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Hawker v. Bancinsurance, Inc.

United States District Court, E.D. California

April 7, 2014

THOMAS T. HAWKER, , Plaintiffs,
v.
BANCINSURANCE, INC., , Defendants.

ORDER GRANTING BANCINSURE'S MOTION FOR SUMMARY JUDGMENT AND DENYING THE FDIC'S MOTION FOR SUMMARY JUDGMENT ECF NO. 74, 76, 105

STANLEY A. BOONE, District Judge.

On January 31, 2014, Plaintiff Federal Deposit Insurance Corporation ("FDIC") and Defendant BancInsure, Inc. ("BancInsure") filed cross motions for summary judgment. (ECF Nos. 74, 76.) On March 7, 2014, BancInsure filed a motion to strike certain evidence from the record. (ECF Nos. 101, 105.) All parties have consented to the jurisdiction of a United States Magistrate Judge for all purposes. (ECF Nos. 41, 42, 43.)

The hearing on the motions took place on Wednesday, April 2, 2014. Patrick Richard appeared on behalf of the FDIC and Edward Donohue appeared on behalf of BancInsure. For the reasons set forth below the Court finds that BancInsure's motion for summary judgment should be granted and the FDIC's motion for summary judgment should be denied.

I.

BACKGROUND

This action was filed on August 1, 2012. (ECF No. 1.) Plaintiffs Thomas T. Hawker John J. Incandela, Dave Kraechan, Edwin Jay Lee, and Edward Rocha ("the County Bank Officers") filed suit against BancInsure for the alleged wrongful denial of insurance coverage. The County Bank Officers are all former officers of County Bank, a California state-chartered bank. The County Bank Officers were named as defendants in a civil action filed by FDIC ("the Civil Action"), who alleged that the County Bank Officers were negligent and breached their fiduciary duties to County Bank. The County Bank Officers contend that the insurance policy covers civil actions brought by the FDIC whereas BancInsure contends that the insurance policy does not cover civil actions brought by the FDIC due to an Insured versus Insured Exclusion in the policy. The parties now seek partial summary judgment on certain issues pertaining to the proper interpretation of the insurance policy.

A. Undisputed Material Facts

County Bank is a state-chartered bank headquartered in Merced, California with branches throughout the central valley of California. (Response of BancInsure, Inc. to Separate Statement of Undisputed Facts of FDIC-R ("FDIC-R SSUF") ¶ 1.) County Bank is wholly owned by a holding company, Capital Corporation of the West ("Capital Corp."). (FDIC-R SSUF ¶ 2.) BancInsured issued Capital Corp./County Bank the Extended Professional Liability Insurance Policy No. PLI 00016 ("the EPL Policy") with a term from January 19, 2008 through January 19, 2011. (FDIC-R SSUF ¶ 22.) With respect to the scope of coverage, the EPL Policy stated:

Executive Liability
A. The Insurer will pay on behalf of an insured person, loss that is a result of a claim for a management practices wrongful act first made during the policy period or during the extended reporting period, if exercised, except to the extent that the company has indemnified the insured person for such loss.

(FDIC-R SSUF ¶ 22, 34.)

The EPL Policy defined "Insured Person" as:

P. Insured person means any person who was, now is or shall be a director, officer, trustee, appointed member of an advisory board or committee, volunteer, organizer or employee of the company.

(FDIC-R SSUF ¶ 22, 35.) The County Bank Officers qualify as "Insured Persons" within the meaning of the EPL Policy as former officers of County Bank and Capital Corp. (FDIC-R SSUF ¶ 22, 36.)

The EPL Policy contains the following exclusion, referred to as "Exclusion 21":

21. a claim 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. 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;
b. an employment practices wrongful act, an electronic banking wrongful act or an electronic publishing wrongful act brought by an insured person; or
c. a claim brought by an insured person for a management practices wrongful act in his or her capacity as a customer or client other than as a borrower of the company.

(FDIC-R SSUF ¶ 22; Response of the FDIC as Receiver for County Bank to Def. BancInsure, Inc.'s SSUF in Supp. of Mot. for Summ. Adj., and Add'l Material Facts in Opp'n ("BancInsure SSUF") ¶ 8.)

On February 6, 2009, the California Department of Financial Institutions closed County Bank and the FDIC was appointed as receiver. (FDIC-R SSUF ¶ 4; BancInsure SSUF ¶ 20.)

The FDIC's potential claims against the County Bank Officers were first made and reported to BancInsure on February 5, 2009. (FDIC-R SSUF ¶ 47.) The FDIC made a formal claim to BancInsure on November 16, 2009. (FDIC-R SSUF ¶ 48.) On December 8, 2009, BancInsure responded to the FDIC's claim and cited Exclusion 21 as a basis to deny the claim because the FDIC is the receiver of County Bank. (BancInsure SSUF ¶ 22.)

On January 27, 2012, the FDIC filed the Civil Action against the County Bank Officer in this Court, in the case FDIC v. Hawker, Case No. 12-00127-SAB. (FDIC-R SSUF ¶ 51.) On January 30, 2012, the County Bank Officers tendered to BancInsure seeking all relevant insurance benefits including advancement of defense costs. (BancInsure SSUF ¶ 13.) On November 8, 2012, the FDIC and the County Bank Officers reached a settlement in the Civil Action whereby the County Bank Officers assigned all their claims against BancInsure to the FDIC and consented to an entry of default judgment against them. (FDIC-R SSUF ¶ 56.) Default judgment was entered against the County Bank Officers in the Civil Action in the amount of $48, 545, 060. (FDIC-R SSUF ¶ 57.)

B. Phase I Scheduling

On August 29, 2013, the Court issued a Second Amended Scheduling Order. (ECF No. 50.) Discovery and motion practice was scheduled to occur in separate phases. Phase I was limited to discovery and motions limited to the issue of "[w]hether exclusion 21 of the [EPL] Policy bars coverage for loss arising out of the FDIC Action." (Second Am. Sched. Order 3:7-21, ECF No. 50.) Accordingly, the motions for summary judgment filed by the parties are limited to addressing this issue.

II.

LEGAL STANDARDS FOR SUMMARY JUDGMENT

Under Federal Rule of Civil Procedure 56, "[a] party may move for summary judgment... if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Summary judgment must be entered "against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case..." Celotex Corp. v. Catrett , 477 U.S. 317, 322 (1986). "[A] party seeking summary judgment always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, ' which it believes demonstrate the absence of a genuine issue of material fact." Id.

III.

DISCUSSION

A. Proper Interpretation of Exception 21 of the EPL Policy

The parties seek summary adjudication on the issue of the proper interpretation of Exception 21 of the EPL Policy. The FDIC contends that Exception 21 does not exclude claims brought by the FDIC against the County Bank Officers because the FDIC is not a "receiver" within the meaning of the EPL Policy. BancInsure contends that Exception 21 excludes claims by the FDIC because the FDIC was appointed as "receiver" for County Bank.

Under California law, "[i]nterpretation of an insurance policy is a question of law and follows the general rules of contract interpretation." MacKinnon v. Truck Ins. Exchange , 31 Cal.4th 635, 647 (2003) (citing Waller v. Truck Ins. Exchange, Inc. , 11 Cal.4th 1, 18 (1995)). Moreover:

"The fundamental rules of contract interpretation are based on the premise that the interpretation of a contract must give effect to the mutual intention' of the parties. Under statutory rules of contract interpretation, the mutual intention of the parties at the time the contract is formed governs interpretation. (Civ.Code, § 1636.) Such intent is to be inferred, if possible, solely from the written provisions of the contract. ( Id., § 1639.) The "clear and explicit" meaning of these provisions, interpreted in their "ordinary and popular sense, " unless "used by the parties in a technical sense or a special meaning is given to them by usage" (id., § 1644), controls judicial interpretation. ( Id., § 1638.)' [Citations.] A policy provision will be considered ambiguous when it is capable of two or more constructions, both of which are reasonable. [Citation.] But language in a contract must be interpreted as a whole, and in the circumstances of the case, and cannot be found to be ambiguous in the abstract." (Id. at p. 18, 44 Cal.Rptr.2d 370, 900 P.2d 619.)

Id. at 647-48.

Although interpretation of an insurance policy follows the general rules of contract interpretation, California law provides for particular principles which apply in the insurance context. Insurance coverage is interpreted broadly so as to afford the greatest possible protection to the insured and exclusionary clauses are interpreted narrowly against the insurer. MacKinnon , 31 Cal.4th at 648 (quoting White v. Western Title Ins. Co. , 40 Cal.3d 870, 881 (1985)).

"[A]n insurer cannot escape its basic duty to insure by means exclusionary clause that is unclear. As we have declared time and again any exception to the performance of the basic underlying obligation must be so stated as clearly to apprise the insured of its effect.' [Citation.] Thus, the burden rests upon the insurer to phrase exceptions and exclusions in clear and unmistakable language.' [Citation.] The exclusionary clause must be conspicuous , plain and clear .'"

Id. (quoting State Farm Mut. Auto. Ins. Co. v. Jacober , 10 Cal.3d 193, 201-202 (1973)) (italics in original).

In determining whether a provision of the insurance contract is ambiguous, the Court looks at not only the face of the contract but also any extrinsic evidence that supports a reasonable interpretation. Pacific Gas & Elec. Co. v. G.W. Thomas Drayage & Rigging Co. , 69 Cal.2d 33, 39-40 (1968); London Market Insurers v. Superior Court , 146 Cal.App.4th 648, 656 (2007). To the extent contract interpretation involves parol evidence, the evidence is admissible as follows: First the court provisionally receives all credible evidence concerning the parties' intent to determine whether the language is "reasonable susceptible" to the interpretation urged by a party. Hervey v. Mercury Cas. Co. , 185 Cal.App.4th 954, 961-62 ...


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