11th Cir. D&O Interpretationshoke2013
“Insured v. Insured” Exclusion Ambiguous
The Eleventh Circuit, applying Georgia law, overturned a lower court’s decision and ruled that an “Insured Versus Insured” exclusion was ambiguous with regard to a lawsuit brought by the Federal Deposit Insurance Corporation (“FDIC”) against former bank officers because other courts had interpreted similar language in varying ways. The court also held that extrinsic evidence may be necessary to determine the parties’ intent.
Former bank officers for Community Bank & Trust (“Community”) were sued by the FDIC, as receiver for Community, for negligence relating to the approval of loans in violation of the Bank’s loan policy and prudent lending practices. The FDIC sought over $15,000,000 in damages. During the relevant time frame, St. Paul Mercury Insurance Co. (“St. Paul”) issued Community a policy which included Directors and Officers Liability coverage. The former bank officers submitted their claim to St. Paul, as Insureds, for coverage under the policy for the lawsuit brought by the FDIC. St. Paul then sought a declaration that the policy bars coverage for the FDIC action based upon the “Insured Versus Insured” exclusion and an unrepaid loan carve-out provision.
The lower court held that the “Insured Versus Insured” exclusion applied and therefore St. Paul was not required to provide coverage for the $15,000,000 lawsuit brought by the FDIC. The Eleventh Circuit overruled the lower court and held that the “Insured Versus Insured” exclusion was ambiguous and extrinsic evidence may be necessary to determine the parties’ intent. In making its decision that the “Insured Versus Insured” exclusion was ambiguous the court relied on the fact that many different courts interpret the exclusion differently, particularly when the case involves the FDIC.
According to the court, there is a low threshold for establishing ambiguity in an insurance policy. Under Georgia law, an insurance policy provision is ambiguous when it is fairly susceptible to more than one meaning. Additionally, “[a]ny exclusion sought to be invoked by the insurer is to be liberally construed against the insurer unless it is clear and unequivocal.”
Travelers also argued that the lower court erred in finding the definition of loss, which carved out unrepaid loans, was ambiguous; however, the Eleventh Circuit found no reason to disrupt that decision. This case differs from the other “Insured Versus Insured” case discussed in this issue of Insurance Bytes. In the other case, an Illinois federal court found an “Insured Versus Insured” exclusion applicable because, there, the issue was whether collusion must be asserted, and in the instant case, the issue revolves around ambiguity as related to whether the FDIC constitutes an insured under the exclusion. St. Paul Mercury Ins. Co. v. Fed. Deposit Ins. Corp., No. 13-14228 (11th Cir. Dec. 17, 2014).