774 F.3d 702
11th Cir.2014Background
- St. Paul Mercury issued a Directors & Officers (D&O) policy to Community Bank & Trust (CB&T) covering officers for Management Practices claims, subject to exclusions and a "Loss" definition that excludes "any unrepaid, unrecoverable or outstanding loan" to an "Affiliated Person."
- FDIC, as receiver (FDIC‑R) for the closed bank, sued former officers Miller and Fricks for gross negligence and breach of fiduciary duty relating to defective loans, seeking over $15 million.
- St. Paul filed a declaratory judgment action seeking a ruling that the policy does not cover the FDIC‑R action and that it has no duty to defend/indemnify the officers.
- Key policy provisions challenged: the insured‑versus‑insured exclusion (bars claims "brought or maintained by or on behalf of any Insured or Company") and the unrepaid‑loan carve‑out from the definition of Loss.
- The district court granted summary judgment to St. Paul, finding the insured‑versus‑insured exclusion unambiguous and barring coverage, but found the unrepaid‑loan carve‑out ambiguous.
- On appeal, the Eleventh Circuit held the insured‑versus‑insured exclusion is ambiguous (given divergent authority) and remanded for consideration of extrinsic evidence; it affirmed the district court’s view that the unrepaid‑loan carve‑out was ambiguous.
Issues
| Issue | Plaintiff's Argument (St. Paul) | Defendant's Argument (FDIC‑R) | Held |
|---|---|---|---|
| Whether FDIC‑R suits are barred by insured‑versus‑insured exclusion that precludes claims "by or on behalf of" the Company/Insured | The FDIC‑R "steps into the shoes" of the failed bank, so its suit is effectively "by/on behalf of" the Company and is excluded | FDIC‑R argues the exclusion does not reference the FDIC or receivers and courts often treat the FDIC as distinct from the insured for this exclusion | The court held the exclusion ambiguous and remanded for extrinsic evidence to determine intent |
| Whether the district court erred by refusing extrinsic evidence/discovery on the ambiguous exclusion | No error; exclusion is clear and excludes FDIC‑R suits | Courts should resolve ambiguity in favor of coverage and consider extrinsic evidence | Court reversed: because exclusion is ambiguous, extrinsic evidence may be necessary; remand required |
| Whether the unrepaid‑loan carve‑out excludes damages that are unrepaid loans from coverage | Carve‑out bars coverage for unrepaid loan amounts to affiliated persons | FDIC‑R disputes scope and asserts ambiguity permitting coverage | Court agreed with district court that the unrepaid‑loan carve‑out is ambiguous and did not foreclose further ¶ consideration |
| Whether summary judgment was proper given conflict in authorities interpreting similar exclusions | Insurer argued uniform application; urged summary judgment | FDIC‑R pointed to split authority and rules favoring insured when ambiguous | Because of split authority and ambiguity, summary judgment was reversed and case remanded |
Key Cases Cited
- O’Melveny & Myers v. FDIC, 512 U.S. 79 (1994) (FDIC as receiver “steps into the shoes” of a failed bank; federal statute does not displace state law absent clear congressional intent)
- Duckworth v. Allianz Life Ins. Co. of N. Am., 706 F.3d 1338 (11th Cir. 2013) (if policy ambiguity remains after construction rules, extrinsic evidence may be used to determine parties’ intent)
- Beach Cmty. Bank v. St. Paul Mercury Ins. Co., 635 F.3d 1190 (11th Cir. 2011) (standard of review for summary judgment and principles for interpreting insurance policies)
- Hurst v. Grange Mut. Cas. Co., 470 S.E.2d 659 (Ga. 1996) (an insurance provision is ambiguous when susceptible to two or more reasonable constructions; ambiguities construed for the insured)
- First Ga. Ins. Co. v. Goodrum, 370 S.E.2d 162 (Ga. Ct. App. 1988) (split judicial interpretations of exclusionary language weigh against insurer when construing ambiguous policy terms)