Bancorpsouth, Inc. v. Fed. Ins. Co.

Decision Date26 January 2017
Docket Number1:16-cv-01871-SEB-DML
CourtU.S. District Court — Southern District of Indiana

This is an insurance case. Before us is Defendant Federal Insurance Company's ("Federal") Motion to Dismiss for failure to state a claim upon which relief can be granted filed pursuant to Federal Rule of Civil Procedure 12(b)(6). [Dkt. No. 17.] Plaintiff has responded in opposition. For the following reasons, we GRANT the Motion.


BancorpSouth, Inc. ("Bancorp") is a financial institution which provides, among other things, checking and savings accounts to individuals. Bancorp purchased a bankers' professional liability insurance policy from Federal with a policy period of November 15, 2009 to November 15, 2010 (the "Policy"), a copy of which is attached as Exhibit 1 to the Complaint. The Policy obligates Federal to provide insurance coverage as follows:

The Company [Federal] shall pay, on behalf of an Insured, Loss1 on account of any Claim first made against such Insured during the Policy Period or, if exercised, during the Extended Reporting Period, for a Wrongful Act2 committed by an Insured or any person for whose acts the Insured is legally liable while performing Professional Services,3 including failure to perform Professional Services.

The Policy contains various exclusions, including the following:

The Company shall not be liable for Loss on account of any Claim:
. . .
n. based upon, arising from, or in consequence of any fees or charges;
. . . .

[Policy § 2 ("Exclusion 3(n)").]

On May 18, 2010, Shane Swift filed a class action lawsuit on behalf of himself and others against Bancorp in the Northern District of Florida, case number 1:10-cv-90-SPM-AK ("Swift Complaint" or "Swift Lawsuit").4

The Swift Complaint's opening allegation states:

1. This is a civil action seeking monetary damages, restitution, and declaratory relief from Defendant, [BancorpSouth], arising from its unfair and unconscionable assessment and collection of excessive overdraft fees.

[Swift Compl. ¶ 1.]5 The Swift Complaint alleges that Bancorp maximized its overdraft fees to its customers by: (1) "reorder[ing] the debits from largest to smallest" in an effort to maximize overdraft fees [id. ¶ 30]; (2) provid[ing] "inaccurate balance information to customers" through its electronic banking programs by reporting a positive balance despite its knowledge that outstanding transactions would result in a negative balance, as well as placing holds on certain funds which caused negative balances and overdraft fees [id. ¶ 44]; (3) failing to notify customers when their transactions would result in an overdraft fee and failing to inform customers of their option to opt-out of Bancorp's overdraft policy, thereby avoiding any overdraft charges [id. ¶¶ 48, 49]. These allegedly "wrongful overdraftpolicies and practices" harmed him and others, examples of which charges were provided by Swift, some of which would have been avoided had Bancorp not reordered his transactions. [Id. ¶¶ 61-64, 69 ("Thus, as a consequence of BancorpSouth's overdraft policies and practices, Plaintiff and the [class members] have been wrongfully forced to pay overdraft fees.").]

Asserting claims for breach of contract, unconscionability, conversion, unjust enrichment, and violations of state statute [id. ¶¶ 73-108], Swift sought to represent a class of "[a]ll BancorpSouth customers in the United States who . . . incurred an overdraft fee as a result of BancorpSouth's practice of re-sequencing debit card transactions from highest to lowest" [id. ¶ 15]. Swift sought the following relief:


WHEREFORE, Plaintiff and the Classes demand a jury trial on all claims so triable and judgment as follows:
1. Declaring BancorpSouth's overdraft fee policies and practices to be wrongful, unfair and unconscionable;
2. Restitution of all overdraft fees paid to BancorpSouth by Plaintiff and the Classes, as a result of the wrongs alleged herein in an amount to be determined at trial;
3. Disgorgement of the ill-gotten gains derived by BancorpSouth from its misconduct;
4. Actual damages in an amount according to proof;
5. Punitive and exemplary damages;
6. Pre-judgment interest at the maximum rate permitted by applicable law;
7. Costs and disbursements assessed by Plaintiff in connection with this action, including reasonable attorneys' fees pursuant to applicable law; and
8. Such other relief as this Court deems just and proper.

[Id. at 28-29.]

On or about February 24, 2016, Bancorp and Swift entered into a Settlement Agreement and Release ("Settlement Agreement") wherein Bancorp agreed to pay $24 million to the settlement class and up to $500,000 in administration fees to be used to administer the settlement. [Compl. ¶¶ 44-45.] The Settlement Agreement released claims to the extent that they involve, result in, or seek relief/recovery for "debit transaction sequencing or posting order", including the "handling of Debit Card Transaction", Bancorp's failure to notify or obtain advance approval when a transaction might cause an account to be overdrawn, failure to allow Settlement Class members to opt-out of overdrafts, failure to disclose posting order, debit re-sequencing, overdrafts or Overdraft Fees, and conduct encouraging the use of Bancorp debit cards. [Id. ¶ 43.] Bancorp also incurred attorneys' fees in defending and resolving the Swift Lawsuit. Although the parties did not supply us with a copy of the Settlement Agreement, Bancorp has excerpted relevant provisions in its Complaint. In any event, no one has argued that the Court's review of the entire Settlement Agreement is necessary to decide the merits of Federal's Motion to Dismiss.

Bancorp notified Federal of the Swift Lawsuit and demanded coverage for the claims pursuant to the terms of the Policy; Federal denied Bancorp's claim. [Compl. ¶¶ 38, 66.] As a result, Bancorp brings three claims against Federal in this lawsuit: (1) breach of contract, based on Federal's alleged failure to defend Bancorp in the Swift lawsuit [id. ¶¶ 67-72], breach of contract, based on Federal's alleged failure to indemnify Bancorp forthe settlement amount and attorneys' fees expended defending the litigation [id. ¶¶ 73-78], and breach of the duty of good faith and fair dealing, based on Federal's denial of coverage [id. ¶¶ 79-89]. Bancorp further seeks to recover its defense costs and the amount it paid to settle the Swift Lawsuit. Federal has moved to dismiss the Complaint based on the theory that the Policy does not provide coverage for Bancorp's Loss.

Standard of Review

In the procedural context of a motion based on Federal Rule of Civil Procedure 12(b)(6), the Court accepts as true all well-pled factual allegations in the complaint and draw all ensuing inferences in favor of the non-movant. Lake v. Neal, 585 F.3d 1059, 1060 (7th Cir. 2009). Nevertheless, the complaint must "give the defendant fair notice of what the . . . claim is and the grounds upon which it rests," and its "[f]actual allegations must . . . raise a right to relief above the speculative level." Pisciotta v. Old Nat'l Bancorp, 499 F.3d 629, 633 (7th Cir. 2007) (citations omitted). The complaint must therefore include "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007); see Fed. R. Civ. P. 8(a)(2). Stated otherwise, a facially plausible complaint is one which permits "the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).

Mississippi Insurance Governing Principles6

Under Mississippi law, an insurance policy is a contract, which the court must enforce in accordance with its provisions. Noxubee County Sch. Dist. v. United Nat'l Ins. Co., 883 So. 2d 1159, 1166 (Miss. 2004). "Thus, insurance companies must be able to rely on their statements of coverage, exclusions, disclaimers, definitions, and other provisions, in order to receive the benefit of their bargain and to ensure that rates have been properly calculated." Id. "[W]hen stated without uncertainty or ambiguity, exclusionary language is binding upon the insured." Progressive Gulf Ins. Co. v. We Care Day Care Ctr., Inc., 953 So. 2d 250, 254 (Miss. Ct. App. 2006). "The interpretation of an insurance policy is a question of law." Porter v. Grand Casino of Miss., Inc., 181 So. 3d 980, 983 (Miss. 2016).

"[I]f a contract is clear and unambiguous, then it must be interpreted as written." United States Fid. & Guar. Co. of Mississippi v. Martin, 998 So. 2d 956, 963 (Miss. 2008). An ambiguity exists "when a policy can be logically interpreted in two or more ways, where one logical interpretation provides for coverage." Architex Ass'n, Inc. v. Scottsdale Ins. Co., 27 So. 3d 1148, 1157 (Miss. 2010) (internal quotation omitted). "[A]mbiguous and unclear policy language must be resolved in favor of the non-drafting party—the insured. Further, provisions that limit or exclude coverage are to be construed liberally in favor of the insured and most strongly against the insurer." Minnesota Life Ins. Co. v. ColumbiaCas. Co., 164 So. 3d 954, 967-68 (Miss. 2014) (citations and internal quotation omitted). Under Mississippi law, insurers bear the burden of proving exclusions apply. Buente v. Allstate Ins. Co., 422 F. Supp. 2d 690, 696 (S.D. Miss. 2006) (citing Commercial Union Ins. Co. v. Byrne, 248 So. 2d 777 (Miss. 1971)).

Applicability of Exclusion 3(n)

The resolution of the insurance coverage dispute before us turns on the nature of the claims alleged in the underlying Swift Lawsuit. The Policy provision at issue is Exclusion 3(n), which provides in relevant part: "The Company [Federal] shall not be liable for Loss on account of any Claim: . . . n. based upon, arising from, or in consequence of any fees or charges; . . . ." [Exclusion 3(...

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