The opinion of the court was delivered by: ORRICK
WILLIAM H. ORRICK, UNITED STATES DISTRICT JUDGE
Plaintiff, Walter Gilliam, is a beneficiary under a Directors' and Officers' Liability Insurance Policy ("D & O policy") issued by defendant, American Casualty Company of Reading, Pennsylvania, also known as CNA Insurance Company (jointly "American"). In this declaratory relief action, the parties filed cross-motions for summary judgment to determine whether the maximum coverage of the policy is $ 100 million as claimed by American or $ 200 million as claimed by Gilliam. The specific legal issue to be decided is whether the annual limits of liability apply to the policy years in which wrongful acts allegedly occurred or the policy year in which notice of a claim was made. For the reasons following, the Court finds that the maximum coverage under the policy in question is $ 100 million, and the annual limits of liability apply to the policy year in which notice of a claim was made.
The policy covered a three-year period, from October 26, 1982, through October 26, 1985, and provided three separate annual limits of liability. Item 3 of the policy declarations set forth the limits of liability as being "$ 20,000,000 each Loss"; "$ 20,000,000 Aggregate Limit of Liability each policy year for each Director and Officer." The three-year premium was prepaid.
In 1983, Eureka implemented an aggressive lending strategy to reverse chronic operating losses. Between early 1983 and September 1984, five of Eureka's directors made over two hundred loan transactions that resulted in significant losses to the association. The loan transactions made during this period are the subject of a related lawsuit, Federal Savings & Loan Insurance Corp. v. Kidwell, 716 F. Supp. 1315 (N.D.Cal. 1989), now pending before this Court that alleges breach of fiduciary duty, negligence, mismanagement, and waste against the individual Eureka directors.
On June 20, 1985, during the third year of the policy period, Eureka wrote a five-page letter to American providing detailed notice of various potential claims that might arise from several loans that had been funded by Eureka during the first two years of the policy period. American concluded that this letter constituted adequate notification of all claims asserted against the former officers of Eureka in the Kidwell case, and deemed those claims to have been made on June 24, 1985 (the date of notice).
In the Kidwell case, the challenged loans occurred during policy years one and two, while notice was given in policy year three. Gilliam seeks a declaration that American is liable for two full years of insurance coverage. He contends that, because the challenged loans were made in years one and two of the policy period, two separate yearly limitations apply to the Kidwell action. The Federal Deposit Insurance Corporation ("FDIC") intervened in this declaratory judgment suit, and has joined in Gilliam's motion.
American opposes Gilliam's motion, and seeks a declaration that it is liable for only one year of insurance coverage under the policy. It argues that only the limitation for policy year three is applicable to the Kidwell claims because this was the year in which notice was given and when all claims were later deemed to have been made.
American contends that the issue of the scope of coverage under the policy has already been litigated in a prior proceeding in the related Kidwell case. It refers to this prior action, Eureka Federal Savings & Loan Ass'n v. American Casualty Co. of Reading, Pennsylvania, 873 F.2d 229 (9th Cir. 1989), as the "multiple loss" case. American claims that, as a result of the holding in the multiple loss case, Gilliam and the FDIC are barred by principles of claim preclusion from raising the scope of coverage issue again in this case. American is incorrect.
The issue litigated in the multiple loss action was whether or not the loan transactions at issue in the Kidwell case constituted multiple losses or a single loss within the meaning of Section 4(D) of the policy. American contends that, because the issue of yearly liability limits raised here arises from "the same transactional nucleus of facts" as the issue of multiple losses that was previously litigated, it is now barred from this Court's consideration because Gilliam did not raise the issue of the yearly limits of liability in the first suit.