California Union Ins. Co. v. American Diversified Sav. Bank
| Decision Date | 17 September 1990 |
| Docket Number | No. 89-55013,89-55013 |
| Parties | CALIFORNIA UNION INSURANCE CO.; Pacific Employers Insurance Company, Plaintiffs, v. AMERICAN DIVERSIFIED SAVINGS BANK; American Diversified Company; ADC Financial Corp.; American Diversified Partners; American Development Corporation; American Diversified Equity Corporation; Lester G. Day; Mission National Insurance Company; Federal Insurance Company; Fireman's Fund Insurance Company; Industrial Indemnity; American Diversified Investment Corporation, Defendants, American Diversified Capital Corporation; Federal Savings and Loan Insurance Corporation, as Conservator for American Diversified Capital Corporation, and Ranbir S. SAHNI, Third-Party Plaintiff-Appellant, v. HARBOR INSURANCE COMPANY, Third-Party Defendant-Appellee, and National Union Fire Insurance Company of Pittsburgh, Pennsylvania; Certain Underwriters at Lloyds, London, Defendants/Cross-Defendants. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Michael G. Dawe, Irvine, Cal., for third-party plaintiff-appellant.
Michael C. Denison and Charles G. Smith, Kinsella, Boesch, Fujikawa and Towle, Los Angeles, Cal., for third-party defendant-appellee.
Appeal from the United States District Court for the Central District of California.
Before HUG, SCHROEDER and HALL, Circuit Judges.
This appeal represents a small piece of major ongoing litigation over who should bear losses sustained in the collapse of still another thrift institution insured by the Federal Savings and Loan Insurance Corporation ("FSLIC"). Appellant here is Ranbir S. Sahni, a former director of American Diversified Savings Bank ("ADSB") who is seeking to hold the appellee, Harbor Insurance Company ("Harbor") liable for amounts he may be found to owe to FSLIC, ADSB's receiver.
FSLIC is pursuing its claims against Sahni and other directors in related litigation before the same district judge, and although FSLIC did not appeal the district court's section 54(b) ruling in favor of Harbor on Sahni's claim, it was a party in this case at the district court level and joined Sahni in his unsuccessful cross-motion for summary judgment against Harbor.
The issue on the merits is whether "claims made" insurance policies issued by Harbor to ADSB covered the claims in question. The two Harbor policies together were in effect from October 1, 1983, to March 1, 1985. Other companies had issued policies covering different periods of time. This case was originally instituted as a declaratory judgment action in state court by one of those insurance companies, California Union Insurance Company, against Sahni and FSLIC and, among other ADSB insurers, Harbor. FSLIC removed the action to federal court pursuant to 12 U.S.C. Sec. 1730(k)(1), which establishes federal question jurisdiction for a "civil action, suit or proceeding to which [FSLIC] shall be a party," with provisos not here relevant.
We address a preliminary jurisdictional question. At the time of removal, the plaintiff in the declaratory judgment action had dismissed Harbor from the case because the plaintiff had concluded that Harbor's insurance policies did not cover the claims in question. Sahni and FSLIC disagreed, however, and after removal, Sahni filed a "third-party complaint" against Harbor in order to bring it back into the case. FSLIC joined Sahni's cross motion for summary judgment against Harbor, the denial of which Sahni now appeals.
In response to our request for briefs on jurisdiction, the appellant Sahni now contends that the Supreme Court's recent decision in Finley v. United States, 490 U.S. 545, 109 S.Ct. 2003, 104 L.Ed.2d 593 (1989), requires us to hold that the district court lacked jurisdiction over Sahni's claim against Harbor.
The Supreme Court in Finley held that the grant of federal jurisdiction in the Federal Tort Claims Act ("FTCA") of claims against the United States was not broad enough to reach a complaint against other defendants. The grant of jurisdiction in 12 U.S.C. Sec. 1730(k)(1), 1 however, is far broader than the grant of jurisdiction for a claim against the United States under the FTCA. The FSLIC statute establishes federal jurisdiction over any proceeding to which FSLIC is a party. Assuming arguendo there may be cases in which FSLIC's presence as a named party may be insufficient to confer federal court jurisdiction over a controversy unrelated to FSLIC, FSLIC in this case was not merely a nominal party to the declaratory judgment action from which this appeal arises. FSLIC also has a clear stake in Sahni's claim against Harbor, since Sahni's aim is to make Harbor responsible for satisfying FSLIC's claims against Sahni. FSLIC's interest is demonstrated by the fact that FSLIC joined Sahni in his motion for summary judgment.
Unlike the grant of jurisdiction under the FTCA, section 1730(k)(1) is not limited to claims against the United States. The grant of jurisdiction in section 1730(k)(1) is broad enough to authorize the district court to exercise its discretion pursuant to the Federal Rules to permit this claim to be considered in the context of a declaratory judgment action designed to determine issues of insurance coverage. See Fed.R.Civ.Proc. 14, 20. The court properly found Harbor's joinder appropriate, over no objection. It did so, agreeing that Sahni's claims against Harbor were "so closely related to the main claim that for reasons of justice in order to avoid piecemeal the litigation claims should be heard together." The conclusion is in harmony with the purpose of section 1730(k)(1) which is intended to permit federal courts to deal with all proceedings in which FSLIC, when it is acting as an agency of the United States, is a party. See Federal Savings and Loan Ins. Corp. v. Ticktin, 490 U.S. 82, 109 S.Ct. 1626, 104 L.Ed.2d 73 (1989). The statute is intended to permit resolution of competing claims in a single federal forum. The narrow interpretation now proffered by appellant would make that impossible.
We therefore turn to the merits of the appeal.
Each of the Harbor policies were "claims made" policies. In relevant part each of them provided that Harbor shall pay on behalf of the insured "loss ... arising from any claim or claims made against the insureds ... during the policy period by reason of any wrongful act...." The term "loss" is defined as "any amount an insured is obligated to pay in respect of this legal liability whether actual or asserted, for a wrongful act...." This amount includes "damages, judgments, settlements and costs, charges and expenses incurred in the defense of actions, suits or proceedings and appeals therefrom...." "Wrongful act" is defined as:
Any breach of duty, neglect, error, misstatement, misleading statement, omission or other act done or wrongfully attempted by the insureds or any of the foregoing so alleged by any claimant or any matter claimed against them solely by reason of their being such directors or officers of the corporation.
The policies provided coverage for claims made during the policy period and after the policy period ended, so long as the notice of the potential claim was given to Harbor within the policy period.
The "policy period" began October 1, 1983, and ended March 1, 1985. This dispute arises because FSLIC's lawsuit against Sahni, setting forth the claims he now asserts are covered by Harbor, was not filed until 1986. The issues in this dispute which we must resolve thus concern whether communications between various parties during the policy period amounted to "claims made." We must also determine whether there should have been further discovery or other proceedings to permit appellant to show there was sufficient notice within the policy period of a potential claim within the meaning of the policy provisions.
On March 26, 1984, ADSB received from the Federal Home Loan Bank Board ("FHLBB") a letter informing the Bank that it had not been timely in filing its monthly financial reports; fault had been found with ADSB's accounting system; and, the FHLBB did not have full confidence in the integrity of ADSB's records. The letter requested that ADSB take immediate action to remedy the situation.
On or about April 6, 1984, the California Department of Savings and Loan ("CDSL") issued a Cease and Desist Order prohibiting ADSB from investing in or transferring to its service corporations any of the assets of ADSB until an investigation had been completed. This order was a result of ADSB's accounting procedures.
In June of 1984, Sahni was advised by FSLIC and CDSL that ADSB was guilty of specified statutory and regulatory violations and that FSLIC intended to initiate formal regulatory enforcement proceedings unless the Board of Directors of ADSB consented to enter into a supervisory agreement with FSLIC and CDSL. That same month, on June 20, ADSB entered into a Supervisory Agreement with FSLIC. Under this Agreement the FSLIC agreed to forbear instituting formal cease-and-desist proceedings. In exchange, ADSB agreed to dispose of noncomplying loans, provide an accurate accounting, and otherwise bring itself into compliance with applicable regulations.
On July 6, 1984, CDSL ordered a special examination of ADSB under California's Financial Code Sec. 8154(a). This examination required ADSB to pay the expense of bringing in independent auditors to complete the investigation. CDSL also claimed that ADSB had still failed to comply with the terms of the Supervisory Agreement of June 20, 1984.
In September, 1984, FHLBB requested information from ADSB on contingency plans in the event that ADSB sustained any sudden unplanned withdrawal of deposits.
On October 6, 1984, which was still within the period covered by a Harbor policy, CDSL rescinded its cease-and-desist order, subject to ADSB's acceptance of three conditions:
(1) ADSB was to maintain a...
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