American Cas. Co. v. Resolution Trust Corp.

• Decision Date: 01 November 1993
• Docket Number: Civ. A. No. MJG-92-1138.
• Citation: 845 F. Supp. 318
• Parties: AMERICAN CASUALTY COMPANY OF READING, PA., Plaintiff, v. RESOLUTION TRUST CORPORATION, et al., Defendants.
• Court: U.S. District Court — District of Maryland

845 F. Supp. 318

AMERICAN CASUALTY COMPANY OF READING, PA., Plaintiff, v. RESOLUTION TRUST CORPORATION, et al., Defendants.

Civ. A. No. MJG-92-1138.

United States District Court, D. Maryland.

November 1, 1993.

MEMORANDUM AND ORDER

GARBIS, District Judge.

The Court has before it the following motions and the materials submitted by the parties¹ relating thereto:

1. RTC's Motion for Partial Summary Judgment as to the 1984 Policy.

2. American Casualty's Cross-Motion for Partial Summary Judgment Under the 1984 Policy.

3. RTC's Motion for Partial Summary Judgment Based on American Casualty's Failure to Send Notice of Nonrenewal.

4. Defendant Robert E. Hecht Sr.'s Motion for Partial Summary Judgment Based on American Casualty's Failure to Send Notice of Nonrenewal.

5. American Casualty's Motion for Partial Summary Judgment (regarding the 1987 Policy).

The Court has held a hearing and had the benefit of the arguments of counsel.

I. INTRODUCTION

Without directing criticism to any particular lawyer(s), it is fair to say that some of the presentations regarding these motions were disappointing. Because the RTC and American Casualty have litigated similar — but not identical — issues in many other cases, the matter was grossly over-briefed.² Moreover, some of the arguments presented appear to have been made because they are found on some checklist of all possible arguments, rather than through informed professional judgment regarding this particular case.

It is appropriate for the Court to suggest to certain of the counsel in this case — and if you do not know who you are, an adverse party will tell you — that it would be best to pay more attention to the evidence and precedents as they exist rather than as you wish they were.

The following discussion of the facts underlying the present dispute and the legal authority guiding the Court's decision is not a sweeping exploration of savings and loan crisis litigation. Rather it is — or better put, is intended to be — a focused analysis of the distinct issues brought before this Court. For the reasons set forth herein the Court concludes that there is no genuine issue of material fact and that American Casualty is entitled to summary judgment.

II. BACKGROUND

Baltimore Federal Financial, F.S.A. ("Baltimore Federal"), purchased two directors' and officers' insurance policies from American Casualty Company of Reading, Pa. ("American Casualty"). The first policy, in effect from June 14, 1984, to May 1, 1987 (the "1984 Policy"), provided broad coverage and contained a one-year discovery period option. The second, for the period from May 1, 1987, to May 1, 1988 (the "1987 Policy"), provided considerably narrower coverage, had higher deductibles, and included only a ninety-day discovery period option.

The reduced coverage of the 1987 Policy was due to a combination of the general effects of the savings and loan crisis on the insurance industry and specific risks regarding Baltimore Federal that came to American Casualty's attention. Specifically, on July 2, 1986, Baltimore Federal entered into an agreement with the Federal Home Loan Bank Board ("FHLBB") requiring Baltimore Federal to bring into compliance with federal standards its record-keeping, accounting, lending, and appraisal practices (the "Supervisory Agreement"). American Casualty's reaction to the FHLBB's criticisms is reflected in, among other things, the regulatory exclusion included in the 1987 Policy.

In 1989, the FHLBB determined that Baltimore Federal was insolvent and appointed a conservator. The Resolution Trust Corporation ("RTC") was named the receiver, and in February 1992, it brought suit against Baltimore Federal's directors and officers based on their "unsafe, unsound and reckless lending policies and practices during the years 1983 to 1985." (See RTC v. Hecht, et al., Civil Action No. MJG-92-371, Compl. at ¶ 1.) The present dispute — between American Casualty, on the one hand, and the RTC and the directors and officers of Baltimore Federal, on the other — is related to the Hecht case. In the instant case, American Casualty seeks a declaratory judgment that it is not responsible for covering any of the losses claimed in the underlying suit.

III. LEGAL STANDARD

Rule 56 of the Federal Rules of Civil Procedure provides that a motion for summary judgment shall be granted only if the pleadings and supporting documents "show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). Addressing the analysis a trial court should use in considering a motion for summary judgment, the Supreme Court has explained:

The plain language of Rule 56(c) mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.

Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). The Fourth Circuit has reiterated that "failure of proof of an essential element of the case `necessarily renders all other facts immaterial.'" Shealy v. Winston, 929 F.2d 1009, 1012 (4th Cir.1991) (quoting Celotex, 477 U.S. at 323, 106 S.Ct. at 2553).

On a motion for summary judgment, "the evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in his favor." Anderson v. Liberty Lobby, 477 U.S. 242, 255, 106 S.Ct. 2505, 2513, 91 L.Ed.2d 202 (1986); see also Adickes v. S.H. Kress & Co., 398 U.S. 144, 158-59 (1970). Thus, the Court must view the evidence in the light most favorable to the nonmoving party.

Rule 56, however, does not relieve the nonmovant of all responsibility to rebut the motion. In an ordinary civil case, "the mere existence of a scintilla of evidence in support of the plaintiff's position will be insufficient; there must be evidence on which the jury could reasonably find for the plaintiff." Anderson, 477 U.S. at 252, 106 S.Ct. at 2512. As Judge Winter said in Bland v. Norfolk and Southern Railroad Company, 406 F.2d 863, 866 (4th Cir.1969):

While a day in court may be a constitutional necessity when there are disputed questions of fact, the function of a motion for summary judgment is to smoke out if there is any case, i.e., any genuine dispute as to any material fact, and, if there is no case, to conserve judicial time and energy by avoiding an unnecessary trial and by providing a speedy and efficient summary disposition.

See also Felty v. Graves-Humphreys Co., 818 F.2d 1126, 1128 (4th Cir.1987) (noting "the affirmative obligation of the trial judge to prevent `factually unsupported claims and defenses' from proceeding to trial") (quoting Celotex, 477 U.S. at 323-24, 106 S.Ct. at 2553).

IV. DISCUSSION

A. Notice under the 1984 Policy

The RTC claims that Baltimore Federal provided notice of potential claims to American Casualty in 1987 through the information it provided in its applications to renew the directors' and officers' liability policies, thereby complying with Paragraph 6(A) of the 1984 Policy³ and justifying coverage under that notice clause. In particular, the RTC claims that American Casualty's awareness of "all of the troublesome events that had culminated in the Supervisory Agreement" constituted notice of potential claims.

Under Maryland law, "where the facts are undisputed and only one conclusion is reasonably possible, the question whether or not the insured under a liability policy complied with the requirement of notice is a question of law for the court...." Lennon v. American Farmers Mutual Ins. Co., 208 Md. 424, 118 A.2d 500, 503 (1955). Thus, when there is no dispute as to the specific facts necessary to determine whether notice was given, summary judgment is appropriate.

The facts regarding the substance of the purported notice and the way it was sent to American Casualty are undisputed. First, Baltimore Federal never sent a letter expressly notifying American Casualty of potential claims in 1987, and no transmissions of any kind relevant to the future Hecht suit were sent to the Claims Manager, as required under Paragraph 6(c), until 1988. Second, the Supervisory Agreement, containing the substance of Baltimore Federal's alleged notice, was entered into with the promise of "FHLBB's forbearance from the initiation of formal enforcement proceedings"; in other words, in exchange for the FHLBB's promise not to bring any claims. (See Def.'s Mem. at 6.) Third, in response to a question on American Casualty's renewal application about cease-and-desist orders and special agreements, Baltimore Federal stated, "As a result of the FHLBB examination, on 7/2/86 entered into Special Agreement with FHLBB. Terms are being complied with." (Application Questionnaire, (emphasis added).) Fourth, also in the renewal application, Baltimore Federal responded "No" to the question, "Does any Director or Officer of the Association or any of its Subsidiaries have knowledge or information of any act, error or omission which might give rise to a claim under the proposed policy?" Fifth, the Home Shopping Network prospectus sent by Baltimore Federal to American Casualty, which supposedly disclosed potential claims, also contained the following disclaimer: "Management believes that it has promptly complied in all material respects with its obligations under the supervisory agreement." And, finally, addressing the Supervisory Agreement that it now says provided notice of potential claims, Baltimore Federal asserted in April 1987:

It is our contention that we are now in compliance with all of the shortcomings listing in the agreement. An examination is currently being conducted by the Federal Examiners; and, upon its conclusion, we expect that the agreement will be nullified.

(Letter from Baltimore Federal to Charter Corporation, dated April 29, 1987...