BancorpSouth, Inc. v. Federal Insurance Co., 873 F.3d 582

BancorpSouth purchased a bankers’ professional liability policy from Federal Insurance (policy covered "Loss" for covered "Claims" including defense costs; it excluded any claim "based upon, arising from, or in consequence of any fees or charges" (Exclusion 3(n)).
Shane Swift sued BancorpSouth in 2010 alleging that Bancorp’s policies (e.g., reordering debits highest-to-lowest, delayed posting, misleading balance info) were used to maximize excessive overdraft fees and filed a class action on behalf of customers who incurred overdraft fees.
BancorpSouth settled the class action for $24 million in 2016 and sought coverage from Federal for defense and indemnity; Federal denied coverage based on Exclusion 3(n).
BancorpSouth sued Federal for breach of the duty to defend, breach of the duty to indemnify, and bad-faith denial of coverage; Federal moved to dismiss under Rule 12(b)(6).
The district court held Exclusion 3(n) unambiguously excluded the Swift claims because the complaint’s gravamen was the imposition/collection of overdraft fees; it dismissed all counts. BancorpSouth appealed.
The Seventh Circuit affirmed, holding the Swift Complaint’s allegations—read in context—plainly arise from fees, so Federal had no duty to defend or indemnify; the bad-faith claim failed for lack of underlying coverage.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Exclusion 3(n) bars duty to defend for the Swift Complaint	Swift's claims focus on Bancorp’s policies/practices (not fees per se); those policies caused harm, so defense costs are covered	Exclusion 3(n) excludes any claim based on, arising from, or in consequence of fees or charges—Swift alleges overdraft-fee scheme, so exclusion applies	Exclusion 3(n) unambiguously applies; duty to defend is barred because the complaint’s gravamen is overdraft fees
Whether Exclusion 3(n) is ambiguous given policy’s definition of "Defense Costs" (which includes attorneys’ fees)	Broad exclusion renders defense coverage illusory and is therefore ambiguous	Exclusion unambiguously excludes Loss (including Defense Costs) arising from any fees; it does not bar defense for claims not based on fees	Exclusion is plain and not ambiguous; it excludes defense/indemnity only for claims tied to fees
Whether Federal owed a duty to indemnify settlement costs	BancorpSouth: reasonable inferences should be drawn in favor of insured; indemnity still possible	Federal: duty to indemnify arises only when claim is covered; no duty if defense excluded	No duty to indemnify because no duty to defend; indemnity issue precluded by exclusion
Whether bad-faith claim survives absent coverage	BancorpSouth: insurer acted in bad faith by denying coverage	Federal: bad-faith requires underlying coverage	Dismissed—bad-faith claim fails without a viable coverage claim

Alamo v. Bliss, 864 F.3d 541 (7th Cir. 2017) (standard of review for Rule 12(b)(6) dismissal)
Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (plausibility standard for pleading)
Bell Atl. Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (pleading standard for plausible claim)
Noxubee County Sch. Dist. v. United Nat’l Ins. Co., 883 So.2d 1159 (Miss. 2004) (insurance-policy interpretation under Mississippi law)
A.M.I. Diamonds Co. v. Hanover Ins. Co., 397 F.3d 528 (7th Cir. 2005) (discussion of moral hazard as rationale for exclusions)
S. Healthcare Servs., Inc. v. Lloyd’s of London, 110 So.3d 735 (Miss. 2013) (ambiguity rules: disagreement alone does not create ambiguity)
United States Fid. & Guar. Co. v. Martin, 998 So.2d 956 (Miss. 2008) (policy ambiguous only if two or more logical interpretations exist)
Health Care Indus. Liab. Ins. Program v. Momence Meadows Nursing Ctr., Inc., 566 F.3d 689 (7th Cir. 2009) (duty to defend broader than duty to indemnify)
Stubbs v. Miss. Farm Bureau Cas. Ins. Co., 825 So.2d 8 (Miss. 2002) (bad-faith claim requires underlying coverage)