IberiaBank Corporation v. Illinois Union Insurance
953 F.3d 339
| 5th Cir. | 2020Background
- IberiaBank, a HUD Direct Endorsement (DE) lender, settled with the DOJ for $11,692,149 resolving qui tam/False Claims Act allegations that it certified mortgages to HUD that failed to meet HUD underwriting requirements and paid undisclosed incentive payments to underwriters.
- IberiaBank sought coverage for the DOJ Settlement under a primary banker’s professional liability policy (Chubb, $10M) and an excess policy (Travelers, $5M that adopts the Chubb language).
- The Policies insure ‘Loss’ from a ‘Claim first made by a third party client’ for ‘Wrongful Acts in rendering or failing to render Professional Services,’ and define ‘Professional Services’ as services provided to a policyholder or client ‘for consideration’ and ‘pursuant to a written contract.’
- Insurers denied coverage, arguing the government (HUD/DOJ) is not a ‘client’ and the certifications were not ‘Professional Services’ as defined; IberiaBank sued for breach of contract.
- The district court dismissed for failure to state a claim, holding the government is not IberiaBank’s ‘client’ and IberiaBank appealed; the Fifth Circuit affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the DOJ/HUD qualifies as a ‘third party client’ under the Policies | IberiaBank: HUD/the government acted as its client in the DE Program and thus is a third-party client that made a covered claim | Insurers: The Policies require the insured to render services to a client 'for consideration' under a written contract; HUD paid nothing and thus is not a client | Held: Government is not a client; certifications to HUD were not services provided 'for consideration' and thus not covered |
| Whether the wrongful acts (false certifications/incentive payments) were ‘Professional Services’ covered by the policy | IberiaBank: Underwriting and HUD certifications are professional services rendered in the DE role | Insurers: Even if underwriting were professional services, the Insuring Clause links those services to a client who paid consideration; the alleged wrongful acts were directed to HUD, which did not pay | Held: Court did not reach merits because absence of a covered client forecloses coverage; insurer prevails |
| Whether Louisiana’s reasonable-expectations doctrine creates coverage despite policy wording | IberiaBank: A reasonable purchaser would expect coverage for government claims arising from DE participation | Insurers: Policy language is unambiguous, so reasonable-expectations doctrine does not apply | Held: Policy unambiguous; reasonable-expectations doctrine inapplicable |
Key Cases Cited
- Cadwallader v. Allstate Ins. Co., 848 So.2d 577 (La. 2003) (insurance-contract interpretation; plain meaning controls; ambiguous terms construed against insurer)
- Elliott v. Continental Cas. Co., 949 So.2d 1247 (La. 2007) (denying coverage where claimant’s alleged wrongful acts were not services rendered to the claimant under the policy)
- La. Ins. Guar. Ass’n v. Interstate Fire & Cas. Co., 630 So.2d 759 (La. 1994) (reasonable-expectations doctrine and policy construction principles)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (motion-to-dismiss plausibility standard)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (pleading standard requiring plausibility)
- Zurich Am. Ins. Co. v. O’Hara Reg’l Ctr. for Rehab., 529 F.3d 916 (10th Cir. 2008) (policy does not cover sums for services never provided; analogous in FCA context)