FEDERAL SAV. & LOAN INS. v. Aetna Cas. & Sur. Co.
| Decision Date | 28 July 1988 |
| Docket Number | Civ. A. No. 3-88-132. |
| Parties | The FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION, as Receiver for Knox Federal Savings & Loan Association, Plaintiff, v. The AETNA CASUALTY & SURETY CO., a Connecticut Corporation, Defendant, v. J. Garrett BURDETTE, et al., Third-Party Defendants. |
| Court | U.S. District Court — Eastern District of Tennessee |
John L. Conlon, Hopkins & Sutter, Chicago, Ill., Elizabeth S. Tonkin, Walt, Dyer & James, Knoxville, Tenn., for Federal Sav. and Loan Ins. Corp.
Arnold Tackett, Chattanooga, Tenn., J. Michael Winchester, Lacy & Winchester, P.C., David L. Buuck, Michael M. Downing, Claiborne, Davis, Buuck & Hurley, Charles A. Wagner, III, Wagner, Myers & Sanger, P.C., R. Franklin Norton, Norton & Luhn, P.C., Randall E. Nichols, Harwell & Nichols, Charles W.B. Fels, Ritchie, Fels & Dillard, P.C., Richard L. Hollow, McCampbell & Young, Steven Oberman, Daniel & Oberman, Ronald C. Koksal, Butler, Vines, Babb & Threadgill, Johnathan H. Burnett, Hodges, Doughty & Carson, Lewis S. Howard, Jr., Howard & Ridge, Archie R. Carpenter, Carpenter & O'Connor, Bernard E. Bernstein, Bernstein, Susano & Stair, Knoxville, Tenn., for J. Garrett Burdette, et al.
William B. Luther, Luther, Anderson, Cleary, Ruth & Speed, Chattanooga, Tenn., for Aetna Cas. & Sur. Co.
This matter comes before the court on the motions of several third-party defendants1 to dismiss the third-party complaint of defendant, Aetna Casualty & Surety Company (Aetna) pursuant to Fed.R.Civ.P. 12(b)(6), or in the alternative for summary judgment pursuant to Fed.R.Civ.P. 56, as to this third-party complaint. The parties having fully briefed the issues, and the court having heard oral argument on July 18, 1988, in Knoxville, Tennessee, the court will grant third-party defendants' motions in part and deny them in part.
On February 24, 1988, the FSLIC, as Receiver of the now defunct Knox Federal Savings & Loan Association (Knox), filed this action against Aetna, seeking payment under a Savings and Loan Blanket Bond, No. 46 F 710 BCA, which Aetna had issued to Knox effective May 1, 1982. The FSLIC alleges that this bond covers, to the extent of its policy limits, the loss suffered by Knox resulting from the misconduct of its former president and managing officer, Arnold Tackett, and others acting pursuant to his direction.2 Aetna has filed an answer to this complaint, and has also filed a third-party action against Tackett and other former Knox officers and directors for indemnification should it find itself liable to the FSLIC under the bond. Third-party defendants move to have this third-party complaint dismissed on the following grounds: failure to state a valid subrogation claim, expiration of the applicable statute of limitations, pre-maturity of subrogation claim, and the failure to allege negligence on the part of certain third-party defendants.3
In ruling on a motion to dismiss pursuant to Rule 12(b)(6), all allegations in the pleading in question are assumed to be true, and all reasonable inferences are to be drawn in favor of the non-movant. Westlake v. Lucas, 537 F.2d 857, 858-59 (6th Cir.1976); Great Lakes Steel, Division of National Steel Corp. v. Deggendorf, 716 F.2d 1101, 1104-1105 (6th Cir.1983). Taking all well-pled allegations as true, a motion to dismiss will be granted only if the non-movant will be unable to recover on its claim. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-102, 2 L.Ed.2d 80 (1957); Windsor v. The Tennessean, 719 F.2d 155, 158 (6th Cir.1983), cert. denied, 469 U.S. 826, 105 S.Ct. 105, 83 L.Ed.2d 50 (1984).
Summary judgment under Fed.R.Civ.P. 56 is appropriate when the record, taken as a whole, could not lead a rational trier of fact to find for the non-moving party. In such a case there is no genuine issue for trial. Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 2509, 91 L.Ed.2d 202 (1986). When ruling on a motion for summary judgment, all inferences drawn from the facts must be viewed in a light most favorable to the non-moving party. Matsushita, supra, 475 U.S. at 587, 106 S.Ct. 1356. However, a movant need not negate every aspect of the non-movant's claim, it need only support its claim that there is no genuine issue of fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986).
Third-party defendants argue that the law is clear that a fidelity bond insurer, such as Aetna in the instant case, may not maintain a cause of action against officers and directors of a bank for negligence which lead to a loss which the bond allegedly covers. Aetna responds that third-party defendants are in error, and that the law does indicate that such an action may be brought. Aetna adds that this type of action is in the best interests of public policy, as bank officials have fiduciary duties imposed on them, and if Aetna could not bring this action, bank officials would have no incentive to follow these fiduciary duties.
Under Tennessee law, there are two types of subrogation, legal and conventional. United States Fidelity & Guaranty Co. v. Elam, 198 Tenn. 194, 278 S.W.2d 693, 701 (1955). See also Tennessee Farmers' Mutual Insurance Co. v. Rader, 219 Tenn. 384, 410 S.W.2d 171, 173 (1966). Conventional subrogation is based on an agreement or stipulation, and the extent of this right is measured by the agreement and by the rights of the party granting the right. Tennessee Farmers', supra. Legal subrogation arises out of a relationship by operation of law. United States Fidelity & Guaranty, supra, 278 S.W.2d at 701. Because there is nothing in the bond in question that deals with subrogation, any subrogation rights Aetna has must arise by operation of law.
In this particular subrogation context, two different situations may arise. Each must be understood before a meaningful discussion of third-party defendants' motions can take place. The first situation arises when an insurer pays an insured bank for losses caused by the acts of bank employees, and then the insurer brings an action against those "active" wrongdoing employees causing the loss paid by the insurer. It is clear that in such a situation the insurer has a general right to recover against these active wrongdoers, as the insurer has all the rights against these employees that the bank had, Railway Co. v. Manchester Mills, 88 Tenn. 653, 14 S.W. 314, 314 (1890); Miller v. Russell, 674 S.W. 2d 290, 291 (Tenn.App.1983), and because a bank has a cause of action against its officers and directors so will the insurer. Atherton v. Anderson, 99 F.2d 883, 887-888 (6th Cir.1938); Neese v. Brown, 218 Tenn. 686, 405 S.W.2d 577, 580-81 (1964).4 An important exception to this right exists when the degree of wrongdoing alleged by the insurer is not sufficient to justify recovery under the terms of the bond. An example is found in FDIC v. Aetna Casualty & Surety Co., No. 1-85-797, slip op. at 3 (E.D.Tenn., June 6, 1986) available on WESTLAW, 1986 WL 21361, where the court would not permit a fidelity bond insurer to maintain an action against bank officials for their negligent wrongdoing when the bond in question covered only the fraudulent acts of bank officials. The rule from this case is that a fidelity bond insurer may only sue active wrongdoing bank officials when the level of wrongdoing, be it negligence or fraud, is equal to or greater than the level of wrongdoing covered by the bond in question.5
The second possible situation arises when a fidelity bond insurer pays an insured bank for losses attributable to the conduct of certain employees, and the insurer sues employees other or different from those that caused the loss paid by the insurer for failing to discover and prevent the active wrongdoing of their fellow employees. In this situation, the courts hold that the action by the insurer may not be maintained when the employees who "failed to supervise" are charged only with simple negligence. Dixie National Bank v. Employers Commercial Union Insurance Co., 759 F.2d 826, 828 (11th Cir.1985); Employers Insurance of Wausau v. Doonan, 664 F.Supp. 1220, 1223-24 (C.D.Ill. 1987); First National Bank of Columbus v. Hansen, 84 Wis.2d 422, 267 N.W.2d 367, 371 (1978); Dixie National Bank v. Employers Commercial Union Insurance Co., 463 So.2d 1147, 1152 (Fla.1985). But cf. Standard Accident Insurance Co. v. Pellecchia, 15 N.J. 162, 104 A.2d 288, 292 (1954) (); Aetna v. Lindell Trust Co., 348 S.W.2d 558, 562 (Mo.App.1961) (same situation as Pellecchia); Western Surety Company v. Loy, 3 Kan.App.2d 310, 94 P.2d 257, 261-62 (1979) ().6 These cases hold that a fidelity bond insurer assumes the risk that a bank will negligently fail to discover the wrongdoing of an employee, therefore the balance of the equities dictates that an insurer should not be permitted to sue the officers and directors of that bank for that same negligent failure to discover the wrongdoing of fellow employees. An exception to this rule exists holding that an action for negligent supervision may be maintained against bank officials who personally benefited as a result of the fraud that they are charged with negligently failing to detect or stop, as in that case the balance of the equities comes out in favor of the insurer. Employers Insurance of Wausau, supra, 1223; First National Bank of Columbus, supra, 372.
There is a certain amount of difficulty in applying the above law to the instant case, as it is not clear in what capacity third-party defendants are being sued by Aetna ...
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Federal Sav. and Loan Ins. Corp. v. Burdette
...Knox officials, therefore, there can be no coverage for the third-party claims asserted against eight former Knox officials by Aetna in FSLIC v. Aetna, (E.D.Tenn.). However, any recovery Aetna may obtain against these former Knox officials will be via subrogation due to Aetna having to pay ......
- Federal Sav. and Loan Ins. Corp. v. Burdette