By Emily Field
Editing by Bruce Goldman.
All Content © 2003-2017, Portfolio Media, Inc
Law360, Los Angeles (March 18, 2016, 11:29 PM EDT) — A Georgia federal judge on Friday ruled that Federal Insurance Co. and Westchester Fire Insurance Co. must cover the Federal Deposit Insurance Corp.’s $71 million lawsuit accusing former executives of now-insolvent Silverton Bank NA of breaching fiduciary duties.
U.S. District Judge Thomas W. Thrash granted the FDIC’s motion for summary judgment, saying that when the bank closed on May 1, 2009, there was no written document in its official records that the insurers could deny coverage — like those of the FDIC — based on a regulatory exclusion. Instead, the only document in effect in its records was Federal’s executive liability and indemnification policy, issued the month before, which indisputably did not have a regulatory exclusion, the judge said.
In a lawsuit over the enforcement of an agreement between an insured depository and a private party, under the Federal Deposit Insurance Act, a private party can’t enforce an obligation against the FDIC that wasn’t in a written document in the institution’s records, the judge said.
Westchester had issued an excess directors and officers liability policy, subject to the terms of Federal’s policy, on the same day as Federal, according to the opinion.
On the same day that the bank closed, Federal’s underwriter noticed that the regulatory exclusion had been left off the policy, and forwarded it to the bank’s insurance agent, according to the bank.
At most, the insurers could show that the exclusion, sent well after the policy was issued, is a “writing” under the law, the judge said.
“They cannot, however, show that Silverton executed an alleged agreement on the regulatory exclusion,” the judge said. “Likewise, the insurance companies cannot show that the regulatory exclusion was approved by Silverton’s board of directors.”
And they can’t show that any alleged agreement on the regulatory exclusion was continuously kept in Silverton’s official records, the judge said.
The FDIC launched its suit August 2011, accusing former directors and officers of Silverton Bank of engaging in corporate waste, negligence and gross negligence as well as breaching fiduciary duties through mismanagement of the bank.
In October 2011, Westchester argued it owed no coverage under an excess directors and officers policy issued to Silverton because the FDIC had brought the suit as Silverton’s receiver.
“Because FDIC has admittedly succeeded to all rights, titles and privileges of the named insured, Silverton, and therefore, stands in the shoes of Silverton, insurance coverage for its claims against Silverton’s former directors and officers is unequivocally barred by the insured v. insured exclusion,” Westchester said.
Silverton’s primary D&O policy with Federal Insurance contains the insured v. insured exclusion as well, according to Westchester.
Representatives for the parties didn’t immediately respond to requests for comment on Friday.
The FDIC is represented by Henry Fellows Jr., Shattuck Ely and Megan Haley of Fellows LaBriola LLP, David Mullin, John Turner and Elizabeth Chermel of Mullin Hoard & Brown LLP and in-house counsel Carrie Sutherland.
Westchester is represented by Kenan Loomis, Alycen Moss, Angelo Savino and Melissa Brill of Cozen O’Connor.
Federal is represented by Mary E. Borja, Cara Tseng Duffield and Daniel J. Standish of Wiley Rein LLP and Douglas Lee Clayton and Stephen Leroy Cotter of Swift Currie McGhee & Hiers LLP.
The case is Federal Deposit Insurance Corp. v. Tom A. Bryan et al., case number 1:11-cv-02790, in the U.S. District Court for the Northern District of Georgia.