FDIC v. Heidrick, Civ. No. HM-86-77.

• Decision Date: 31 January 1992
• Docket Number: Civ. No. HM-86-77.
• Citation: 812 F. Supp. 586
• Parties: FEDERAL DEPOSIT INSURANCE CORPORATION, et al. v. Gerard A. HEIDRICK, Jr., et al.
• Court: U.S. District Court — District of Maryland

812 F. Supp. 586

FEDERAL DEPOSIT INSURANCE CORPORATION, et al. v. Gerard A. HEIDRICK, Jr., et al.

Civ. No. HM-86-77.

United States District Court, D. Maryland.

October 31, 1991.

Memorandum January 31, 1992.

Paul E. Gutermann, Julia Reynolds Johnson, Monique Perez, Squire, Sanders & Dempsey, Washington, DC, and B. Irene Koerner, Office of Gen. Counsel, F.D.I.C., Washington, DC, for plaintiffs.

John R. Gerstein, Robert M. Pozin, Ross, Dixon & Masback, Washington, DC, for defendant American Cas. Co. of Reading, PA.

William M. Morstein, Ellicott City, MD, for defendant Gerard A. Heidrick, Jr.

Henry L. Conway, Jr., Thomas B. Conway, Baltimore, MD, for defendant Richard M. Smith.

James E. Gray, Thomas V. Monahan, Jr., Goodell, DeVries, Leech & Gray, Baltimore, MD, for defendants Edmund A. Chrzanowski, Francis A. Korwek, and Kendall White Abernathy.

MEMORANDUM

HERBERT F. MURRAY, Senior District Judge.

By a Memorandum and Order dated January 25, 1991, (the "Order"), this Court denied the cross-motion of the defendant, American Casualty Company ("American Casualty"), for summary judgment, and granted the cross-motion of the plaintiff, Federal Savings and Loan Insurance Corporation ("FSLIC"),¹ for summary judgment. Presently before the Court is the motion for reconsideration, alteration or amendment of that Order filed by American Casualty. Upon careful consideration of the arguments presented by the parties, the Court will grant American Casualty's motion for reconsideration.

I. FACTUAL SUMMARY

The Order set out in detail the facts and procedural history of this case up to that time. Therefore, only a summary is necessary here.

FSLIC insured the accounts at Fidelity Federal Savings and Loan Association ("Fidelity"), a mutual savings and loan association organized under the laws of the United States and chartered by the Federal Home Loan Bank Board ("FHLBB"). On January 7, 1983, FHLBB placed Fidelity under a conservatorship, and in August, 1984, FHLBB appointed FSLIC as sole receiver for Fidelity. FSLIC thereby succeeded to Fidelity's claims against its directors and officers.

MGIC Indemnity Corporation ("MGIC") insured the directors and officers of Fidelity. American Casualty subsequently bought that insurance contract ("the Policy") from MGIC. The instant case arose from attempts by FSLIC to hold American Casualty liable under the Policy for losses of Fidelity allegedly caused by the individual defendant directors and officers of Fidelity.

A. Procedural History

In February, 1986, American Casualty filed a motion to dismiss, together with a motion to stay discovery. On May 27, 1988, a hearing on that motion was held and, by an order dated May 31, 1988, the Court directed that the motion to dismiss would be treated as a motion for summary judgment. No explicit ruling was made on American Casualty's motion to stay discovery.

Soon afterward, FSLIC filed its own cross-motion for summary judgment, and the Court held a hearing on the cross-motions on September 23, 1988. From that date, through the issuance of the Order to the present, the parties have filed many supplementary briefs. The cross-motions for summary judgment focused on the two issues raised in American Casualty's original motion to dismiss; namely, whether American Casualty received valid notice of a claim under the terms of the Policy, and whether a portion of the Policy, Endorsement No. 2, exempts American Casualty from liability.

The papers filed by the parties treated these two issues at length, supplying pertinent evidence and much relevant precedent. Specifically, the defendant's briefs included two declarations offered as extrinsic evidence of the intent of the parties at the time of the adoption of Endorsement No. 2. However, because those declarations contained no relevant information based upon personal knowledge, the Court found them inadmissible. FSLIC offered no extrinsic evidence bearing on the interpretation of the endorsement.

In the Order, based upon a careful review of the many submissions, the Court granted the plaintiff's cross-motion for summary judgment and denied the defendants' cross-motion for summary judgment. With respect to the issue of notice, the Court found that the plaintiffs adequately alerted American Casualty within the notice period. Further, with respect to the issue of coverage under Endorsement No. 2, because the Court found that the language of the endorsement was ambiguous, and because the Court further found that neither party offered admissible extrinsic evidence bearing on the issue, the Court followed Maryland law and construed the endorsement against the party responsible for drafting it — American Casualty, by succession from MGIC. Having made those findings and determinations, the Court held that the defendant received proper notice of a claim and that the endorsement was ambiguous and should be construed against the defendant.

In its present motion, American Casualty asks the Court to reconsider that Order. Alternatively, American Casualty asks that the Court deny FSLIC's cross-motion for summary judgment and allow American Casualty time for discovery of extrinsic evidence bearing on the intent of the parties with respect to Endorsement No. 2. Further, the defendant asks that the Court amend the Order to allow it to file an answer asserting previously unraised affirmative defenses to coverage. The Court now will address American Casualty's motions.

II. MOTION FOR RECONSIDERATION

The moving party faces a substantial burden in connection with a motion for reconsideration of an Order of this Court. To merit reconsideration, a motion must be timely and premised on a meritorious defense, an absence of prejudice to the opposing party, and exceptional circumstances. Smith v. Bounds, 813 F.2d 1299 (4th Cir. 1987). Here, American Casualty filed its motion in a timely manner and the plaintiffs suffered no prejudice. Further, the Court finds that the occasion of a decision of the Maryland Court of Appeals directly on point in this case certainly qualifies as exceptional circumstances.

A. Intervening Maryland Precedent

This Court must follow Maryland law when it interprets the Policy. Noting the absence of a "uniform judicial construction" of the language of Endorsement No. 2 and the lack of "clearly persuasive guidance ... from the cases cited by the parties when taken as a whole," Order at 14, this Court followed the direction of the Court in Pacific Indemnity Co. v. Interstate Fire & Casualty Co., 302 Md. 383, 488 A.2d 486 (1985), and turned to the issue whether the language of the endorsement was ambiguous.

The Policy provides:

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 claim or action or proceeding brought by FHLBB or FSLIC.

Policy, Endorsement No. 2 (emphasis added). Reading the terms of the endorsement in the context of the Policy as a whole and as a reasonably prudent layperson, the Court found that such a person might conclude that the emphasized language could mean that the policy excluded either (1) every claim involving FHLBB or FSLIC, or (2) only those claims based upon claims brought by those regulatory agencies. Finding these divergent interpretations equally plausible, this Court declared the language of the endorsement ambiguous. Order at 17.

On August 16, 1991, the Maryland Court of Appeals decided the case of Finci v. American Casualty Co., 323 Md. 358, 593 A.2d 1069 (1991). In that case, in construing an insurance contract, the Court of Appeals interpreted language nearly identical to that of Endorsement No. 2. The Court of Appeals held that "no ambiguity" arose from the use of the phrase "based upon or attributable to" in that contract. Finci, 323 Md. at 370, 593 A.2d 1069. In the words of the unanimous Court in that case, "The usage is simply a drafting style." Id. at 371, 593 A.2d 1069.

It is axiomatic that the federal courts must apply state law when confronted with issues within the scope of state regulatory powers, such as insurance law. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938); Phoenix Sav. and Loan, Inc. v. Aetna Casualty & Sur. Co., 381 F.2d 245, 249 (4th Cir.1967), on remand 302 F.Supp. 832 (D.Md.1969), rev'd on other grounds, 427 F.2d 862 (4th Cir.1970). When issues have been decided by the highest court in the state, federal courts must apply those pronouncements without review. Justice v. Prudential Ins. Co., 351 F.2d 462, 463 (4th Cir.1965).

In light of the holding of the Court in Finci, this Court will grant the defendant's motion for reconsideration of the Order. Further, the Court will deny the plaintiff's cross-motion for summary judgment on the issue of the interpretation of the endorsement, and will grant the defendant's cross-motion for summary judgment on that same issue. Additionally, in light of this decision, the Court will mark as moot the defendant's motion for reasonable time within which to conduct discovery into the parties' interpretation of the endorsement.

III. NON-FSLIC PLAINTIFFS

Two subsidiaries of Fidelity, Howard International, Inc. and Development Funding/Highpointe, Inc., joined FSLIC as plaintiffs in this action. The defendant has not argued that the terms of the endorsement exclude the claims brought by those plaintiffs. However, in its motion for reconsideration, American Casualty offered two other arguments why the Court should reconsider the Order denying its cross-motion for summary judgment — that the Court failed to consider extrinsic evidence offered by American Casualty to show a dispute of material fact and that the Court overlooked recent case law on the issue of notice.

A. Extrinsic Evidence

American Casualty argues that the Court failed to consider the declarations of Dahlstrom and Pozin when executing the Order. The defendant...