On January 10, 2017, the U.S. Court of Appeals for the Ninth Circuit ruled in FDIC v. BancInsure, Inc. that claims of wrongdoing brought by the FDIC as receiver for Security Pacific Bank are subject to the insured vs. insured exclusion in a D&O policy issued by BancInsure, Inc.
After Security Pacific halted operations, the State of California appointed the FDIC as the bank’s receiver. Subsequently, the FDIC brought claims against the bank’s officers and directors for allegedly causing the bank’s losses. The defendants sought coverage under a BancInsure D&O policy, which denied coverage based on the policy’s insured vs. insured exclusion. The policy included an exclusion for any claims “by, or on behalf of, or at the behest of, any other Insured Person, the Company, or any successor, trustee, assignee, or receiver of the Company except for . . . a shareholder’s derivative action brought on behalf of the Company by one or more shareholders who are not Insured Persons and make a Claim without the cooperation or solicitation of any Insured Person or the Company.”
A district court agreed with the FDIC’s argument that the shareholder derivative actions should apply because (1) its claims were similar to those asserted in shareholder suits; and (2) the FDIC succeeded to the interest of the bank’s shareholders. However, the Ninth Circuit reversed that decision and remanded with instructions to enter judgment in favor of BancInsure.
In its ruling, the Ninth Circuit asserted that the FDIC’s claims “belong to the corporation — not to the shareholders — and the board of directors is primarily responsible for enforcing the corporation’s rights.” The court explained that a claim can only be brought when a board of directors refuses or fails to enforce the rights of the corporation.
In addition, the court found that the term “receiver” in the BancInsure policy exclusion was unambiguous, noting that, “Interpreting the shareholder-derivative-suit exception to provide coverage to the FDIC’s claims may very well read the term ‘receiver’ out of the insured-versus-insured exclusion. We think the term ‘receiver’ is clear and unambiguous and includes the FDIC in its role as receiver of Security Pacific.”
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