Federal Deposit Insurance v. Denson, 908 F. Supp. 2d 792

FDIC, as Receiver for Heritage Bank, sues Progressive for Bond coverage over Kathryn Denson theft.
Bond provides fidelity coverage for dishonest acts by an employee with manifest intent to cause loss and to obtain an improper benefit.
Denson embezzled about $381,604.49; shortages discovered Nov. 14, 2006; she pled guilty Dec. 21, 2009 and was ordered to restitution.
Bank reported the loss and filed a proof of loss Dec. 27, 2006; Progressive denied coverage Dec. 21, 2007.
Progressive seeks to void the Bond for misrepresentation, to enforce notice/discovery limits, and to limit loss or deny recovery; suit removed to this court in 2011 with FDIC substituted as plaintiff.
Court denies both parties’ summary judgment motions; grants Progressive’s motion to amend the answer in part, denies withdrawal of admissions, and grants reopening of discovery.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Material misrepresentation voiding the Bond	Bank asserts misrepresentation was material and voids bond	Progressive argues misrepresentation voids coverage and seeks rescission	Genuine issue of material fact; summary judgment denied on misrepresentation defense
Discovery/notice timing termination of coverage	Bank argues discovery occurred March 23, 2006 or later had effect	Progressive contends discovery termination or limited coverage	Genuine issue of material fact; discovery reopened; not resolved as a matter of law
Amount of loss proved under the Bond	Bank claims loss of $381,604.49; supported by admissions and evidence	Progressive argues loss cannot be reliably calculated due to faulty tickets	Not resolved; court rules against granting summary judgment; admissibility and calculation issues require trial
Rule 36(b) withdrawal of admission	FDIC argues Progressive should be prevented from withdrawing admission	Progressive seeks to amend admission of loss amount	Withdrawal denied due to lack of diligence and resulting prejudice; however, discovery reopening granted to address defenses
Amendment of answer and new defense viability	Progressive could not raise new defenses without prejudice	Amendment appropriate to address misrepresentation/ rescission	Amendment granted in part; misrepresentation/ rescission issue permitted with discovery

Carroll v. Metropolitan Ins. & Annuity Co., 166 F.3d 802 (5th Cir. 1999) (materiality of misrepresentation in insurance applications)
FDIC v. Fidelity & Deposit Co. of Maryland, 45 F.3d 969 (5th Cir. 1995) (discovery of loss requires knowledge of specific dishonest acts; suspicion not enough)
Chapman v. Safeco Ins. Co. of America, 722 F.Supp. 285 (N.D. Miss. 1989) (insurer can raise defenses to coverage not originally pled; waiver/estoppel not shown)
Bankers Life Co. v. Crenshaw, 483 So.2d 254 (Miss. 1985) (waiver/estoppel considerations in insurance defenses)
Aetna Life Insurance Co. v. Lavoie, 470 So.2d 1060 (Ala. 1985) (insurer defenses and Misrepresentation in insurance contracts)
U.S. Fidelity & Guaranty Co. v. Empire State Bank, 448 F.2d 360 (8th Cir. 1971) (discovery concepts referenced in later cases)