FDIC v. Continental Cas. Co., Civ. No. 90-1100-RE.

• Decision Date: 18 October 1991
• Docket Number: Civ. No. 90-1100-RE.
• Citation: 796 F. Supp. 1344
• Parties: The FEDERAL DEPOSIT INSURANCE CORPORATION, a federal corporation, Clark Compton, Walter Sands, Stephen Bennett, Donald Bumgarner, Emmett Egbert, Lawrence Hughes, Norval J. Ritchey, and Faye Rookard, Plaintiffs, v. CONTINENTAL CASUALTY COMPANY, dba CNA, Defendant.
• Court: U.S. District Court — District of Oregon

796 F. Supp. 1344

The FEDERAL DEPOSIT INSURANCE CORPORATION, a federal corporation, Clark Compton, Walter Sands, Stephen Bennett, Donald Bumgarner, Emmett Egbert, Lawrence Hughes, Norval J. Ritchey, and Faye Rookard, Plaintiffs, v. CONTINENTAL CASUALTY COMPANY, dba CNA, Defendant.

Civ. No. 90-1100-RE.

United States District Court, D. Oregon.

October 18, 1991.

Mark E. Friedman, Eric A. Lindenauer, Garvey, Schubert & Barer, Portland, Or., Jeffrey R. Williams, F.D.I.C., Legal Div., Washington, D.C., for the F.D.I.C.

Arden E. Shenker, Robert E.L. Bonaparte, Tooze Shenker Holloway & Duden, Portland, Or., Gary V. Dixon, William E. O'Brien, Jr., Joan Gerhart Mollerus, Ross, Dixon & Masback, Washington, D.C., for Continental Cas. Co.

OPINION

REDDEN, Chief Judge:

BACKGROUND

On September 24, 1982, the MGIC Indemnity Corp. issued a Directors' and Officers' Liability Insurance Policy (MGIC Policy) to the Bank of the Northwest (Bank), a bank in Eugene, Oregon, providing defense and insurance coverage for wrongful acts of the Bank's officers and directors and indemnity coverage for the Bank. The Policy period ran from September 24, 1982 to September 24, 1983. In September 1983, MGIC notified the Bank that it was not renewing the Policy. The Bank elected to purchase "extended discovery" coverage pursuant to paragraph 2(B) of the Policy for the period September 24, 1983 to December 23, 1983.

On November 1, 1983, the MGIC Policy and its obligations were assumed by defendant, Continental Casualty Company, dba CNA (CNA). CNA agreed to assume all MGIC policies of certain specified types (including directors and officers liability insurance policies) that were in full force and effect on November 1, 1983. CNA also agreed to pay MGIC's liability on certain claims arising prior to November 1, 1983. On August 31, 1984, the Bank was declared insolvent by the State Banking Division. Plaintiff, Federal Deposit Insurance Corporation (FDIC) was appointed receiver of the Bank. FDIC, as receiver, sold and transferred to the FDIC, in its corporate capacity, all assets and claims of the Bank material to this action. The Bank's former rights and interest in the MGIC Policy are now property of the FDIC. The FDIC now has the rights, titles and powers of any officer or director of the Bank, including those pertaining to the MGIC Policy.

On July 1, 1985, MGIC placed itself in voluntary liquidation proceedings under Wisconsin law. CNA entered into an agreement ("Putback Agreement") with WMBIC Indemnity Corporation, MGIC's successor-in-interest (WMBIC) and the Commissioner of Insurance of the State of Wisconsin as the court-appointed Liquidator of WMBIC (the Liquidator). Under the Putback Agreement, CNA attempted to transfer its obligations under the MGIC Policy to WMBIC and the Liquidator. Plaintiff alleges that the Putback Agreement is ambiguous and that the insureds under the MGIC Policy did not have notice of, nor did they consent to, the Putback Agreement.

In 1987, FDIC filed suit in Eugene, Oregon, FDIC v. Clark Compton et al., Cv 87-6413-E (the Eugene FDIC action). The Eugene FDIC action alleged wrongful acts by certain officers and directors of the Bank, including all individually named plaintiffs in the action at bar.

On October 25, 1990, plaintiffs FDIC and eight individuals who are former directors and officers of the Bank (plaintiffs) filed this action against CNA alleging CNA was notified of the claims in the Eugene FDIC action and that CNA denied responsibility for those claims. Plaintiffs allege that the Putback Agreement is unconscionable as to the insureds under the MGIC Policy.

Also in 1990, plaintiffs filed proofs of claims against WMBIC in the liquidation proceedings in Wisconsin state court, seeking a determination that the Policy provides coverage for the same claims as the claims at issue in this proceeding. See In re WMBIC Indemnity Segregated Account, 85-CV-3361. The Deputy Liquidator recommended denial of the individual directors' and officers' claims in November 1990 and of the FDIC's claim in December 1990. The directors and officers and the FDIC filed objections to the Deputy Liquidator's recommendations and pursued the appropriate actions (the "WMBIC actions") in the Wisconsin state court.

On August 16, 1991, the Wisconsin court issued a Decision and Order granting WMBIC's Motion for Summary Judgment. The court entered judgment in favor of WMBIC and dismissed plaintiffs' action on August 21, 1991. See CNA's Exh. B.

Plaintiffs' first claim for relief is for declaratory judgment. Specifically, plaintiffs contend that the MGIC Policy provides coverage for the claims and damages set forth in the Eugene FDIC action. Plaintiffs contend that notice of a claim was received by MGIC within the applicable time periods under the MGIC Policy. Plaintiffs assert that CNA is under an obligation to defend and indemnify the plaintiffs and to indemnify the FDIC in the Eugene FDIC action; including paying any settlement or judgment arising from the Eugene FDIC action.

Plaintiffs' second claim is for breach of an insurance contract. Plaintiffs allege that CNA's failure and refusal to defend and indemnify the defendants and indemnify the FDIC in the Eugene FDIC action is a breach of express contractual obligations owed to plaintiffs by CNA under the MGIC Policy.

Plaintiffs' third claim alleges breach of a good faith obligation. When CNA assumed the MGIC Policy, among the obligations assumed was an implied obligation of good faith in favor of the plaintiffs. Plaintiffs allege that CNA breached that obligation.

Regarding damages, plaintiffs allege that CNA is obligated to defend and indemnify defendants and indemnify FDIC in the Eugene action and to pay any settlement or judgment arising from the Eugene FDIC action. Plaintiffs also allege they are entitled to damages in an amount to be proven at trial for CNA's alleged breach of contract and breach of implied obligation of good faith under the MGIC Policy. Plaintiffs also request attorney's fees and costs.

STANDARDS

Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, 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). The materiality of a fact is determined by the substantive law on the issue. T.W. Electrical Service, Inc. v. Pacific Electrical Contractors Assoc., 809 F.2d 626, 630 (9th Cir.1987). The authenticity of a dispute is determined by whether the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986).

The moving party has the burden of establishing the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986). If the moving party shows the absence of a genuine issue of material fact, the nonmoving party must go beyond the pleadings and identify facts which show a genuine issue for trial. Id. at 324, 106 S.Ct. at 2553.

Special rules of construction apply to evaluating summary judgment motions: (1) all reasonable doubts as to the existence of genuine issues of material fact should be resolved against the moving party; and (2) all inferences to be drawn from the underlying facts must be viewed in the light most favorable to the nonmoving party. T.W. Electrical, 809 F.2d at 630.

SUMMARY JUDGMENT MOTIONS

CNA moves for summary judgment on five separate grounds as follows: (1) plaintiffs' claims are barred by collateral estoppel based on a judgment by a Wisconsin court against these plaintiffs on the issue in this case; (2) plaintiffs' claims are barred by the Regulatory Exclusion of the insurance policy at issue; (3) plaintiffs' claims are barred by the Insured v. Insured Exclusion of the policy at issue; (4) plaintiffs' claims are barred because no claim was made and no notice of a potential claim given during the Policy period; and (5) CNA did not issue the policy in question and is not responsible for the obligations thereunder.

I grant summary judgment for CNA and deny plaintiffs' summary judgment motion for the reasons that follow.

1. Collateral Estoppel

CNA argues that plaintiffs are barred from asserting this action by collateral estoppel because a Wisconsin state court entered judgment against plaintiffs on the same issues before this court. See CNA's exh. B(1) (Wisconsin court opinion). I agree. In granting WMBIC's summary judgment motion, the Wisconsin court held that the Policy does not provide coverage for FDIC's action against the directors and officers of the Bank because (1) the Regulatory Exclusion bars coverage for the FDIC's claims against the directors and officers; (2) the Insured v. Insured Exclusion bars coverage for the FDIC's claims against the directors and officers; and (3) no claim had been made against the directors and officers and no timely notice of claim given during the Policy period.

In finding that collateral estoppel bars plaintiffs' claim, I rely on the Full Faith and Credit Statute which implements the Full Faith and Credit Clause of the U.S. Constitution. 28 U.S.C. § 1738. That statute provides that state court judicial proceedings "shall have the same full faith and credit in every court within the United States ... as they have by law or usage in the courts of such State, Territory or Possession from which they are taken." See Allen v. McCurry, 449 U.S. 90, 96, 101 S.Ct. 411, 415-16, 66 L.Ed.2d 308 (1980) ("Congress has specifically required all federal courts to give preclusive effect to state-court judgments whenever the courts of the State from which the judgment emerged would do so").

Wisconsin has explicitly adopted the doctrine of non-mutual, defensive collateral estoppel. Crowall v. Heritage Mut. Ins. Co., ...