Federal Sav. and Loan Ins. Corp. v. Burdette

• Decision Date: 22 June 1989
• Docket Number: Civ. A. No. 3-87-809.
• Parties: The FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION, as Receiver for Knox Federal Savings & Loan Association, Plaintiff, v. J. Garrett BURDETTE, Clayton Christenberry, Jr., Alex Curtis, Estate of Howell C. Curtis, Steve Curtis, William H. Curtis, Michael M. Downing, Estate of John J. Duncan, John J. Duncan, Jr., Joe S. Duncan, Ralph H. Newman, Jr., William Regas, C.A. Ridge, Richard G. Rutherford, Estate of Burton B. Simcox, and Estate of David M. Stair, Defendants. J. Garrett BURDETTE, et al., Third-Party Plaintiffs, v. AMERICAN CASUALTY COMPANY OF READING, PENNSYLVANIA, Third-Party Defendant.
• Court: U.S. District Court — Eastern District of Tennessee

718 F. Supp. 649

The FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION, as Receiver for Knox Federal Savings & Loan Association, Plaintiff, v. J. Garrett BURDETTE, Clayton Christenberry, Jr., Alex Curtis, Estate of Howell C. Curtis, Steve Curtis, William H. Curtis, Michael M. Downing, Estate of John J. Duncan, John J. Duncan, Jr., Joe S. Duncan, Ralph H. Newman, Jr., William Regas, C.A. Ridge, Richard G. Rutherford, Estate of Burton B. Simcox, and Estate of David M. Stair, Defendants.

J. Garrett BURDETTE, et al., Third-Party Plaintiffs, v. AMERICAN CASUALTY COMPANY OF READING, PENNSYLVANIA, Third-Party Defendant.

Civ. A. No. 3-87-809.

United States District Court, E.D. Tennessee, N.D.

June 22, 1989.

COPYRIGHT MATERIAL OMITTED

John L. Conlon, Hopkins & Sutter, Chicago, Ill., Thomas R. Dyer, Walt Dyer & James, Knoxville, Tenn., for plaintiff.

Archie R. Carpenter, Carpenter & O'Connor, Ronald C. Koksal, Butler Vines Babb & Threadgill, David L. Buuck, Claiborne Davis Buuck & Hurley, R. Franklin Norton, Norton & Luhn, P.C., Richard L. Hollow, McCampbell & Young, Johnathan H. Burnett, Hodges Doughty & Carson, Bernard E. Bernstein, Bernstein Susano & Stair, J. Michael Winchester, Lacy & Winchester, P.C., Charles A. Wagner, III, Wagner Myers & Sanger, P.C., Ralph E. Harwell, Harwell & Nichols, Steven Oberman, Daniel & Oberman, Lewis S. Howard, Jr., Howard & Ridge, Charles W.B. Fels, Ritchie Fels & Dillard, P.C., Knoxville, Tenn., Arnold Tackett, Chattanooga, Tenn., for defendants and third party plaintiff.

Sean M. Hanifin, Ross Dixon & Masback, Washington, D.C., D. Michael Swiney, Paine Swiney & Tarwater, Knoxville, Tenn., for third-party defendant.

MEMORANDUM OPINION AND ORDER

JOINER, District Judge, Sitting by Designation.

PART I

In this case the Federal Savings & Loan Insurance Corporation (FSLIC), as receiver for Knox Federal Savings & Loan Association (Knox), filed suit against former officers and directors of Knox. The FSLIC and the directors and officers brought third-party claims against American Casualty Company of Reading, Pennsylvania (ACC), claiming that an officers' and directors' policy of insurance, for which ACC was responsible, covered the acts of the officers and directors in the principal suit. The matter in this part involves numerous motions to dismiss, strike affirmative defenses, and for summary judgment, filed by the FSLIC, ACC, and several of the third-party plaintiff officers and directors.¹ These motions all address the third-party complaints filed in this case against ACC, and ACC's answers and counter-claims to these third-party actions; therefore, the court will consider them together. The parties have fully briefed the issues, and oral argument has been heard. The four major issues raised in these motions will be discussed separately below.

1. Notice

The directors' and officers' insurance policy at issue is a claims made policy, under which the insurer agrees to assume liability for acts or omissions of the type covered by the policy regardless of when they occurred, if (1) the claim arising out of the act or omission was made during the policy period, or (2) notice was given to the insurer within the policy period as to an occurrence which may subsequently give rise to a claim.² Specifically, § 6(A) of the policy provides:

If during the policy period the Association or the Directors of Officers shall ... become aware of any occurrence which may subsequently give rise to a claim being made against the Directors and Officers ... for a Wrongful act; and shall, during such period, give written notice thereof to the Insurer as soon as practicable and prior to the date of termination of the policy, then any claim which may subsequently be made against the Directors and Officers arising out of such Wrongful Act shall, for the purpose of this policy, be treated as a claim made during the policy year in which such notice was given.

In this case, no claims were made within the policy period. The FSLIC and the directors and officers assert that ACC was given notice during the policy period of possible claims against the officers and directors. Two letters were sent to ACC's predecessor in interest, MGIC Indemnity Corporation, during the policy period which the FSLIC and the former officers and directors contend constitute proper notice under the policy.³

The first letter was written by Richard Alexander, then president of Knox, on December 22, 1983, which stated in pertinent part as follows:

I am hereby notifying you that it is the intention of this Association to file suit against certain former officers and directors of Knox Federal Savings and Loan Association. The cause of action would be the result of the actions and negligence of the directors and their failures to properly supervise the actions of the officers and employees of the Association. The events occurred after September 7, 1982.

On January 10, 1984, MGIC responded to the letter stating that the policy had been sold to ACC, and that an ACC representative would follow up shortly. On January 19, 1984, Mr. Snyder from ACC wrote to Alexander, acknowledging receipt of the December 22, 1983, letter, and indicated that until an action was commenced against a Knox official, no affirmative action on ACC's part was necessary. The response also added that a claim file had been opened, and that ACC wished to be advised of all developments relating to the matter. The record does not indicate that any further correspondence related to the Alexander letter occurred until after the FSLIC filed the instant lawsuit.

The second letter was written by David Stair, a member of the Knox board of directors, on February 27, 1984, which stated as follows:

As a director of the captioned corporation covered by the captioned policy, I am advised that without my knowledge or participation a substantial number of loans were made by the corporation which may create a potential liability against me.

While no claims as yet have been asserted, the purpose of this letter is to give you notice of this potential in accordance with Section 6(A)(ii) of said policy.

ACC responded on April 16, 1984, stating that if nothing more was heard within sixty days, it would be assumed that no claims were filed, and ACC would close its files. ACC sent another letter on July 27, 1984, stating that ACC was closing its files as no further information was provided by Stair.

The FSLIC and the officers and directors argue that the two above-mentioned letters substantially complied with the notice provision in the policy and, therefore, constitute proper notice under the policy. In addition, they contend that ACC has waived any objections to waiver, as ACC never objected to the letters when they were received, or ever informed Knox that these notice letters were not sufficient or that certain additional information was necessary. ACC argues that these letters were not sufficient under the policy, as the § 6(A) notice provision should be narrowly construed, and there has been no evidence provided that connects the Alexander or Stair letters to any of the specific claims made by the FSLIC in its action against the former Knox officials.⁴ ACC also contends that even if these letters are sufficient by their own terms they limit notice to claims against certain officers and directors and only for events occurring after September 7, 1982.

Summary judgment should be granted when the record, taken as a whole, could not lead a rational trier of fact to find for the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 2509, 91 L.Ed.2d 202 (1986); Matsushita Electric Indus. Corp. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986); McKee v. Cutter Laboratories, Inc., 866 F.2d 219, 220 (6th Cir.1989). All inferences drawn from the facts must be viewed in a light most favorable to the non-moving party, Matsushita, 475 U.S. at 587, 106 S.Ct. at 1356; Roland v. Johnson, 856 F.2d 764, 769 (6th Cir.1988), and there is no genuine issue unless there is sufficient evidence favoring the non-movant for a jury to return a verdict for that party (if the evidence is merely colorable, or is not significantly probative, summary judgment may still be granted). Anderson, 477 U.S. at 249-50, 106 S.Ct. at 2510-11; McKee, 866 F.3d at 220. The mere existence of some alleged factual dispute will not defeat an otherwise properly supported motion, there must be no genuine issue of material fact, Anderson, 477 U.S. at 247-48, 106 S.Ct. at 2509-10; Berlin v. Michigan Bell Telephone Co., 858 F.2d 1154, 1161 (6th Cir. 1988), and the burden on the moving party may be discharged by pointing out that there is an absence of evidence to support the non-moving party's case. Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986); Cale v. Johnson, 861 F.2d 943, 949 (6th Cir.1988).

The record is without dispute that MGIC was notified on December 22, 1983, that a claim would be made against "certain former officers and directors." This language is sufficiently broad to cover one or all former officers and directors, and MGIC and ACC had notice at that time of forthcoming claims against one, some, or all former officers and directors. The response by MGIC and ACC did not in any way question the sufficiency of the notice nor did the companies attempt to obtain any more specific information relating to the identification of the officers and directors to be sued. If notice provided to an insurer is considered by the insurer to be defective, good faith requires the insurer to notify the insured of its objections within a reasonable time, and if the insurer fails to do so or proceeds to act as though notice was satisfactory, it has waived any right to assert notice as a defense at a later date. Crumley v. Travelers Indemnity Co., 225 Tenn. 667, 475 S.W.2d 654, 658 (1972); Pennsylvania Ins. Co. v. Horner, 198 Tenn. 445, 281...