Resolution Trust Corp. v. Hedden, Civ. A. No. 3:92cv047-D-D.

• Citation: 879 F. Supp. 600
• Decision Date: 09 March 1995
• Docket Number: Civ. A. No. 3:92cv047-D-D.
• Parties: RESOLUTION TRUST CORPORATION, in its corporate capacity, as successor to the Federal Savings and Loan Insurance Corporation and as Receiver for Delta Federal Savings and Loan Association, Plaintiff, v. William Hayes HEDDEN, Tom Parks Miller, William Oliver Williford, John Holmes McWilliams, Eugene A. Stansel, Jr. and Travis E. Cooper, Defendants, v. RLI INSURANCE COMPANY, Third-Party Defendant.
• Court: U.S. District Court — Northern District of Mississippi

879 F. Supp. 600

RESOLUTION TRUST CORPORATION, in its corporate capacity, as successor to the Federal Savings and Loan Insurance Corporation and as Receiver for Delta Federal Savings and Loan Association, Plaintiff, v. William Hayes HEDDEN, Tom Parks Miller, William Oliver Williford, John Holmes McWilliams, Eugene A. Stansel, Jr. and Travis E. Cooper, Defendants, v. RLI INSURANCE COMPANY, Third-Party Defendant.

Civ. A. No. 3:92cv047-D-D.

United States District Court, N.D. Mississippi, Western Division.

March 9, 1995.

Robert E. Hauberg, Jr., Jackson, MS, for plaintiff.

Jerome C. Hafter, Lake, Tindall & Thackston, Greenville, MS, Robert Lawson Holladay, Townsend, McWilliams & Holladay, Drew, MS, Shelby Duke Goza, Hickman, Goza & Gore, Oxford, MS, for defendants.

Donna M. Barnes, Mitchell, McNutt, Threadgill, Smith & Sams, Tupelo, MS, Scott R. Schaffer, Wilson, Elser, Moskowitz, Eldelman & Dicker, New York City, for third-party defendant.

MEMORANDUM OPINION

DAVIDSON, District Judge.

Currently before the court is the motion of RLI Insurance Company, Third-Party Defendant in this cause, for an entry of Summary Judgment in its favor. After careful consideration, this court finds the motion well taken, and it shall be granted.

FACTUAL BACKGROUND

The United States Government, through the Office of Thrift Supervision, placed Delta Federal Savings and Loan Association ("Delta") into receivership in 1990. The Resolution Trust Corporation ("RTC") was named receiver for Delta, and conducted a review of Delta's past lending practices. After review and discovery of purportedly unsafe and unsound lending practices, RTC filed the present action on April 6, 1992 against the directors and officers of Delta. The defendants sought coverage for this action and requested a defense from RLI Insurance Company ("RLI"), its Directors and Officers Liability Carrier for the period in which the alleged improprieties occurred¹. RLI refused coverage under that policy, and defendant William Hayes Hedden filed a third-party complaint against RLI seeking to establish coverage for this suit. The remaining defendants later joined in this third-party action. RLI has now moved for the entry of a Judgment as a Matter of Law as to the claims asserted against it by the defendants in this action.²

DISCUSSION

I. STANDARD FOR ENTRY OF JUDGMENT AS A MATTER OF LAW

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." F.R.C.P. 56(c). The party seeking summary judgment carries the burden of demonstrating 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). After a proper motion for summary judgment is made, the nonmovant must set forth specific facts showing that there is a genuine issue for trial. Hanks v. Transcontinental Gas Pipe Line Corp., 953 F.2d 996, 997 (5th Cir.1992). If the non-movant sets forth specific facts in support of allegations essential to his claim, a genuine issue is presented. Celotex, 477 U.S. at 327, 106 S.Ct. at 2554. "Where the record, taken as a whole, could not lead a rational trier of fact to find for the non-moving party, there is no genuine issue for trial." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986); Federal Sav. and Loan Ins. v. Kralj, 968 F.2d 500, 503 (5th Cir.1992). The facts are reviewed drawing all reasonable inferences in favor of the nonmoving party. King v. Chide, 974 F.2d 653, 656 (5th Cir.1992).

II. THE "REGULATORY EXCLUSION"

RLI asserts that the claims asserted by RTC against the defendants in this action do not fall within the scope of coverage provided the defendants under the D & O policy issued to the defendants. Notably, the policy contains a "Regulatory Exclusion," which reads:

In consideration of the premium charged it is understood and agreed that this policy excludes loss arising from any claim brought against the Insured(s) by or on behalf of any governmental or quasi-governmental body empowered with regulatory control or authority over the entity Named in Item 1 of the Declarations.

Such regulatory exclusions are commonplace in this and similar policies, and have been upheld as valid policy exclusions in this circuit and elsewhere. Fidelity & Deposit Co. of Maryland v. Conner, 973 F.2d 1236, 1241-44 (5th Cir.1992); Bartley v. National Union Fire Ins. Co. of Pittsburgh, 824 F.Supp. 624, 634 (N.D.Tex.1992); F.S.L.I.C. v. Shelton, 789 F.Supp. 1355, 1358-59 (M.D.La.1992); see also, e.g., American Casualty Co. of Reading, Pa. v. F.D.I.C., 16 F.3d 152, 153 (7th Cir.1994); F.D.I.C. v. American Casualty Co. of Reading, Pa., 995 F.2d 471, 473-74 (4th Cir.1993); St. Paul Fire and Marine Ins. Co. v. F.D.I.C., 968 F.2d 695, 701-03 (8th Cir.1992). This exclusion appears valid on its face — this is what the parties contracted for in this policy of insurance. Further, the RTC constitutes a "governmental or quasi-governmental body" under this type of exclusion. E.g., American Casualty Co. of Reading, Pa. v. Baker, 22 F.3d 880, 894-95 (9th Cir.1994); American Casualty Co. of Reading, Pa. v. R.T.C., 839 F.Supp. 282, 290-92 (D.N.J.1993). To hold otherwise is beyond reasonable argument. The defendants, however, seek to avoid the effect of this exclusion on different grounds.

Under Mississippi statutory law in effect at the time, insurance companies were placed under directive to submit policy provisions for approval by the state insurance commissioner:

(1) Every casualty insurance company shall file with the commission every manual of classifications, rules, and rates, every rating plan, and every modification of any of the foregoing which it proposes to use. Every such filing shall state the proposed effective date thereof, indicate the nature and extent of the coverage contemplated, and shall be accompanied by the information upon which the insurer supports the filing. All filing and supporting data shall be open to public inspection from and after the time it is filed.

* * * * * *

(8) No casualty insurance company shall make or issue a contract or policy except with filings which have been approved for said insurer as provided in this article ...

Miss.Code Ann. § 83-3-107 (Repealed 1988)³. Failure of a company to submit policies and provisions for approval subjected the company to a fine of up to $1000.00 per violation. Miss.Code Ann. § 83-3-127 (Repealed 1988). The defendants argument is simple — RLI failed to submit for approval, or have approved, the regulatory exclusion contained in the policy at bar. Because of this failure, the regulatory exclusion in this policy should be deemed unenforceable.

RLI did submit and have approved a similar "regulatory exclusion" prior to the issuance of the Delta D & O Policy, which read:

In consideration of the premium charged, it is hereby understood and agreed that the coverage afforded by this policy shall not apply to loss arising from any claim made against a NAMED INSURED(S) made by or on behalf of any federal, state, county or other municipal government or governmental agency.

The approved exclusion, however, is not exactly the same as the one contained in the Delta D & O Policy. See, supra. The most notable difference is that the approved version of this exclusion precludes coverage for actions by any government or agency, while the exclusion contained in the policy only precludes coverage for those governments or agencies "with regulatory control" over the insured.

In support of their position that the exclusion should be invalidated for failure to have it approved, the defendants rely upon an unpublished decision of a sister court in the Southern District of Mississippi. International Ins. Co. v. McMullan, Civ.A. No. J84-0760(W), 1990 WL 483731 (S.D.Miss. March 7, 1990). In McMullan, Judge Wingate discussed cases from other jurisdictions which had addressed this issue, and opined:

The Mississippi Supreme Court would follow those cases invalidating insurance policy endorsements which were not filed with the state regulatory agency as required, where the insurer seeks to take advantage of its own oversight. Here, the insurer, in violation of Mississippi's statute which required prefiling, has attached an endorsement to its policy which, if given effect, would limit its liability. To hold that an insurer could accomplish such under these circumstances would be tantamount to saying that the insurer could profit from his own wrong.

McMullan, 1990 WL 483731, at *19. Clearly, the insurer's potential "profit from his own wrong" was highly important to Judge Wingate in making his decision.⁴ Such importance distinguishes McMullan from the case at bar. In this case, RLI had already submitted and received approval for a regulatory exclusion. The approved exclusion was broader, thereby affording more protection, than the one actually used in the policy at issue. This is not a case of an insurer profiting from his own wrong, and therefore any persuasive weight from the McMullan decision is severely curtailed. There was not an absolute failure to file in this case. This court is reluctant to prevent the enforceability of a contracted-for exclusion based upon the failure of a clerk or secretary to use the precise language of the approved exclusion, especially when that exclusion appears to do nothing greater than the one which was approved.

Further, McMullan is not the only decision from the Southern District which has addressed this issue. American Casualty Company of Reading, Pa. v. F.D.I.C., Civ.A. No. S90-0496 (BR), 1993 WL 610760 (S.D.Miss. April 8, 1993). In American Casualty, Judge Bramlette reached an entirely different conclusion than Judge...