Insured v. Insured Exclusion Held Ambiguous With Regard to Claims by the FDIC as Receiver
St. Paul Mercury Ins. Co. v. Hahn, 2014 U.S. Dist. LEXIS 153643 (C.D. Cal. October 8, 2014)
In Hahn, the Central District of California ruled that the claims of the FDIC as receiver for a failed bank against the bank’s former officers and directors were not excluded from coverage by the insured vs. insured exclusion in the bank’s D&O insurance policy.
Hahn arose out of the closing of Pacific Coast National Bank (the “Bank”) and the appointment of the FDIC as its receiver. The FDIC proceeded to file a lawsuit against several of the Bank’s former directors and officers for negligence, gross negligence and breach of fiduciary duty. The directors and officers sought defense cost and indemnity coverage from the Bank’s D&O insurer, and the insurer filed the Hahn action to seek a declaration that its policy did not cover the claim based on the insured vs. insured exclusion in its policy, which precluded coverage for claims “brought or maintained by or on behalf of any Insured” but had an exception for any claim “that is a derivative action brought or maintained on behalf of the Company or one or more persons who are not Directors or Officers….” 2014 U.S. Dist. LEXIS 153643 , at *4. Both the FDIC and the insurer filed motions for summary judgment, and the Hahn court granted the FDIC’s motion while denying the insurer’s motion.
The Hahn court ruled that the insured vs. insured exclusion was ambiguous in two respects with regard to the claim before it. First, the court ruled that the exclusion was ambiguous with regard to whether the FDIC’s claims were brought “by or on behalf of any Insured” because the FDIC was not itself an insured. Secondly, the court held that even if the main text of the exclusion did apply, the exception to the exclusion would also apply because the FDIC was arguably acting in a derivative capacity on behalf of the Bank’s shareholders in bringing its lawsuit against the Bank’s former directors and officers.
© TROUTMAN SANDERS LLP. ADVERTISING MATERIAL. These materials are to inform you of developments that may affect your business and are not to be considered legal advice, nor do they create a lawyer-client relationship. Information on previous case results does not guarantee a similar future result.