Columbian Financial Corp.. v. Bancinsure Inc.

• Decision Date: 21 June 2011
• Docket Number: No. 10–3077.,10–3077.
• Citation: 650 F.3d 1372
• Parties: COLUMBIAN FINANCIAL CORPORATION; Carl McCaffree, Plaintiffs–Appellees,v.BANCINSURE, INC., Defendant–Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

650 F.3d 1372

COLUMBIAN FINANCIAL CORPORATION; Carl McCaffree, Plaintiffs–Appellees,

v.BANCINSURE, INC., Defendant–Appellant.

No. 10–3077.

United States Court of Appeals, Tenth Circuit.

June 21, 2011.

James D. Oliver, Foulston Siefkin LLP, Overland Park, KS, (Keith Witten, Gilliland & Hayes, P.A., Overland Park, KS, with him on the briefs), for Defendant–Appellant.Lyndsey J. Conrad (Micheal Thompson with her on the brief), Husch Blackwell LLP, Kansas City, MO, for Plaintiffs–Appellees.Before MURPHY, HARTZ, and GORSUCH, Circuit Judges.HARTZ, Circuit Judge.I. INTRODUCTION

BancInsure, Inc. (BancInsure) appeals a declaratory judgment in favor of Columbian Financial Corporation and a former director, Carl McCaffree, (collectively, the Insureds) handed down by the United States District Court for the District of Kansas. The court held that the claims-made directors-and-officers liability policy (the Policy) issued by BancInsure covered claims made until the expiration of the Policy on May 11, 2010, even though the Kansas State Bank Commissioner had declared the bank insolvent and appointed the Federal Deposit Insurance Corporation (FDIC) as receiver on August 22, 2008.

We vacate the judgment below because the district court lacked jurisdiction when it was entered. Although there may have been an actual controversy under the Declaratory Judgment Act, 28 U.S.C. § 2201(a), when suit was filed, no such controversy existed by the time of the district court's ruling. Only one claim had been made for which the Policy might provide coverage, and during the litigation BancInsure had stipulated that the Policy covered the claim. The parties failed to present to the district court any reason to believe that a claim against the Insureds would arise in the future that would lead to a dispute between BancInsure and the Insureds regarding coverage. Nor did they suggest any other reason why they needed a judicial construction of the Policy.

II. BACKGROUNDA. The Policy

The Policy was a claims-made policy whose term ran from May 11, 2007, to May 11, 2010, “or the date on which the Policy [wa]s effectively terminated, whichever [wa]s sooner.” Aplt.App. at 17. Under a claims-made policy, “coverage is effective if a [covered] act is discovered and brought to the attention of the insurance company during the period of the policy, no matter when the act occurred.” Berry & Murphy, P.C. v. Carolina Cas. Ins. Co., 586 F.3d 803, 809 n. 3 (10th Cir.2009) (internal quotation marks omitted). The Policy covered any claim reported to BancInsure during the policy period that was made against a Columbian officer or director for a “Wrongful Act,” which meant “any actual or alleged error, misstatement, misleading statement, act or omission, or neglect or breach of duty by any Insured Person acting solely in their Insured Capacities.” Aplt.App. at 16.

The Policy provision upon which the parties have focused on appeal is § X.E, which concerns the scope of coverage if Columbian is placed in receivership or otherwise ceases to engage in active banking business. Entitled “Reorganization/Cessation of Business,” the section states in relevant part:

If after the effective date of this Policy, the Company shall cease to engage in an active banking business or cease to accept deposits for any reason, coverage shall cease as of the date of the cessation of such business, and, absent a specific written agreement to the contrary, the Company shall not be entitled to obtain the extended coverage provided under Section II. of the Policy. For the purposes of this clause, the cessation of the business of banking shall include, but not be limited to, the appointment by any federal or state banking regulators of a receiver, liquidator or person in a similar capacity and any Transaction occurring at the request of any federal or state regulator. The Company shall provide written notice of such cessation of business to the Insurer as soon as practicable together with such information as the Insurer may request.

Id. at 21. The parties interpret this language rather differently. The Insureds contend that if Columbian goes into receivership, the Policy covers all claims made through the end of the original policy period, although only for Wrongful Acts committed before the receivership. BancInsure contends that the Policy covers only claims made (or deemed to be made) before the receivership.

Two further provisions need to be mentioned. Under § IX.B, a claim made after the Policy terminates is treated as having been made during the policy period if Columbian provides written notice of the potential claim to BancInsure within 30 days of the end of the period. In addition, if the Policy is canceled or not renewed, § II permits Columbian to purchase additional coverage for claims made during an Extended Reporting Period of up to three years for Wrongful Acts committed during the policy period.

B. The Receivership and Litigation

The operation of § X.E became relevant on August 22, 2008, when the Kansas State Bank Commissioner declared Columbian insolvent and appointed the FDIC as its receiver. Columbian stopped accepting deposits and engaging in active banking business the same day.

Soon thereafter BancInsure received a letter dated August 28, 2008, from the FDIC, providing notice of “potential claims against the former directors and officers of [Columbian] for mismanagement of lending by the institution and for other activities which may constitute a ‘wrongful act’ or a ‘wrongful lending act,’ as defined in [the Policy].” Id. at 228. On September 3 an attorney representing Columbian and its officers and directors sent a letter notifying BancInsure of potential claims by the FDIC and others. And on September 18 Columbian forwarded to BancInsure a September 12 letter from the Construction Industry Laborers Training Fund (the Laborers Fund) demanding payment of $486,998.06, the amount of its uninsured deposits with Columbian on August 22. BancInsure admits that it received these notices of potential claims by both the FDIC and the Fund within 30 days of August 22.

On December 18, 2008, Columbian filed an action in federal court seeking a declaratory judgment. The complaint noted disputes between Columbian and BancInsure regarding the meaning of the Policy and asserted that “[a]n actual controversy exist[ed] between Columbian and Banc[I]nsure regarding the[ir] rights, liabilities, and duties ... under the Policy.” Id. at 12. Count I sought a determination that “[u]nder the terms of the Policy, coverage ceased by the appointment of a receiver, but the policy was not canceled”; “that the Policy ... remain[ed] in full force and effect”; and that “notice of a Claim or Wrongful Act [wa]s [timely] if such [wa]s received by BancInsure on or before May 11, 2008.” Id. (internal quotation marks omitted). (An amended complaint extended the alleged deadline for timely notice to May 11, 2010.) Count II pleaded in the alternative that if the court treated the Policy as canceled, it should declare that Columbian had the right to purchase “an Extended Reporting Period under Section II of the Policy.” Id. at 13.

A few months later, in early March 2009, the Laborers Fund filed a lawsuit in Missouri state court against Brian McGowan, a former officer of Columbian. After learning of the claim, BancInsure sent McGowan a letter notifying him “that the Policy include[d] no duty to defend, but d[id] include a duty to pay reasonable defense costs, and reserved its rights in regard to the claim brought by the [Laborers] Fund....” Id. at 167. The same letter, which is not in the record, allegedly “indicated that [BancInsure] would deny coverage for the claim brought by [the Laborers] Fund against Brian McGowan, claiming that notice was not provided during the Policy Period.” Id. at 77. In response, Columbian, now joined by McCaffree as a plaintiff, filed on April 28 a second amended complaint, which added a Count III seeking a declaration that:

the notices of potential claims sent to BancInsure on or about September 3, 2008 and September 18, 2008 regarding potential claims filed by the FDIC, uninsured depositors, and the [Laborers] Fund were timely and that [the Insureds] are therefore entitled to have any claims which were specifically identified in those notices treated as claims made during the Policy Period.

Id. at 80.

The dispute about coverage for McGowan was short-lived. On September 3, 2009, the parties stipulated that the “claim asserted against Brian McGowan” brought by the Laborers Fund in Missouri state court “[wa]s covered under the Policy.” Id. at 167. Both the Insureds and BancInsure then filed motions for summary judgment. The district court denied BancInsure's motion and granted the Insureds' as to Count I. It ruled that “the language of the policy [was] unambiguous” and that “[t]he policy period continue[d] until May 10, 2010.” Id. at 332. It determined that it need not address the alternative claim in Count II. And it held that the Insureds waived Count III by not preserving the issue in the pretrial order.

III. DISCUSSION

The sole issue that we must resolve on appeal is the district court's jurisdiction. Although neither party has raised this issue, we have a duty to do so sua sponte when we notice a substantial question regarding our jurisdiction. See Tafoya v. U.S. Dep't of Justice, 748 F.2d 1389, 1390 (10th Cir.1984).

The Declaratory Judgment Act provides: “In a case of actual controversy within its jurisdiction, ... any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought.” 28 U.S.C. § 2201(a) (emphasis added). “[T]he phrase ‘case of actual controversy’ in the Act refers to the type of ‘Cases' and ‘Controversies' that are justiciable under Article III” of the United States Constitution....