FDIC v. Mijalis, Civ. A. No. 89-1316.
Citation | 800 F. Supp. 397 |
Decision Date | 30 June 1992 |
Docket Number | Civ. A. No. 89-1316. |
Parties | FEDERAL DEPOSIT INSURANCE CORPORATION v. Gus S. MIJALIS et al. |
Court | United States District Courts. 5th Circuit. United States District Courts. 5th Circuit. Western District of Louisiana |
Judy Y. Barrasso, Barry W. Ashe, Sarah S. Vance, Stephen G. Bullock and Karen H. Freese, Stone, Pigman Law Firm, New Orleans, La., for F.D.I.C.
Joe C. Lesage Jr. and John D'Anna, Booth, Lockard Law Firm, Shreveport, La., for Gus S. Mijalis, Alex S. Mijalis and John G. Cosse.
Paul M. Cooke, Simon, Fitzgerald, Cooke Law Firm, Shreveport, La., for J. Harper Cox Jr. and John B. Franklin.
James Russell Lewis, Phillip Wesley Pries, Catherine S. St. Pierre, Dana L. Reneau, Preis & Crawford, Baton Rouge, La., for Intern. Ins. Co.
MEMORANDUM RULING
This case was tried before a jury from November 5 to December 11, 1991. The jury found that the individual director and officer defendants were grossly negligent in approving and funding certain loans made by the Bank of Commerce. The sole issue now to be decided is the amount available to pay the jury's verdict from the coverage provided by the two policies issued by International Insurance Company.1 The parties have submitted a series of combative and argumentative briefs which, with attached appendices, forms an eight-inch stack on my desk.
A. THE FACTS
In 1986, the Comptroller of the Currency of the United States declared the Bank of Commerce ("BOC" or "the Bank") insolvent and appointed the Federal Deposit Insurance Corporation ("FDIC") as Receiver. The FDIC-Receiver later assigned to FDIC-Corporate all of its rights in various claims, including claims the FDIC believed it possessed against former officers and directors of BOC. Those claims are the subject of this suit.
The complaint alleged that the directors and officers breached a fiduciary duty owed to the Bank, breached their contract with the Bank and negligently carried out their duties to the Bank. International Insurance Company ("International") was named a defendant pursuant to the Louisiana Direct Action Statute. International issued directors and officers liability and corporate reimbursement insurance policies to BOC which allegedly provide coverage for the acts alleged in the complaint. There are two insurance policies at issue: first, Directors and Officers Liability and Company Reimbursement Policy No. FDO8874 ("1983 policy"), allegedly covering claims from February 21, 1981 to January 1, 1984; and, second, Directors and Officers Liability and Company Reimbursement Policy No. 524-033127-9 ("1984 policy"), allegedly covering claims from January 1, 1984 to January 1, 1985. The coverage at issue under both policies concerns directors and officers liability, not company reimbursement liability.
The relevant policy portions are:
The insurance policies provide that coverage exists under the "insuring" clause if a claim is made against the insured. The "loss provisions" clause governs situations in which the insured or BOC has been made aware of possible liability stemming from specific acts or occurrences. Written notice would be required to the insurer during the policy period "as soon as practicable" if the company or the insured received written or oral notice from a party of an intent to hold them responsible.
In this suit, the FDIC has brought its claim against International pursuant to Louisiana's Direct Action Statute ("LDAS"). La.Rev.Stat. 22:655. The policies at issue are the directors and officers liability policies, not the company's reimbursement liability policies. The policies at issue concern contract of liability, not indemnity. The LDAS applies to every "policy or contract of liability insurance." La. Rev.Stat. 22:655. See also Quinlan v. Liberty Bank & Trust Co., 575 So.2d 336 (La.1990). The LDAS is applicable to the FDIC's claims against International. "It has long been the recognized public policy of Louisiana that a policy of liability insurance is issued for the protection of the general public as well as for the security of the insured." White v. State Dept. of Public Safety & Corrections, etc., 569 So.2d 1001, 1003 (La.App. 1 Cir.1990), citing Hughes v. Southeastern Fidelity Ins. Co., 340 So.2d 293 (La.1976); West v. Monroe Bakery, Inc., 217 La. 189, 46 So.2d 122 (1950).
The FDIC's2 rights arise out of the LDAS. Auster Oil & Gas, Inc. v. Stream, 891 F.2d 570, 578 (5th Cir.1990). An insurer may not raise the nonprejudicial failure of its insured to give notice of accident or suit as a valid defense to claims of injured third parties. See Gulf Island, IV v. Blue Streak Marine, Inc., 940 F.2d 948 (5th Cir.1991); Jackson v. Transportation Leasing Co., 893 F.2d 794 (5th Cir.1990); Chennault v. Dupree, 398 So.2d 169 (La.App. 3d Cir.1981); Miller v. Marcantel, 221 So.2d 557, 559 (La.App. 3d Cir.1969).
International's policy provision, "loss provisions," requiring written notice to the insurer of acts or occurrences within the policy period which may give rise to claims is unenforceable against the FDIC, as the FDIC is a third party. International has not proven prejudice from lack of timely notice.
To establish a prima facie case that coverage exists under the policies, the FDIC must have alleged that a claim was made against the insured, or that notice was given of a specified wrongful act or occurrence to the company or the insured. The FDIC argues that claims were made during the policy period. In support of this assertion, the FDIC has filed numerous documents wherein the FDIC advises officers and directors that they must take steps to correct various deficiencies in lending practices identified by the FDIC.
The term "claim" is not defined in International's policies. Under Louisiana law, an insurance policy is a contract and the words used in a contract "are to be understood in the common and usual signification, without attending so much to grammatical rules as the general and popular use." Harmon v. Lumbermens Mutual Casualty Company, 247 La. 263, 170 So.2d 646, 651 (1965); La.Civ.Code art. 2047; Sharp v. Federal Sav. & Loan Ins. Corp., 858 F.2d 1042, 1044 (5th Cir.1988); Jensen v. Snellings, 841 F.2d 600, 616 (5th Cir. 1988). The term "claim," as used in the policies, means a demand on the insured by a third party for the performance of some act which the third party has a legal right to require. See FDIC v. Lensing, 89-0013 (W.D.La., Shreveport Division) (Report and Recommendation, March 20, 1990).3
THE "1983 POLICY"
On March 26, 1981, at a special board meeting, the directors signed and entered into a memorandum of understanding ("MOU") with the FDIC. The MOU provided a time frame during which the Board of Directors was to formulate a plan to improve the Bank's liquidity, and the Board, on behalf of the Bank, was to review the current written investment policy, reduce the total amount of net loans, reduce the concentration of credit, and eliminate and/or correct all violations of laws and regulations as of January 16, 1981. A January 29, 1982 letter by the FDIC to the Board of Directors indicates that the Bank was complying with the MOU in some areas; however, additional improvements were obviously in need. The letter requested that serious...
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