The United States Court of Appeals for the Ninth Circuit recently held that a directors-and-officers liability-insurance policy issued to a bank (the “D&O Policy”) did not cover claims made by the Federal Deposit Insurance Corporation (“FDIC”) after the bank failed. See Federal Deposit Insurance Corp. v. Bancinsure, Inc., 2017 WL 83489 (9th Cir. Jan. 10, 2017). In the case, the FDIC, as receiver of a failed bank, sought a declaratory judgment regarding whether the D&O Policy issued by defendant to the bank covered losses arising from the negligence, gross negligence, and breach of fiduciary duty allegedly committed by certain former directors and officers of the bank. The D&O Policy excluded from coverage losses arising from legal actions brought “by, on or behalf of, or at the behest of” the bank, a person insured under the D&O Policy, or “any successor, trustee, assignee or receiver” of the bank (the “insured-versus-insured exclusion”). Although the FDIC conceded that this language, on its face, appeared to bar its claims, it argued that other provisions of the D&O Policy evidenced an intent to cover the claims. The FDIC claimed that it is not a “receiver” within the meaning of the insured-versus-insured exclusion because, by statute, it has a “unique role” representing “multiple interests,” including the bank’s shareholders. In that vein, the D&O policy contained an exception to the insured-versus-insured exclusion for losses arising from “a shareholder’s derivative action brought on behalf of [the bank] by one or more shareholders who are not [insureds under the D&O Policy] and make a Claim without the cooperation or solicitation of” the bank or any person insured under the D&O Policy. The District Court granted the FDIC’s motion for summary judgment, holding that the FDIC succeeded to the interests of the bank’s shareholders, that its claims were similar to those brought in shareholder derivative suits, that only the FDIC could bring an action against the bank’s former directors and officers after it was appointed receiver, and that the FDIC’s claims therefore were covered by this shareholder exception.
On appeal, the Ninth Circuit disagreed and reversed. It held that interpreting the shareholder exception to provide coverage to the FDIC’s claims “may very well read the term ‘receiver’ out of the insured-versus-insured exclusion” and that the term “receiver” was clear and unambiguous and includes the FDIC in its role as receiver of the bank. The Ninth Circuit further rejected the FDIC’s argument that its claims were covered by a regulatory endorsement, which deleted a standard policy provision that excluded coverage for losses arising from any action or proceeding brought by or on behalf of any federal or state regulatory or supervisory agency or deposit insurance organization. Although the FDIC argued that this endorsement indicated an intent to cover its claims, the Ninth Circuit held that the endorsement still did not vary the express terms of the insured-versus-insured exclusion.