Federal Deposit Insurance Corp. v. Kansas Bankers Surety Co.
2016 U.S. App. LEXIS 19622
| 10th Cir. | 2016Background
- New Frontier Bank received notice in Feb 2009 of potential claims arising from large loans to Johnson Dairy; KBS (the bond issuer) was notified and asked for prompt updates.
- Johnson Dairy sued the bank; KBS declined to defend on Mar 30, 2009, which invoked General Agreement F extending the usual proof-of-loss deadline to six months after settlement or judgment in the third-party action.
- Condition 14 of the bond stated the bond terminates immediately on receiver takeover and barred any claim by a receiver unless a "Proof of Loss, duly sworn, with full particulars and complete documentation" was received by the insurer prior to termination.
- Colorado closed the bank and appointed the FDIC as receiver on Apr 10, 2009; the FDIC later settled the adversary proceeding and sought recovery under the bond for the shortfall the settlement did not cover.
- KBS refused payment, asserting no proof of loss had been received before FDIC takeover; the FDIC sued. The district court granted summary judgment for KBS, finding Condition 14 controlled and required strict, timely proof of loss prior to takeover.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Condition 14 is ambiguous/non-standard, requiring construction against drafter | FDIC: Condition 14 is ambiguous or contains non-standard language added by KBS and should be construed for coverage | KBS: Bond language is negotiated and not ambiguous; FDIC forfeited this argument below | Forfeited by FDIC; court did not reach merits; interpretation for KBS affirmed |
| Whether Colorado law permits only substantial compliance with proof-of-loss | FDIC: Colorado requires only substantial compliance with proof-of-loss, so Bank/FDIC met the standard | KBS: Condition 14 requires strict, timely compliance and was not complied with | Forfeited by FDIC; court noted unsettled law and precedent supporting strict compliance where time is of the essence |
| Whether FDIC, as receiver under FIRREA, succeeded to Bank’s rights despite Condition 14 | FDIC: FIRREA makes FDIC successor to bank’s rights; FDIC could submit proof after resolution of third-party suit and enforce claim | KBS: Statutory and state law permit enforceable contractual limits like Condition 14; FDIC only succeeds to rights the bank actually had pre-takeover | Rejected FDIC: Because proof of loss was a condition precedent that never vested pre-takeover, FDIC acquired no enforceable coverage right |
| Whether prior cases (e.g., St. Paul) control outcome | FDIC: Relies on St. Paul decision holding discovery before takeover may suffice | KBS: Distinguishes St. Paul because its bond lacked express condition precedent like Condition 14 | Court: St. Paul inapposite; bonds that make proof-of-loss a condition precedent differ and Condition 14 controls |
Key Cases Cited
- First Nat’l Bank of Manitowoc v. Cincinnati Ins. Co., 485 F.3d 971 (7th Cir.) (argues insurers adding unique language must bear construction against drafter)
- FDIC v. Kansas Bankers Sur. Co., 963 F.2d 289 (10th Cir.) (prior Tenth Circuit decision holding strict-time provisions may be enforced where time is of the essence)
- FDIC v. Oldenburg, 34 F.3d 1529 (10th Cir.) (distinguishes bonds that make strict compliance condition precedent from those that do not)
- Hoang v. Assurance Co. of Am., 149 P.3d 798 (Colo. 2007) (insurance ambiguities construed for coverage in take-it-or-leave-it consumer policies)
- Wells Fargo Bus. Credit v. Am. Bank of Commerce, 780 F.2d 871 (10th Cir.) (discusses substantial compliance with notice/proof-of-loss under state law)