W Holding Company, Inc. v. AIG Insurance Company - Puerto
748 F.3d 377
1st Cir.2014Background
- Westernbank was closed and the FDIC was appointed receiver after losses; FDIC sued former directors and officers alleging breaches of fiduciary duty and massive damages.
- Directors/officers sought coverage and advancement of defense costs under a D&O policy issued by Chartis to W Holding (Westernbank’s parent); the policy requires advancement of covered defense costs prior to final disposition.
- Chartis denied coverage based chiefly on an insured‑vs‑insured exclusion that bars claims brought "by, on behalf of or in the right of" the Organization (which includes Westernbank and W Holding).
- The directors/officers sued Chartis in Puerto Rico court for declaratory relief and advancement; the FDIC intervened and removed to federal court, asserting it had succeeded to rights of the bank and its depositors/creditors under FIRREA.
- The district court ordered Chartis to advance defense costs, applying Puerto Rico law’s "remote possibility" standard for advancement; Chartis appealed the advancement order.
- The First Circuit affirmed, holding the advancement order was an immediately appealable mandatory preliminary injunction and that, given the pleadings and the "remote possibility" standard, the insureds had shown a likelihood of establishing at least a remote possibility of coverage.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Appealability of advancement order | Order is appealable as an injunction because it compels Chartis; thus interlocutory appeal proper | Order is not an appealable injunction because it wasn’t labeled one and case is not final | Court: Order is a mandatory preliminary injunction (enforceable, aimed at Chartis) and thus immediately appealable |
| Duty to advance defense costs under Puerto Rico law | Advancement required if complaint alleges even a remote possibility of coverage; pleadings should be read liberally | Advancement only owed for "covered" claims; no covered claim here due to exclusion | Court: Puerto Rico’s "remote possibility" standard applies; plaintiffs showed likelihood of a remote possibility of coverage, so advancement proper |
| Application of insured‑vs‑insured exclusion to FDIC as receiver | FDIC asserted rights of depositors/creditors and the FDIC fund too; pleadings permit possibility FDIC sued on behalf of non‑insureds, so exclusion may not apply | FDIC stands in the bank’s shoes as receiver; any claim by FDIC is on behalf of the Organization and thus excluded | Court: Genuine dispute in caselaw; given liberal pleading standard and FIRREA allegations that FDIC succeeded to depositors’/creditors’ rights, exclusion does not foreclose even a remote possibility of coverage |
| Sanctions for Chartis’ positions | Plaintiffs sought fees under PR Rule 44.1 arguing Chartis acted obstinately given inconsistent prior conduct | Chartis argued its position was legally reasonable and debatable | District court awarded sanctions; appellate decision affirmed advancement and awarded costs on appeal to plaintiffs |
Key Cases Cited
- Morales Feliciano v. Rullán, 303 F.3d 1 (1st Cir. 2002) (final‑judgment rule and interlocutory appeal principles)
- Fryzel v. Mortgage Elec. Registration Sys., Inc., 719 F.3d 40 (1st Cir. 2013) (character of order depends on operative terms/effects for injunction analysis)
- Bogosian v. Woloohojian Realty Corp., 923 F.2d 898 (1st Cir. 1991) (interlocutory injunctive relief appealability principles)
- Braintree Labs., Inc. v. Citigroup Global Markets, Inc., 622 F.3d 36 (1st Cir. 2010) (preliminary injunction factors framework)
- Narragansett Indian Tribe v. Guilbert, 934 F.2d 4 (1st Cir. 1991) (distinguishing likelihood of success from ultimate success in injunction context)
- Univ. of Texas v. Camenisch, 451 U.S. 390 (U.S. 1981) (preliminary injunction standards caution)