St. Paul Fire and Marine Ins. Co. v. FDIC

• Decision Date: 20 May 1991
• Docket Number: No. 3-89 CIV 326.,3-89 CIV 326.
• Citation: 765 F. Supp. 538
• Parties: ST. PAUL FIRE AND MARINE INSURANCE COMPANY, Plaintiff, v. FEDERAL DEPOSIT INSURANCE COMPANY, as receiver of the State Bank of Greenwald, Minnesota, Defendant and Third-Party Plaintiff, v. Douglas A. WINTER, Bernadine Winter and Robert J. Osendorf, Third-Party Defendants.
• Court: U.S. District Court — District of Minnesota

765 F. Supp. 538

ST. PAUL FIRE AND MARINE INSURANCE COMPANY, Plaintiff, v. FEDERAL DEPOSIT INSURANCE COMPANY, as receiver of the State Bank of Greenwald, Minnesota, Defendant and Third-Party Plaintiff, v. Douglas A. WINTER, Bernadine Winter and Robert J. Osendorf, Third-Party Defendants.

No. 3-89 CIV 326.

United States District Court, D. Minnesota, Third Division.

May 20, 1991.

Faegre & Benson by Mark D. Savin and Norman R. Carpenter, Minneapolis, Minn., for plaintiff.

Dorsey & Whitney by Brian E. Palmer and Michael Lindsay, Minneapolis, Minn., for defendant and third-party plaintiff.

ORDER

ALSOP, Chief Judge.

This matter came before the court on February 1, 1991, on cross-motions for summary judgment by St. Paul Fire and Marine Insurance Company ("St. Paul") and the Federal Deposit Insurance Corporation ("FDIC") pursuant to Federal Rule of Civil Procedure 56(b).

I. STANDARD OF REVIEW

The Supreme Court has held that summary judgment is to be used as a tool to isolate and dispose of claims or defenses which are either factually unsupported or which are based on undisputed facts. Celotex Corp. v. Catrett, 477 U.S. 317, 323-324, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986); Hegg v. United States, 817 F.2d 1328, 1331 (8th Cir.1987). Summary judgment is proper, however, only if examination of the evidence in a light most favorable to the non-moving party reveals no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

The test for whether there is a genuine issue over a material fact is two-fold. First, the materiality of a fact is determined from the substantive law governing the claim. Only disputes over facts that might affect the outcome of the suit are relevant on summary judgment. Liberty Lobby, 477 U.S. at 252, 106 S.Ct. at 2512; Lomar Wholesale Grocery, Inc. v. Dieter's Gourmet Foods, Inc., 824 F.2d 582, 585 (8th Cir.1987). Second, any dispute over material fact must be "genuine." A dispute is genuine if the evidence is such that it could cause a reasonable jury to return a verdict for either party. Liberty Lobby, 477 U.S. at 252, 106 S.Ct. at 2512. It is the non-moving party's burden to demonstrate that there is evidence to support each essential element of his claim. Celotex, 477 U.S. at 324, 106 S.Ct. at 2553.

II. FACTUAL BACKGROUND

On May 19, 1989, St. Paul commenced an action (the "coverage action") against the FDIC. St. Paul seeks the determination that it has no obligation to insure either the former State Bank of Greenwald, Minnesota ("Bank") or the Bank's former directors and officers, Douglas A. Winter, Bernadine Winter, and Robert J. Osendorf (collectively, the "Third-Party Defendants"). St. Paul initiated the coverage action in anticipation of the FDIC's commencement of litigation against the Third-Party Defendants.

On August 2, 1989, the FDIC commenced a third-party action (the "D & O action") against the Third-Party Defendants. The FDIC did so in order to consolidate all claims related to the Third-Party Defendants' conduct in the same proceeding. In the D & O action, the FDIC seeks damages for over $4 million in losses suffered by the Bank as a result of improper securities trading, breaches of fiduciary, statutory, and common law duties, and breach of contract.

This matter is before the court on cross-motions for summary judgment in the coverage action. Both the FDIC, the Third-Party Defendants,¹ and St. Paul have asked the court to determine coverage issues as a matter of law.

The Bank was established in 1910 under the laws of the State of Minnesota and was insured by the FDIC under the Federal Deposit Insurance Act of 1933. In 1965, Clarence ("C.P.") Winter, a long-time officer, and Lyle Olmscheid acquired the Bank. In 1972 it appears C.P. Winter bought out Olmscheid's interest in the Bank. Later, in 1978, a bank holding company was formed, Greenwald Bankshares, Inc., in which C.P. Winter and his wife, Bernadine Winter, collectively owned 96 percent of the stock. Greenwald Bankshares became owner of 84 percent of the stock in the Bank, and at the time the Bank closed, the stock in Greenwald Bankshares was owned by Bernadine Winter and C.P. Winter's estate. The Winters also acquired the Greenwald State Agency, an insurance agency located at the Bank operated by Robert J. Osendorf. At the time the Bank closed, Bernadine Winter was sole owner of the Agency stock.

C.P. Winter was president of the Bank, and at the time of his death in 1983 the board of directors at the Bank consisted of himself, Osendorf, and Bernadine Winter, who also held the offices respectively of president, vice president, and executive vice president. Osendorf also managed the Bank's insurance business, the Greenwald State Agency, and was an agent for St. Paul. Following C.P. Winter's death, his son, Douglas Winter, was elected to the Bank's board of directors. Prior to that time, Douglas had been working as a loan officer at the Bank following his completion in 1980 of a two-year vocational program. Effective in November of 1983, Bernadine Winter became the Bank's president and Douglas its vice president; Osendorf became the Bank's executive vice president and continued to manage the insurance agency. Bernadine Winter, however, largely confined herself to personnel matters and teller duties, and Osendorf spent virtually no time on the Bank's affairs. Even though he was executive vice president, Osendorf's principal activity was the Greenwald State Agency, which represented several carriers, including the St. Paul Fire and Marine Insurance Company.

A. The Bank's Insurance Coverage

Osendorf advised the board on March 15, 1984 that he had submitted an application to St. Paul for directors and officers' liability insurance and received a quote of $3,500.00 for a three-year policy. The Bank applied for the policy, and D & O policy number 400 GM 8971 was issued to the Bank on March 28, 1984. However, the policy was written for coverage only to July 1, 1986, to coincide with the renewal date of the Bank's St. Paul blanket bond.

On May 5, 1986, prior to the expiration date of the D & O policy, Christine Leudesdorf of the St. Paul's Upper Midwest Service Center sent Osendorf applications to renew the D & O policy and the bond. That letter explained that:

The St. Paul has filed for approval in all states for the use of three amendatory endorsements referred to as the regulatory exclusion rider, the insured v. insured rider, and the punitive damage interpretive endorsement. The regulatory exclusion rider excludes from coverage claims made against directors and officers based on or attributed to any claim, action or proceeding brought by or on behalf of any depository insurance organization (FDIC, FSLIC, etc.) or any other federal or state regulatory agency. The Insured v. Insured rider excludes from coverage claims made against the Insured(s) by any other insured(s) as defined in the policy except for derivative action brought by shareholder(s) when such shareholder(s) is not a director or officer.... These endorsements will be added at renewal.

The applications were completed and executed by Douglas Winter and Bernadine Winter on May 16, and returned to the St. Paul. The St. Paul quoted a new premium for D & O coverage, $7,000 annually, which was accepted by the Bank and a new D & O policy number 400 HG 6741, with the additional endorsements was issued as of July 1, 1986. These endorsements lie at the heart of the FDIC's and St. Paul's pending summary judgment motions. The first, entitled the "regulatory exclusion," provides as follows:

In consideration of the premium charged, it is agreed that there is no coverage for any claims made against the Directors or Officers of the Bank based upon or attributable to any claim, action or proceeding brought by or on behalf of the Federal Deposit Insurance Corporation, Federal Savings and Loan Insurance Corporation, any other similar depository insurance organization, or by any other Federal or State Regulatory Agency; whether such claim, action or proceeding is brought in the name of such Regulatory Agency or by or on behalf of such Regulatory Agency in the name of any other entity.

The second endorsement at issue, entitled the "Insured v. Insured exclusion," provides as follows:

In consideration of the premium charged, it is agreed that the Company shall not be liable to make any payment for loss in connection with any claim or claims made against the Insured(s) by any other Insured(s) as defined in this Policy, except for shareholder's derivative actions brought by a shareholder(s) of the Insured corporation(s) as defined in insuring agreement IIB1 when such shareholder(s) is not a director or officer of such Insured corporation(s) at the time the derivative action is filed.

Two copies of this policy were delivered to Osendorf, one for the agency and one for the Bank. Opening the policy, on the page where Osendorf was to countersign, there was a typed statement that:

The liability of the company is subject to the terms of the following endorsements attached hereto: ...

No. 6 Regulatory Exclusion

No. 7 Insured v. Insured exclusion ...

Directly after this page was a page entitled "Notice" that stated:

This policy may differ in form from the one you previously had. We urge you to discuss and compare coverage with your insurance agent.

This policy contains one or more of the endorsements listed below. A brief description of each follows.

1. Insured v. Insured Exclusion. This endorsement eliminates coverage for suits brought by one insured against another insured.

2. Regulatory Exclusion Endorsement. This endorsement eliminates coverage for suits brought by or on behalf of the Federal Deposit Insurance Corporation, Federal Savings and Loan Insurance Corporation, any other similar depository insurance organization, or by any other federal

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