Bancorpsouth, Inc. v. Fed. Ins. Co.
| Decision Date | 12 October 2017 |
| Docket Number | No. 17-1425.,17-1425. |
| Parties | BANCORPSOUTH, INCORPORATED, Plaintiff-Appellant, v. FEDERAL INSURANCE COMPANY, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Lawrence J. Bracken, II, Attorney, HUNTON & WILLIAMS LLP, Atlanta, GA, Michael S. Levine, Esq., Attorney, HUNTON & WILLIAMS LLP, Washington, DC, Christina L. Fugate, Attorney, Derek Read Molter, Attorney, ICE MILLER LLP, Indianapolis, IN, for Plaintiff-Appellant.
Christopher A. Wadley, Attorney, WALKER WILCOX MATOUSEK LLP, Chicago, IL, for Defendant-Appellee.
Before Wood, Chief Judge, and Bauer and Sykes, Circuit Judges.
On May 18, 2010, Shane Swift filed a class action lawsuit on behalf of himself and others similarly situated against BancorpSouth, Incorporated ("Bancorp") in the Northern District of Florida based upon its assessment and collection of excessive overdraft fees. On February 24, 2016, Bancorp and Swift entered into a settlement agreement wherein Bancorp agreed to pay $24 million to the settlement class. Bancorp had previously notified its insurer, Federal Insurance Company ("Federal"), that it sought coverage for defending the lawsuit, and eventually, to indemnify the settlement costs. Federal denied all coverage, and consequently, Bancorp filed a complaint against Federal alleging breach of contract, as well as bad faith denial of coverage. Federal filed a motion to dismiss the complaint, citing an exclusion of coverage in their policy with Bancorp for any claim "based upon, arising from, or in consequence of any fees or charges." The district court granted Federal's motion to dismiss, and Bancorp appealed. We affirm.
Bancorp, a Mississippi corporation, is a financial institution which provides, among other things, checking and savings accounts to individuals. In November of 2009, Bancorp purchased a bankers' professional liability insurance policy from Federal. The first paragraph of the policy, titled "Insuring Clause," outlined Federal's obligation under the policy:
[Federal] shall pay, on behalf of an Insured, Loss on account of any Claim first made against such Insured during the Policy Period ... for a Wrongful Act committed by an Insured or any person for whose acts the Insured is legally liable while performing Professional Services, including failure to perform Professional Services.
Under the policy, a "Claim" is defined, inter alia , as a "written demand for monetary damages," or "a civil proceeding commenced by the service of a complaint or similar pleading" brought on behalf of a customer. "Loss" is defined as "the amount that an Insured becomes legally obligated to pay on account of any covered Claim," which includes both settlement costs, as well as "Defense Costs" or attorneys' fees. The policy also contained a number of exclusions from coverage, only one of which is relevant here. The relevant exclusion stated that Federal "shall not be liable for Loss on account of any Claim ... based upon, arising from, or in consequence of any fees or charges" ("Exclusion 3(n)").
On May 18, 2010, Shane Swift, on behalf of himself and others similarly situated, filed a lawsuit against Bancorp in the Northern District of Florida ("Swift Complaint"). The Swift Complaint's opening allegation stated: "This is a civil action seeking monetary damages, restitution and declaratory relief from [Bancorp] arising from its unfair and unconscionable assessment and collection of excessive overdraft fees." The Swift Complaint alleged that Bancorp maximized the amount of overdraft fees it could charge customers through a variety of means, policies, and procedures. First, according to the Swift Complaint, Bancorp reordered debits from highest to lowest, instead of chronologically. Second, Bancorp failed to provide accurate balance information, and purposefully delayed posting transactions. Third, Bancorp failed to notify customers of overdrafts, despite having the capability to ascertain at the point of sale whether there were sufficient funds in a customer's account. Finally, Bancorp failed to make their customers aware that they can opt out of Bancorp's overdraft policy upon request.
The Swift Complaint asserted claims for breach of contract, unconscionability, conversion, unjust enrichment, and a violation of the Arkansas Deceptive Trade Practice Act. Importantly, 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 resequencing debit card transactions from highest to lowest."
On February 24, 2016, Bancorp and Swift entered into a settlement agreement. Bancorp agreed to pay $24 million to the class plaintiffs to resolve all the claims, $8.4 million of which was set aside for attorney's fees, plus $500,000 in class administrative costs.
Bancorp notified Federal of the Swift Complaint and sought coverage for both defending the lawsuit, and indemnifying the cost of settlement. Federal denied all coverage.
Bancorp then filed a complaint alleging two breach of contract claims: that Federal breached its duty under the policy to defend against the Swift Complaint and pay attorneys' fees (Count One); and, that Federal breached the duty to indemnify Bancorp for the cost of settlement (Count Two). Additionally, the complaint alleged bad faith denial of coverage by Federal (Count Three). Federal filed a Rule 12(b)(6) motion to dismiss for failure to state a claim on the grounds that Swift's claims regarding the overdraft fees were excluded from coverage under Exclusion 3(n) since the claims were "based upon, arising from, or were in consequence of fees or charges."
The district court found that Exclusion 3(n) unambiguously excludes from coverage losses arising from fees. Accordingly, since the claims alleged in the Swift Complaint arose from the imposition of excessive overdraft fees, the district court ruled that Exclusion 3(n) applied, and Federal had no duty to defend or indemnify. Thus, the district court dismissed the two breach of contract claims, and also dismissed the bad faith claim since there was no longer an underlying contractual breach upon which Bancorp could recover. Bancorp timely appealed.
We review de novo the district court's order granting a motion to dismiss under Rule 12(b)(6), accepting as true all well-pleaded factual allegations and drawing all reasonable inferences in favor of the plaintiff.
Alamo v. Bliss , 864 F.3d 541, 548–49 (7th Cir. 2017). To avoid dismissal, the complaint must "state a claim to relief that is plausible on its face." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ).
"A federal court sitting in diversity ‘must attempt to resolve issues in the same manner as would the highest court of the state that provides the applicable law.’ " Netherlands Ins. Co. v. Phusion Projects, Inc. , 737 F.3d 1174, 1177 (7th Cir. 2013) (quoting Stephan v. Rocky Mountain Chocolate Factory, Inc. , 129 F.3d 414, 416–417 (7th Cir. 1997) ). Here, the parties agree that Mississippi law applies, under which "[t]he interpretation of an insurance policy is a question of law." Noxubee Cty. Sch. Dist. v. United Nat'l Ins. Co. , 883 So.2d 1159, 1165 (Miss. 2004).
Bancorp argues that the district court improperly dismissed Count One by exclusively focusing on the allegations in the Swift Complaint regarding the overdraft fees. According to Bancorp, the district court overlooked other allegations concerning Bancorp's general policies and procedures which are the primary sources of harm alleged in the Swift Complaint.
Under Mississippi law, the determination of whether an insurance company has a duty to defend depends upon the comparison of the language contained in the policy with the allegations contained in the complaint in the underlying action. Minnesota Life Ins. Co. v. Columbia Cas. Co. , 164 So.3d 954, 970 (Miss. 2014). Thus, we must compare the policy language, in particular Exclusion 3(n), which excludes from coverage any claim "based upon, arising from, or in consequence of any fees or charges," with the allegations contained in the Swift Complaint.
To support its argument that the injuries asserted in the Swift Complaint were primarily caused by Bancorp's general policies and practices, Bancorp points to a variety of paragraphs in the Swift Complaint that, on their face, have no mention of overdraft fees. For example, paragraph 35 alleges:
BancorpSouth misleads its customers regarding its reordering practices, as the Bank does not state unequivocally in its contract that it will reorder debits from highest to lowest. Thus, the Deposit Agreement is deceptive and/or unfair because it is, in fact, the Bank's practice to always reorder debits from highest to lowest.
However, these individual allegations cannot be read in a vacuum, and instead, must be read in the context of the entire complaint. Immediately preceding the above allegation, the Swift Complaint ties the deceptive Deposit Agreement and reordering practice directly to Bancorp's maximization of overdraft fees:
Read in its entirety, the only harm alleged by the Swift Complaint is Bancorp's maximization of excessive overdraft fees on its customers. The very first paragraph of the Swift Complaint specifically states that the crux of the lawsuit centers on Bancorp's "unfair and unconscionable assessment and collection of excessive overdraft fees." Moreover, the complaint defines the class of plaintiffs as customers who "incurred an overdraft...
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