Banner Bank v. First American Title Insurance
916 F.3d 1323
10th Cir.2019Background
- Banner Bank (successor to Far West/AmericanWest) held deeds of trust from entities controlled by Wendell Jacobson and purchased a title insurance policy from First American covering defects including fraud or unauthorized transfers, subject to exclusions.
- Jacobson operated a Ponzi scheme; a Receiver sued the Bank under Utah’s Uniform Voidable Transactions Act (UVTA), alleging the transfers were fraudulent conveyances.
- Bank sought defense and indemnity from First American; First American denied coverage citing the policy exclusion for claims based on bankruptcy/insolvency or fraudulent transfers.
- The Bank settled the Receiver’s suit for $675,000, then sued First American for breach of contract (duty to defend and indemnify), breach of the implied covenant of good faith and fair dealing, and declaratory relief.
- The district court granted summary judgment to the Bank and awarded settlement damages and attorneys’ fees; the Tenth Circuit reversed, concluding First American had no duty to defend or indemnify and did not breach the implied covenant.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Duty to defend under the policy (eight-corners rule) | Receiver’s complaint could be read as alleging unauthorized transfers (covered risk); any ambiguity requires insurer to defend. | Complaint alleges UVTA fraudulent conveyance by Jacobson; that falls squarely within the policy’s exclusion for fraudulent transfers, so no duty to defend. | Court held no duty to defend: complaint was governed by creditors’ rights law alleging fraudulent conveyance, which the policy excluded. |
| Duty to indemnify (post‑settlement) | Settlement shows the underlying claim was for unauthorized transfers (a covered event), so insurer must indemnify despite initial denial. | Duty to indemnify cannot be imposed retroactively from a settlement; indemnity is narrower and determined by the complaint’s face. | Court held no duty to indemnify; settlement cannot create retroactive coverage when complaint shows exclusion. |
| Breach of implied covenant of good faith and fair dealing | Insurer unreasonably denied defense/indemnity and breached implied covenant; consequential fees should be recoverable. | Insurer reasonably investigated, re-evaluated the claim, and lawfully concluded no coverage; no bad faith breach occurred. | Court held no breach: First American acted reasonably and complied with investigation/evaluation duties. |
| Damages (attorneys’ fees and consequential fees) | Bank seeks general damages (settlement, defense fees in Receiver suit) and consequential damages (fees in this coverage litigation). | Consequential fees are tied to alleged bad-faith breach; without breach those fees are improper. | Court affirmed general damages were unsupported because insurer owed no coverage; consequential fees reversed as there was no breach of implied covenant. |
Key Cases Cited
- Birch v. Polaris Indus., Inc., 812 F.3d 1238 (10th Cir. 2015) (standard of review for summary judgment)
- Equine Assisted Growth & Learning Ass’n v. Carolina Cas. Ins. Co., 266 P.3d 733 (Utah 2011) (eight‑corners rule for duty to defend)
- Benjamin v. Amica Mut. Ins. Co., 140 P.3d 1210 (Utah 2006) (ambiguous complaints require defense until resolved)
- Fire Ins. Exch. v. Estate of Therkelsen, 27 P.3d 555 (Utah 2001) (duty to defend broader than duty to indemnify)
- Sharon Steel Corp. v. Aetna Cas. & Sur. Co., 931 P.2d 127 (Utah 1997) (duty to defend vs. indemnify distinction)
- Prince v. Bear River Mut. Ins. Co., 56 P.3d 524 (Utah 2002) (insurer’s investigation and evaluation duties in good‑faith claim handling)
- Trans‑Western Petroleum, Inc. v. U.S. Gypsum Co., 379 P.3d 1200 (Utah 2016) (general vs. consequential contract damages)