Finci v. American Cas. Co. of Reading, Pennsylvania

• Citation: 323 Md. 358,593 A.2d 1069
• Decision Date: 01 September 1990
• Docket Number: No. 81,81
• Parties: , 60 USLW 2167, 21 A.L.R.5th 889 Michael FINCI v. AMERICAN CASUALTY COMPANY OF READING, PENNSYLVANIA et al. AMERICAN CASUALTY COMPANY OF READING, PENNSYLVANIA v. STATE OF MARYLAND DEPOSIT INSURANCE FUND CORP. et al. ,
• Court: Court of Appeals of Maryland

Page 358

323 Md. 358

593 A.2d 1069, 60 USLW 2167, 21

A.L.R.5th 889

Michael FINCI v. AMERICAN CASUALTY COMPANY OF READING, PENNSYLVANIA et al.

AMERICAN CASUALTY COMPANY OF READING, PENNSYLVANIA v. STATE OF MARYLAND DEPOSIT INSURANCE FUND CORP. et al.

No. 81, Sept. Term, 1990.

Court of Appeals of Maryland.

Aug. 16, 1991.

Richard A. Finci (Pickett, Houlon & Berman, Hyattsville); Thomas S. Schaufelberger (Michael L. Gassmann, M. Joseph Sterner, Drinker Biddle & Reath of Washington, D.C., H. Emslie Parks, Parks, Hansen & Ditch of Towson), on brief, for petitioners.

Neil J. Dilloff (Jonathan D. Smith, Kathleen A. Ellis, Timothy U. Sharpe, Piper & Marbury, J. Joseph Curran, Jr., Atty. Gen., Dennis M. Sweeney, Deputy Atty. Gen., Baltimore), on brief, for respondents.

M. Albert Figinski, James J. Hanks, Jr., Mark M. Tomaino, Weinberg & Green, Baltimore, amicus curiae, for Maryland Chamber of Commerce, Inc.

Joel M. Savits, Jordan, Coyne, Savits & Lopata of Rockville, D'Amato & Lynch, New York City, amicus curiae, for National Union Fire Ins. Co. of Pittsburgh, Pa.

Michael L. Cohen, Gerardo Puig, Wilson, Elser, Moskowitz, Edelman & Dicker of Baltimore, Thomas W. Wilson, Harold J. Moskowitz, Wayne E. Borgeest, Scott R. Schaffer Wilson, Elser, Moskowitz, Edelman & Dicker of New York City, amicus curiae, for American Ins. Assn.

Eugene J. Comey, Carrie L. Hempel, Robert F. Schiff, Sean M. Fitzpatrick, Tuttle & Taylor, Washington, D.C., amicus curiae, for Federal Deposit Ins. Corp.

Argued before ELDRIDGE, RODOWSKY, McAULIFFE, CHASANOW, JJ., and CHARLES E. ORTH, Jr. and MARVIN H. SMITH, Associate Judges of the Court of Appeals (retired), and A. OWEN HENNEGAN, Judge of the Third Judicial Circuit of Maryland (retired), Specially Assigned.

RODOWSKY, Judge.

First Maryland Savings and Loan, Inc. (FMSL), a Maryland chartered, capital stock, savings and loan association, is insolvent, and State of Maryland Deposit Insurance Fund Corporation (MDIF) is its receiver. This action involves the construction of a directors' and officers' (D & O) liability insurance policy issued to FMSL by American Casualty Company of Reading, Pennsylvania (ACCO). In an underlying action MDIF obtained substantial judgments against former directors and officers of FMSL. Three of the judgment debtors, as part of settlements with MDIF, assigned their claims under the D & O policy to MDIF, which sued ACCO. A fourth director, who settled with MDIF, but who retained his claim against ACCO, also sued ACCO on the policy. The effect of the judgments entered in the trial court was to award to MDIF all of the D & O policy proceeds. The principal issues before us are whether ACCO's policy covers the claims against the directors, and, if so, whether MDIF is entitled to all of the proceeds.

The Court of Special Appeals held that two D & O policy exclusions, on which ACCO relied, were void because they

"would circumvent what we perceive to be the intent of the legislature, and thus the public policy of the State: to empower MDIF to recover, from the assets of failed savings and loan associations, every dollar available in order to protect not only the depositors and creditors of those associations but, ultimately, to protect the taxpayers of this State."

Finci v. American Casualty Co., 82 Md.App. 471, 485, 572 A.2d 1092, 1099 (1990). The Court of Special Appeals also affirmed the trial court's holding that MDIF had priority to all of the D & O policy proceeds, thus rendering moot whether the fourth director had any enforceable claim against ACCO on the insurance policy. For the reasons set forth below, we shall reverse and remand.

MDIF was appointed conservator for FMSL on November 20, 1985, by the Circuit Court for Montgomery County. The conservator filed the underlying suit against Julian Seidel and others on March 14, 1986 (the Seidel action). The conservatorship was converted into a receivership in June of 1986, and MDIF's original complaint evolved to a third amended complaint. With one exception, all of the claims asserted by MDIF against former directors and officers of FMSL, as such, were asserted as receiver, because the claims were based on duties of care and loyalty owed to FMSL. ¹ In January 1988 judgments in the Seidel action were entered in favor of MDIF, including judgments, each in excess of $64 million, against Robert J. Corletta (Corletta), Frank J. Calcara (Calcara), and Benjamin Maisel (Maisel). These three judgment debtors had been directors of FMSL.

For policy periods of October 1, 1984, to October 1, 1985, and of October 1, 1985, to October 1, 1986, ACCO issued D & O liability policies to FMSL under each of which the aggregate limit of liability for the respective policy year was $3 million. The policy ending October 1, 1985, had eight endorsements, while the policy ending October 1, 1986, had twenty endorsements.

MDIF, as receiver of FMSL, sued ACCO in April 1988. The complaint alleged that ACCO had issued a D & O liability policy "to FMSL for the policy period from October 1, 1984 to October 1, 1985 ('the policy')" and that ACCO had "renewed the policy for the period from October 1, 1985 to October 1, 1986." The complaint further alleged entry of the judgments against various of the defendants in the Seidel action, that "[t]he policy is a contract," and that ACCO had breached the contract. Thereafter, as part of settlements with MDIF of the underlying Seidel action, the judgment debtors, Corletta, Calcara, and Maisel, assigned their claims against ACCO under the D & O policies to MDIF. MDIF held two of those assignments before judgment was entered in its favor against ACCO in the instant action.

Another defendant in Seidel was Michael Finci (Finci), who also had been a director of FMSL. During the course of the Seidel action Finci settled with MDIF. In April 1988 Finci also sued ACCO to recover the sums he had paid to MDIF in that settlement, as well as to recover the sums paid to Finci's attorneys as fees for defending both Seidel and a suit brought by a depositors' committee. ²

ACCO raised a number of defenses in the MDIF case, all of which were rejected by the trial court. These included certain policy exclusions in addition to the two exclusions to which we shall give principal attention in this opinion. The circuit court granted summary judgment on liability in favor of MDIF against ACCO for all of the reasons presented by MDIF in written memoranda and orally.

MDIF also sought a ruling in MDIF v. ACCO that all of the proceeds under the D & O policy were payable to it to the exclusion of Finci, and of any other potential claimants. The trial court then consolidated the Finci and MDIF cases against ACCO. After giving notice and an opportunity to be heard to all potential claimants of the D & O policy proceeds, objections to MDIF's request were received only from Finci, and from one other claimant who has not appealed. ³ The circuit court then held that MDIF enjoyed priority. A judgment in MDIF v. ACCO was entered for $2,995,000 in favor of MDIF, representing all of the D & O policy proceeds of $3 million less a $5,000 deductible. In Finci v. ACCO, the court ruled that Finci's contract claims against ACCO were moot and entered judgment for ACCO on the merits, but against ACCO for costs.

ACCO and Finci appealed to the Court of Special Appeals, which affirmed. It held void the two exclusions from coverage on which ACCO principally had relied in its brief, and the court also held that MDIF was entitled to all of the policy proceeds. ACCO and Finci separately petitioned this Court for certiorari, which we granted.

The D & O policies for the years ending October 1, 1985, and October 1, 1986, were claims made policies. Although the circuit court made no finding as to when MDIF made claims against the defendants in Seidel, MDIF alleged in its complaint against ACCO that, on December 19, 1985, it had put ACCO on notice of its claims against directors and officers.

There are two insuring agreements in each policy. ACCO agreed

"[w]ith the Directors and Officers of the Association that if, during the policy period, any claim or claims are made against the Directors and Officers ... for a Wrongful Act, the Insurer will pay, in accordance with the terms of [the] policy ... all Loss which the Directors and Officers ... shall become legally obligated to pay."

ACCO also agreed to pay to FMSL "all Loss" for which FMSL was required to indemnify, or, to the extent lawful, had indemnified, directors and officers. ⁴

"Loss" and "Wrongful Act" are defined terms in the policy. "Loss" has two aspects. One ties into the insuring agreement with FMSL and deals with its indemnification of directors and officers. The second aspect concerns the insuring agreement with directors and officers. Under the latter

"[t]he term 'Loss' shall mean any amount which the Directors and Officers are legally obligated to pay ... for a claim or claims made against the Directors and Officers for Wrongful Acts and shall include ... damages, judgments, settlements, costs ... and defense of legal actions, claims or proceedings and appeals therefrom...."

The policy also defines

"[t]he term 'Wrongful Act' [to] mean any actual or alleged ... act or omission, or neglect or breach of duty by the Directors or Officers in the discharge of their duties solely in their capacity as Directors or Officers of the Association...."

The difference between the policy forms for the two years lies in the endorsements. One of the two exclusions struck down by the Court of Special Appeals, the "regulatory exclusion," is found only in the D & O policy for the period ending October 1, 1986. The other exclusion struck down by the Court of Special Appeals, the "insured vs. insured" exclusion, is found in the policies for both periods. In addition, contract interpretation arguments are presented that neither of these exclusions applies to MDIF's claims against the former FMSL...