FDIC v. Fidelity and Deposit Co. of Maryland
| Decision Date | 06 July 1993 |
| Docket Number | Civ. A. No. 87-319-B. |
| Citation | 827 F. Supp. 385 |
| Parties | FEDERAL DEPOSIT INSURANCE CORPORATION v. FIDELITY AND DEPOSIT COMPANY OF MARYLAND. |
| Court | U.S. District Court — Middle District of Louisiana |
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Victor L. Roy, III, Roy, Kiesel, Aaron & Tucker, Baton Rouge, LA, for Capital Bank & Trust Co.
David S. Bell, Bell, Cooper & Hyman, Baton Rouge, LA, for F & D Co. of Maryland.
Michael O. Hesse, St. Francisville, LA, for Steve Moncrieff and Tony Thomson.
David Edward Stanley, Stanley & Harrison, Baton Rouge, LA, for Andrea Leclerg Oestman.
William Hardy Patrick, III, Baton Rouge, LA, for Guy Bellelo.
Loretta Lustig, pro se.
Patrick D. Breeden, New Orleans, LA, for Loretta Lustig.
Brian Gabriel Comeaux, Lafayette, LA, for Thomas P. Keene.
Capital Bank & Trust Company (Capital Bank) originally filed this suit against Fidelity and Deposit Company of Maryland (F & D) to recover for loan losses under a Bankers Blanket Bond (Bond) issued by F & D. After Capital Bank was closed, the Federal Deposit Insurance Corporation (FDIC) was appointed as receiver for Capital Bank and succeeded Capital Bank as the plaintiff in this case.
This case was tried to a jury for almost three weeks. The jury, after deliberating one week, returned the following verdict in favor of the FDIC:1
(a) On the Allie Ray Pogue loans, the jury found liability on 17 loans totalling $5.3 million.2
(b) On the Gulfport/Belello loan, the jury found Capital Bank disbursed funds in good faith reliance on the Belello ordinance and had physical possession of the ordinance at the time of the loan.3
After the verdicts were entered, the parties timely filed the following motions:
(1) Plaintiff's request for prejudgment and postjudgment interest;
(2) Motion to allocate collateral and loan payments; and
(3) Defendant's motion to exclude coverage on the Gulfport/Belello loan.
Each of these motions will be discussed separately by the Court.
The FDIC seeks both prejudgment and postjudgment interest. Specifically, the FDIC seeks prejudgment interest from the date of judicial demand to the date of the judgment. The FDIC also seeks postjudgment interest on the full amount of the damages awarded by the jury plus prejudgment interest, from the date of entry of judgment until the judgment is paid in full.
F & D opposes plaintiff's motion for award of prejudgment interest from the date of judicial demand. F & D contends that prejudgment interest begins to accrue 60 days from the time that F & D received a sworn proof of loss with full particulars from Capital Bank. F & D also opposes plaintiff's request for postjudgment interest calculated on the principal amount of the judgment plus the amount of prejudgment interest.
Since this action was brought pursuant to the Court's diversity jurisdiction, state law governs the issue of prejudgment interest.4 Under Louisiana law, prejudgment interest begins to accrue from the date of judicial demand, regardless of whether the damages are unliquidated, disputed, or not ascertainable until judgment.5 Therefore, plaintiff is entitled to recover prejudgment interest from the date of judicial demand to the date of entry of judgment.6
Postjudgment interest on money judgments which are awarded in a federal district court is governed by 28 U.S.C. § 1961(a).7 It is clear that § 1961(a) applies in diversity cases.8 Therefore, plaintiff is entitled to recover postjudgment interest from the date of entry of judgment until the judgment is paid on the entire amount of the final judgment, including damages and prejudgment interest.9
The jury awarded judgment in favor of the FDIC in the amount of $5.3 million for certain loan losses sustained by Capital Bank. The Bond issued by F & D to Capital Bank contains maximum policy limits of $4 million. The parties now seek a determination of the proper allocation of collateral, now held by the FDIC, which secures various loans and the proper allocation of loan payments made to the FDIC after the discovery of the loss.
Section 7 of the Bond, which pertains to "assignment-subrogation-recovery-cooperation," provides in pertinent part:
A. Collateral
The FDIC holds security on many of the loans for which the jury found coverage under the Bond. The FDIC contends that F & D is entitled to obtain the FDIC's rights in the security only after F & D has paid the verdict. In response to the FDIC's contention, F & D contends that it should be given credit for the estimated value of the security which would reduce the amount of the damages it owes to the FDIC.
Sections 7(a) and (b) clearly provide that the underwriter is entitled to the Insured's rights of recovery by assignment or subrogation against any person or entity to the extent of payment after F & D makes payment under the Bond. Therefore, F & D is entitled to the rights which FDIC has in the security, loans, or claims only after it pays the judgment.11 F & D is not entitled to a credit or reduction of the jury verdict by the estimated value of the security.
If F & D chooses to take advantage of its rights under sections 7(a) and (b), F & D is entitled, after payment, to the assignment or subrogation of all the rights, title, interest, and causes of action which the FDIC has against any person or entity, including any collateral held by the FDIC as security for the loans. Under such circumstances, section 7(e) requires the FDIC to execute all papers and render assistance to effectuate these rights of recovery that F & D acquires from the FDIC. If F & D chooses not to utilize its rights of assignment and subrogation under sections 7(a) and (b), any recovery made by the FDIC will be apportioned according to section 7(c).
B. Loan Payments
After discovery of the loss, the FDIC received payments on several loans. The FDIC contends that the payments received after discovery of the loss should be allocated first to interest and then to principal. F & D, on the other hand, contends that these payments should be allocated only to principal, thereby reducing the amount of the jury verdict rendered in favor of the FDIC.
Funds received by the insured or the underwriter must be allocated in accordance with section 7(c) of the Bond. Section 7(c) provides that recoveries shall be applied, net of the expense of such recovery, as follows: (1) to satisfy the insured's loss in excess of the amount paid under the Bond; (2) to the underwriter as reimbursement of amounts paid in settlement of the insured's claim; and (3) to the insured to satisfy any deductible amount.
Under section 7(c), any recovery must first be applied to satisfy the insured's loss in excess of the amount paid under the Bond. Thus, it is important for the Court to define the meaning of the insured's "loss" before the Court can determine how the recovery is to be apportioned. The term "loss" could have several meanings. "Loss" could be interpreted to mean only those losses within the coverage of the Bond or "loss" could be interpreted to include any loss, including those not within the purview of the Bond. Since it is clear that the parties intended for the insured to be indemnified only for losses which come within the scope of its agreement, the Court finds that the insured's "loss" under section 7(c) refers to losses which are covered under the Bond. Since recoveries must only be allocated to an insured's loss which is covered under the terms of the Bond, the Court must decide whether interest payments are considered losses within the coverage of the Bond.12
Section 2(t) provides that the Bond does not cover "potential income," which is defined as "including but not limited to interest and dividends, not realized by the insured."13 The "potential income exclusion" explicitly excludes interest payments from coverage under the Bond.14 Since interest is excluded from coverage under the Bond, interest is not a "loss" within the meaning of section 7(c). Thus, the loan payments received by the FDIC cannot be applied to interest, but must only be applied to principal.15
Under the priority provisions of section 7(c), the loan payments may still be allocated to satisfy the insured's loss which is in excess of the amount paid under the bond. In returning a verdict for the FDIC, the jury found that $5.3 million of losses were covered under the bond. The maximum coverage provided under the Bond is $4 million. Thus, a total of $1.3 million of losses fall within the coverage of the Bond but are above the Bond's coverage limits. Under section 7(c), the loan payments recovered by the FDIC are allocated first to satisfy the FDIC's $1.3 million loss in excess of the Bond limits.16 After the $1.3 million is satisfied,...
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