F.D.I.C. v. American Cas. Co. of Reading, Pa.

• Decision Date: 14 December 1992
• Docket Number: No. 91SC592,91SC592
• Citation: 843 P.2d 1285
• Parties: FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for Buena Vista Bank & Trust Company, and Glenn R. McGowan, Petitioners, v. AMERICAN CASUALTY COMPANY OF READING, PENNSYLVANIA, Respondent.
• Court: Colorado Supreme Court

Page 1285

843 P.2d 1285

61 USLW 2377

FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for Buena Vista Bank & Trust Company, and Glenn R. McGowan Petitioners, v. AMERICAN CASUALTY COMPANY OF READING, PENNSYLVANIA, Respondent.

No. 91SC592.

Supreme Court of Colorado En Banc.

Dec. 14, 1992.

As Modified on Denial of Rehearing

Jan. 11, 1993.

Popham, Haik, Schnobrich & Kaufman, Ltd., Wiley Daniel, Richard G. Sander, Denver, Comey & Boyd, Eugene J. Comey, Sean M. Fitzpatrick, Robert F. Schiff, Linda S. Madrid, Washington, DC, for petitioner F.D.I.C.

Rothgerber, Appel, Powers & Johnson, Timothy J. Judson, Tennyson W. Grebenar, Franklin D. O'Loughlin, Denver, for petitioner Glenn R. McGowan.

Berryhill, Cage & North, P.C., Jack W. Berryhill, Denver, Meager & Geer, Robert E. Salmon, William M. Hart, Minneapolis, MN, for Respondent.

D'Amato & Lynch, Robert M. Yellen, New York City, for amicus curiae Nat. Union Fire Ins. Co.

Justice QUINN delivered the Opinion of the Court.

This case raises two questions decided by the court of appeals in Federal Deposit Ins. Corp. v. Bowen, 824 P.2d 41 (Colo.App.1991). The court of appeals held that the terms of a "regulatory exclusion" in a directors' and officers' liability insurance policy issued by American Casualty Company to the Buena Vista Bank and Trust Company, a state-chartered banking institution that later was declared insolvent and was closed by the Colorado Banking Commission, unambiguously excluded coverage for claims "based upon or attributable to" actions brought by the Federal Deposit Insurance Corporation (FDIC), either in the FDIC's capacity as a bank regulator or in its capacity as liquidator of the insolvent bank on behalf of the bank's depositors, creditors, and stockholders. The court of appeals also held that neither federal nor state public policy precluded judicial enforcement of the regulatory exclusion under circumstances where the FDIC obtained a judgment against the insolvent bank's former directors for negligence and breach of fiduciary duty in managing the bank and then attempted to garnish the insurance proceeds as an asset of the bank. We granted the FDIC's petition for certiorari to review the court of appeals' resolution of these issues. Although we conclude that the regulatory exclusion is unambiguously written so as to exclude coverage for common law claims asserted by the FDIC against the former directors of the insolvent bank, we hold that judicial enforcement of the regulatory exclusion contravenes the important public policy underlying the Colorado Banking Code of 1957, §§ 11-1-101 to -11-11-110 and 11-22-101 to -11-23-125, 4B C.R.S. (1987 & 1992 Supp.), of vesting the FDIC, in its role as liquidator of an insolvent state-chartered bank, with the authority and responsibility for protecting the legitimate interests of the bank's depositors, creditors, and stockholders by marshalling the bank's assets and equitably compensating them for their losses resulting from the negligence and breach of fiduciary duty on the part of the bank's former directors. By the term "the bank's assets," we mean the property interest of both the Buena Vista Bank and the bank's former directors in the directors' and officers' liability police issued to the bank. We accordingly reverse the judgment of the court of appeals and remand the case to that court for consideration of any other issues raised by the parties in the original appeal to that court and not resolved by the court of appeals in its opinion.

I.

On August 28, 1986, the Colorado Banking Board closed the state-chartered Buena Vista Bank and Trust Company due to its insolvency and appointed the FDIC as liquidator for the bank pursuant to section 11-5-105(1), 4B C.R.S. (1992 Supp.). Upon the FDIC's appointment all the assets, business, and property of the bank were deemed to have been transferred from the bank and the banking board to the FDIC § 11-5-105(3), 4B C.R.S. (1992 Supp.). In August 1988 the FDIC commenced a civil action against three former directors of the Buena Vista Bank, in which it alleged that the directors had negligently managed the bank and had breached their fiduciary obligations to the bank's depositors, creditors, and stockholders. The FDIC subsequently obtained a 3.2 million dollar default judgment against two of the bank directors ¹ and then served a writ of garnishment on American Casualty Company, which had issued a liability policy covering the bank's directors and officers in the amount of one million dollars. The insurance policy, entitled Directors' and Officers' Liability Insurance Policy Including Bank Reimbursement, provided as follows:

In consideration of the payment of the premium and in reliance upon all statements made and information furnished to The Insurer (a stock insurance company, hereinafter called the Insurer) including the statements made in the application and subject to all of the terms, conditions, and limitations of this policy, the Insurer agrees:

(a) With the Directors and Officers of the Bank that if, during the policy period any claim or claims are made against the Directors and Officers, individually or collectively, for a Wrongful Act, the Insurer will pay, in accordance with the terms of this policy, on behalf of the Directors and Officers or any of them, their heirs, legal representatives or assigns all Loss which the Directors and Officers or any of them shall become legally obligated to pay.

(b) With the Bank that if, during the policy period, any claim or claims are made against the Directors and Officers, individually or collectively, for a Wrongful Act, the Insurer will pay, in accordance with the terms of this policy, on behalf of the Bank all Loss for which the Bank is required to indemnify or for which the Bank has to the extent permitted by law, indemnified the Directors and Officers.

The insurance policy also provided that the liability coverage was applicable to "a shareholders' derivative action brought by a shareholder of the institution other than by an insured."

American Casualty Company answered the writ of garnishment by denying that it held or possessed any personal property owed to or owned by the judgment debtor-directors of the Buena Vista Bank. American Casualty Company's denial was based on a "regulatory exclusion" contained in the policy which provided as follows:

It is understood and agreed that the Insurer shall not be liable to make any payment for Loss in connection with any claim made against the Directors [or] Officers based upon or attributable to any action or proceeding brought by or on behalf of the Federal Deposit Insurance Corporation, the Federal Savings & Loan Insurance Corporation, any other depository insurance organization, the Comptroller of the Currency, the Federal Home Loan Bank Board, or any other national or state regulatory agency (all of said organizations and agencies hereinafter referred to as "Agencies"), including any type of legal action which such Agencies have the legal right to bring as receiver, conservator, liquidator or otherwise, whether such action or proceeding is brought in the name of such Agencies or by or on behalf of such Agencies in the name of any other entity or solely in the name of any Third Party.

The FDIC traversed American Casualty Company's answer by stating that as liquidator of the Buena Vista Bank it had obtained a judgment against the bank directors and that the insurance liability limit of one million dollars constituted personal property which American Casualty Company presently owed to the two bank directors against whom the 3.2 million dollar judgment had been entered.

The district court found that American Casualty Company was presently indebted to the bank's former directors in the amount of its liability policy limit of one million dollars as the result of the judgment entered in favor of the FDIC against the bank directors based on the FDIC's common law claims of negligence and breach of fiduciary duty. The district court then ruled that the regulatory exclusion applied only to claims which the FDIC might bring in its administrative capacity as a bank regulator and not, as here, as the representative of an insolvent bank's depositors, creditors, and stockholders. The district court next concluded that the regulatory exclusion in the liability policy was "unenforceable because it contravened state and federal public policy and impairs the federal and state statutorily imposed duties of FDIC/Receiver."

American Casualty Company appealed to the court of appeals, which reversed the order sustaining the writ of garnishment and ordered the writ dismissed because, in its view, the regulatory exclusion was unambiguous and excluded any and all claims that the FDIC might bring in its capacity as liquidator, and the regulatory exclusion was not violative of any federal or state public policy. In reversing the judgment of the district court, the court of appeals did not consider American Casualty Company's argument that the district court abused its discretion and violated American Casualty Company's constitutional rights by denying its motion for a continuance of the garnishment hearing, by failing to conduct a full evidentiary hearing on the garnishment issue, and by failing to consolidate the garnishment proceeding and a declaratory action filed by American Casualty Company but dismissed by the district court. ² We thereafter granted the FDIC's petition for certiorari to review the decision of the court of appeals.

II.

We first consider whether the terms of the regulatory exclusion are ambiguous. The FDIC's argument on this issue proceeds as follows: the language of the regulatory exclusion is ambiguous in that it might apply to all claims brought by the FDIC or, instead, only to claims relating to losses caused by so-called "secondary suits," which the FDIC describes as lawsuits brought by a third party or parties against a bank director or...