provided by the Policy to which this endorsement is attached, the insurer's maximum aggregate liability for all Loss (including defense costs) arising out of all Claims made during the Policy Year as a result of any action or proceeding brought by or on behalf of
any federal or state regulatory or supervisory agency or deposit insurance organization shall be $4,000,000.00.
All payment of Loss under this endorsement shall reduce the Limit of Liability available to pay Losses under the Policy to which this endorsement is attached.
Nothing herein contained shall be held to vary, waive or extend any of the terms, conditions, provisions, agreements or limitations of the above mentioned policy other than as above stated.
Plaintiffs argue that if the FDIC-R's claims are excluded, then the endorsement language establishing a limit for loss "arising out of all Claims made during the Policy Year as a result of any action or proceeding brought by or on behalf of any federal or state regulatory or supervisory agency or deposit insurance organization" would be rendered meaningless.

This amount was later lowered to $2,000,000.

In support of their argument, Plaintiffs rely on the Georgia Court of Appeals' decision in State Farm Fire & Casualty Co. v. Walnut Avenue Partners, LLC, 675 S.E.2d 534 (Ga. Ct. App. 2009). At issue in that case were a policy exclusion and two endorsements. The exclusion provided that "property damage . . . arising out of the actual, alleged or threatened discharge, seepage, migration, dispersal, spill, release or escape of pollutants" was excluded from coverage. Id. at 537. The first endorsement seemingly created an exception for quick, abrupt and accidental pollutant discharge, specifically providing that the exclusion did not apply to "actual, alleged or threatened discharge, dispersal, spill, release or escape of pollutants which occurs quickly and abruptly and is accidental." Id. However, a second endorsement reiterated the original exclusion's language, providing that "any . . . property damage arising out of the actual, alleged or threatened discharge, seepage, migration, dispersal, spill, release or escape of pollutants" was excluded from coverage. Id. Finding that the language of these two endorsements was inconsistent, the court found that an ambiguity existed as to whether the policy covered the quick, abrupt and accidental discharge of pollutants. Construing the ambiguity against the insurer, the court held that the policy covered quick, abrupt and accidental discharge of pollutants because a contrary construction would render the first endorsement meaningless.

Plaintiffs assert that the reasoning of Walnut Avenue Partners applies here. However, Plaintiffs fail to provide any explanation for how or why it applies. Plaintiffs merely make the conclusory assertion that "[a] complete reading of the entirety of the contract, as required by Georgia law, compels a finding that the FDIC claims are covered." While it is true that courts are to construe an insurance contract according to the entirety of its terms and conditions, including any endorsements, O.C.G.A. § 33-24-16, it is likewise true that "courts may not strain the construction of a policy so as to deliver an ambiguity," State Farm Mut. Auto Ins. Co. v. Staton, 685 S.E.2d 263, 265-66 (Ga. 2009). In Walnut Avenue Partners, the court found that an ambiguity existed because the policy provisions were plainly inconsistent: one endorsement indicated an exception to the exclusion, whereas the other endorsement repeated the very language of the exclusion, thus indicating that no exception was recognized. Here, there is no such apparent inconsistency, and thus no ambiguity.

Exclusion V.11 provides that claims by receivers are barred. The regulatory exclusion endorsement sets a cap on all loss "arising out of all Claims made during the Policy Year as a result of any action or proceeding brought by or on behalf of any federal or state regulatory or supervisory agency or deposit insurance organization." The Court does not see, and Plaintiffs have failed to articulate, how these provisions are inconsistent. First, as BancInsure explains, there are a variety of actions that could be brought by a "state regulatory or supervisory agency or deposit insurance corporation" other than claims brought by the FDIC as receiver. By deleting the regulatory exclusion, V.12, Plaintiffs secured coverage for many different types of claims brought by regulatory agencies. Had exclusion V.12 not been deleted, it would have obviously applied to the FDIC's claims as receiver. But deleting exclusion V.12 does not change the fact that exclusion V.11, which excludes claims by receivers, remains.

Moreover, the language regarding the cap on regulatory loss refers to loss based on "Claims made during the Policy Year." To constitute a "Claim" under the policy, none of the exclusions, including V.11, can apply. Thus, the cap does not apply to claims by receivers, including the FDIC-R as receiver. Additionally, Plaintiffs ignore the endorsement's language specifically addressing its relationship to other exclusions in the policy. It expressly provides, "Nothing herein contained shall be held to vary, waive or extend any of the terms, conditions, provisions, agreements or limitations of the above mentioned policy other than as above stated."

Plaintiffs also cite Columbian Financial Corp. v. BancInsure, Inc., No. 08-2642, 2009 WL 4508576, at *5-6 (D. Kan. Nov. 30, 2009), as support for their contention that the endorsement results in coverage of the FDIC-R's claims. Plaintiffs' reliance on that case is misplaced. There, the issue was whether coverage under a D&O policy automatically terminated upon appointment of a receiver for the failed bank. Construing the policy language, the court answered that question in the negative. In so holding, the court noted that "[a]lso significant in the court's analysis [was] the regulatory exclusion endorsement." Id. at *5. The court reasoned that the parties' deleting of an exclusion excluding claims by regulatory agencies, including actions brought by receivers, reflected the parties' intent that the policy not terminate upon the appointment of a receiver. Additionally, the court noted that the endorsement "affirmatively grant[ed] coverage for actions brought by regulatory agencies." Id. at *6.

As did the Columbian court, this Court finds that the regulatory exclusion endorsement generally grants coverage to claims by regulatory agencies provided that no other policy exclusions apply. But that is not the end of the analysis because the Court must address the additional issue of whether an action by a regulatory agency acting as a receiver is covered when there is an exclusion expressly excluding claims by receivers. That specific issue was not before the Columbian court; thus, that court's holding that the regulatory exclusion endorsement provides coverage for actions brought by regulatory agencies does not apply here.

In the policy at issue, exclusion V.11 excluding claims by receivers and exclusion V.12 excluding claims by regulatory agencies acting as receivers overlap in the event that a regulatory agency brings an action as a receiver. But removing the blanket exclusion for all regulatory claims in exclusion V.12 does not affect the application of exclusion V.11 excluding claims by the receiver. Unlike the Columbian court, which held that the parties' deletion of the regulatory exclusion evidenced their intent regarding the contract's cancellation, the Court will not ascertain the parties' intentions from deleted language when the policy language is clear. See Ryan v. Mountain States Helicopter, 686 P.2d 95, 97 (Idaho Ct. App. 1984) ("We reject [the insured's] circular reasoning that intent should be ascertained from material deleted, and that such intent should be compared to the otherwise plain meaning of a contract, to determine whether an ambiguity exists.").

Exclusion V.11 clearly provides that claims brought by receivers are excluded. "[A] reasonable person in the position of the insured would understand" this provision to mean that claims by the FDIC as receiver are excluded. Mason v. Allstate Ins. Co., 680 S.E.2d 168, 171 (Ga. Ct. App. 2009). Because there is no inconsistency between exclusion V.11 and the regulatory exclusion endorsement, the Court must enforce the contract as written. See Gill v. B&R Int'l, Inc., 507 S.E.2d 477, 480 (Ga. Ct. App. 1998) ("[I]f no ambiguity appears, the trial court enforces the contract according to its terms . . . ."); see also Essex Ins. Co. v. Vincent, 52 F.3d 894, 897 (10th Cir. 1995) (where two policy exclusions would bar coverage of a particular claim, the deletion of one of the two exclusions did not bar coverage by the remaining exclusion where there was no conflict between the two exclusions). Thus, while Plaintiffs might have intended to obtain coverage for any claims made by any regulatory agency, "[i]t is the duty of the courts to construe and enforce contracts as made, and not to make them for the parties. The law will not make a contract for the parties which is different from the contract which was executed by them." Sellers v. Alco Fin., Inc., 204 S.E.2d 478, 480 (Ga. Ct. App. 1974).

Accordingly, the Court holds that exclusion V.11 bars coverage of the FDIC-R's anticipated claims and will therefore grant BancInsure's motion for summary judgment and deny Plaintiffs' motion for summary judgment on that issue.

3. Whether BancInsure Is Obligated to Advance and/or Reimburse Plaintiffs' Defense Costs

As a last resort, Plaintiffs contend that even if exclusion V.11 applies, BancInsure is required to advance the costs for Plaintiffs' defense against the FDIC-R's claims. According to Plaintiffs, section IV.I, pertaining to BancInsure's payment of defense costs, provides coverage of defense costs, thus enabling Plaintiffs to mount a vigorous defense of mertitless claims that would otherwise be excluded under the policy.

To even attempt to understand Plaintiffs' argument, several policy sections must first be untangled. The Court begins with the prefatory sentence to section V. It provides: "The Insurer shall not be liable to make any payment for Loss in connection with any Claim made against the Insured Persons based upon, arising out of, relating to, in consequence of, or in any way involving" the twelve listed exclusions.

Although the policy lists thirteen exclusions, there are actually only twelve exclusions because the regulatory exclusion endorsement deletes exclusion V.12. --------

Section IV paragraph H defines "Loss" as: "any amount the Insured Persons are legally obligated to pay for any Claim or Claims made against them for Wrongful Acts as to which coverage applies, and shall include but not be limited to damages, judgments, settlements, and reasonable Defense Costs . . . ." Within that same section, "Defense Costs" are defined in paragraph I, which provides:

"Defense Costs" means that part of Loss consisting of reasonable attorneys' fees, costs, and expenses . . . incurred in the defense of a Claim made against any Insured Person . . . .
Neither Defense Costs nor any other part of Loss shall include any attorneys' fees, costs or expenses incurred in . . . the defense of Claims or causes of action that are not covered under this Policy . . . .

Provided, however, that the prefatory sentence to Section V. EXCLUSIONS. notwithstanding, Defense Costs includes the reasonable and necessary attorneys' fees, costs and expenses incurred by "Insured Persons" in the defense of Claims alleging the following, if the Claim is otherwise insured and not excluded by the Policy:

(1) Conduct excluded under Section V. EXCLUSIONS., Paragraphs 1., 2., 3. and 4.;

(2) Conduct uninsurable by law;

(3) Reckless, willful, fraudulent, dishonest or bad faith conduct expressly excluded as such in any endorsement;

(4) Conduct in violation of statute, governmental regulation or order expressly excluded as such in any endorsement; [or]

(5) Conduct by Insured Persons against the interests of the Company.
(Emphasis added.)

Plaintiffs contend that reading section IV.I as a "layman, it provides that BancInsure will reimburse Defense Costs incurred in defending an excluded claim, so long as the excluded claim is one of the five types of excluded claims listed in that paragraph." The Court disagrees.

As an initial matter, it is doubtful whether a lay person could make any sense at all out of the provision. It is even more doubtful that a lay person would read a policy provision that does not even include the words "reimburse" or "advance" as requiring the reimbursement or advancement of costs.

Nevertheless, carefully examining the provisions shows that defense costs are not excluded in certain situations. Starting with section V, the prefatory sentence provides that BancInsure will not pay any loss if any of the exclusions apply. The payment of defense costs is within the definition of loss. Thus, BancInsure will not pay for defense costs if one of the section V exclusions applies. Defense costs are generally defined as costs incurred in defending an insured person, but specifically exclude costs incurred defending claims that are not covered. For purposes of claims excluded by section V.5 exclusions, however, defense costs are defined as costs incurred in connection with claims involving the five listed categories of circumstances. Defense costs will therefore be covered for those five categories provided that the claim is "otherwise insured and not excluded by the Policy." Here, the FDIC-R's claims are not otherwise insured because they were not made within the policy's coverage period and Plaintiffs did not satisfy the policy's notice requirement such that those claims are treated as having been made during the policy's coverage period.

The Court thus holds that BancInsure is not obligated to pay Plaintiffs' costs incurred in defending the FDIC-R's claims against them. Plaintiffs' motion for summary judgment will therefore be denied and BancInsure's motion for summary judgment will be granted on this issue.

III. Conclusion

For the reasons set forth above, the Court GRANTS BancInsure's motion for summary judgment [19] and DENIES Plaintiffs' motion for summary judgment [18]. Further, as a result of the Court's disposition of the parties' summary judgment motions, the Court DENIES Plaintiffs' motion for a preliminary injunction [3]. There being no issues remaining to adjudicate, the CLERK is hereby DIRECTED to close this case.

IT IS SO ORDERED this 20th day of March, 2013.

/s/_________

Timothy C. Batten, Sr.

United States District Judge


Summaries of

Davis v. Bancinsure, Inc.

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF GEORGIA NEWNAN DIVISION
Mar 20, 2013
CIVIL ACTION FILE NUMBER 3:12-cv-113-TCB (N.D. Ga. Mar. 20, 2013)

applying Georgia law

Summary of this case from BioHealth Med. Lab., Inc. v. Cigna Health & Life Ins. Co.

In Davis v. BancInsure, Inc., No. 3:12–cv–113–TCB, 2013 WL 1223696 (N.D.Ga. March 20, 2013), the court cited many of the cases the parties discuss in their briefs, reflecting the way in which courts are split on the issue of whether “insured v. insured” exclusions in D & O policies apply to claims by FDIC. The court notes that the majority view holds that coverage exists for FDIC claims even though it steps into the shoes of a failed bank.

Summary of this case from Bancinsure, Inc. v. McCaffree

In Davis, the directors and officers contended that even if the “insured v. insured” exclusion applied, the policy when read as a whole provided coverage of regulatory claims.

Summary of this case from Bancinsure, Inc. v. McCaffree
Case details for

Davis v. Bancinsure, Inc.

Case Details

Full title:GEORGE G. DAVIS, et al., Plaintiffs, v. BANCINSURE, INC., Defendant.

Court:UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF GEORGIA NEWNAN DIVISION

Date published: Mar 20, 2013

Citations

CIVIL ACTION FILE NUMBER 3:12-cv-113-TCB (N.D. Ga. Mar. 20, 2013)

Citing Cases

Fed. Deposit Ins. Corp. v. Bancinsure, Inc.

These descriptions of alleged errors and breaches of duty fall within the Policy's “Wrongful Acts”…

Bancinsure, Inc. v. McCaffree

Defendants argue that FDIC is not a “typical” receiver, but their argument fails in the face of the common…