946 F.2d 1401 (8th Cir. 1991), 90-2901, McCuen v. American Cas. Co. of Reading, Pennsylvania

Docket Nº:90-2901, 90-2993.
Citation:946 F.2d 1401
Party Name:Charles McCUEN, John McDowell, Ben Galer, E. Eugene McWhirter, Dale Garrels, A.M. Patterson, Appellees/Cross-Appellants, v. AMERICAN CASUALTY COMPANY OF READING, PENNSYLVANIA, Appellant/Cross-Appellee, Federal Deposit Insurance Corporation, Intervenor/Appellee/Cross-Appellant.
Case Date:October 17, 1991
Court:United States Courts of Appeals, Court of Appeals for the Eighth Circuit

Page 1401

946 F.2d 1401 (8th Cir. 1991)

Charles McCUEN, John McDowell, Ben Galer, E. Eugene

McWhirter, Dale Garrels, A.M. Patterson,





Federal Deposit Insurance Corporation,


Nos. 90-2901, 90-2993.

United States Court of Appeals, Eighth Circuit

October 17, 1991

Submitted Sept. 9, 1991.

Rehearing and Rehearing En Banc Denied Nov. 26, 1991.

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Michael P. Tone, Chicago, Ill., argued (Michael P. Tone, Anne Fiedler, Chicago, Ill., and Gerald D. Goddard, Burlington, Iowa, on the brief), for appellant.

Thomas Vilsack, Mt. Pleasant, Iowa, argued (Robert F.P. Waterman and Michael P. Byrne, Davenport, Iowa, and Thomas J. Vilsack, Mt. Pleasant, Iowa, on the brief), for appellee, McCuen.

Maria Beatrice Valdez, Washington, D.C., argued (Eugene J. Comey, Robert F. Schiff, Ann S. DuRoss, Colleen B. Bombardier, Richard J. Osterman, Jr., Maria Beatrice Valdez, Washington, D.C. and William M. Graham, Des Moines, Iowa, on the brief), for appellant, FDIC.

Before ARNOLD, JOHN R. GIBSON, and BEAM, Circuit Judges.

ARNOLD, Circuit Judge.

This appeal involves a declaratory judgment action brought by former directors and officers of Capitol Savings and Loan Association of Mt. Pleasant, Iowa, to determine the coverage provided by a policy issued by American Casualty Company.

On January 6, 1987, Capitol Federal Savings Bank ("Capitol Federal") sued the directors and officers of Capitol Savings and

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Loan Association ("Capitol Savings"), its corporate predecessor, alleging that they had violated their fiduciary duties and negligently managed the Savings and Loan. (That action is still pending, although the FDIC has replaced Capitol Federal as plaintiff.) The Savings and Loan officials ("S & L officials") immediately looked to their insurer, American Casualty, for protection. After American Casualty denied coverage, the officials filed this action seeking a declaration that American Casualty was obligated to indemnify the insureds for any losses arising out of the Capitol Federal action, to advance the costs of defending that action, and to pay the attorneys' fees, costs, and expenses incurred in bringing this declaratory judgment action. After a thorough analysis of the disputed provisions of the American Casualty policy, the District Court 1 held that the policy required American Casualty to pay the insureds' expenses (including attorneys' fees) in the Capitol Federal action as they were incurred, but that neither the policy nor the law required it to pay the expenses incurred by the insureds in bringing this action for declaratory relief.

American Casualty has appealed the Court's ruling requiring it to provide coverage to the insureds in the Capitol Federal action. The insureds have appealed the Court's ruling denying them reimbursement of their costs in this action. As a preliminary matter, the FDIC argues that the District Court did not enter a final judgment and, consequently, that we lack jurisdiction to hear this appeal. We reject the FDIC's argument and affirm the judgment on the merits.


We must first deal with the contention of the FDIC that we have no jurisdiction. The claim is that the various decisions entered by the District Court do not amount to a final judgment. The argument is based on the fact that several issues having to do with coverage were not reached by the District Court. It did not decide, for example, what the over-all limit on coverage is. (This argument, as we shall see later, has dropped out of the case, because the insureds have conceded that the limit is $10,000,000, the figure advocated by American Casualty.) Neither did the Court decide whether coverage was vitiated by acts of deliberate dishonesty on the part of the insureds. Also, the question whether costs of defense, including the insureds' lawyers' fees in the Capitol Federal action, would, if advanced by American Casualty, count against or eat up whatever the over-all limit is, was not decided.

The major difficulty with FDIC's position on this point is that we have already decided in favor of our jurisdiction. Several months ago, the insureds made a motion to dismiss for want of jurisdiction, based essentially on the same arguments. On February 20, 1991, we denied the insureds' motion. That we have power to re-examine this decision, especially since it is a jurisdictional one, is not to be doubted. But the decision is the law of the case, ordinarily to be adhered to in the absence of clear error or manifest injustice. We see no such compelling circumstance here. The District Court has decided most of the issues determinative of American Casualty's coverage. It did not reach certain remaining questions, essentially because they were not ripe: These questions, or the most important of them, at any rate, cannot be decided, as a practical matter, until the Capitol Federal action is tried. Only after the conclusion of the trial, for example, will it be possible to say whether the insureds acted with conscious dishonesty. In effect, the District Court has granted some of the declaratory relief requested, and has denied the rest of it on the ground of ripeness. In addition, strong practical considerations favor our deciding this appeal now. The issues of contract interpretation decided in this opinion will settle the immediate legal rights between the parties, a fact of great practical significance for the upcoming trial of the Capitol Federal action.

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It is not fatal to this line of argument that further relief was sought and effectively denied.

In short, we see nothing clearly wrong or manifestly unjust about the previous order, entered by a motions panel of this Court, denying the insureds' motion to dismiss. The FDIC position is no more than a variation on this theme. We therefore hold, principally on the basis of the previous order of this Court, that we have jurisdiction to hear this appeal, and we turn to the merits.


This case essentially turns on the answers to two questions: First, was the insurance contract between the S & L officials and American Casualty in effect to provide coverage for a claim actually filed in 1987, and second, if so, what exactly does the contract cover? The parties agree that the answer to the first question depends upon whether the contract language entitled the insureds to purchase extended discovery coverage and, if it did, whether that extended coverage provided protection for a claim filed against the insureds two years after the policy's expiration.

The policy provided coverage for the S & L officials from January 24, 1981, through January 24, 1984. In October of 1983, American Casualty wrote the insureds informing them that the policy would expire on January 24, 1984, and requesting them to complete and return a renewal proposal form, which they did. On December 29, 1983, American Casualty again wrote the insureds conditioning the renewal on several changes: (1) the policy period would be decreased from three years to one year; (2) the deductible would be doubled from $5,000 to $10,000; (3) the premium would be increased; (4) the discovery period would be reduced from twelve months to ninety days; and (5) a regulatory endorsement would be added (excluding coverage for claims related to or arising out of the activities of any regulatory agency). Capitol Savings did not agree to these terms.

In order to explain the parties' arguments and the District Court's holding on this issue, we set out the discovery clause, in pertinent part:

If the Insurer shall cancel or refuse to renew this policy, the Association shall have the right, upon payment of seventy-five percent (75%) of the annual premium ..., to an extension of the coverage granted by this policy with respect to any claim or claims which shall be made against the Directors or Officers during the period of twelve calendar months after the date of such cancellation or refusal to renew, but only with respect to any Wrongful Act committed before the date of such cancellation or nonrenewal.

Add. 34 (emphasis ours). The District Court...

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