St. Paul Mercury Ins. Co. v. Fed. Deposit Ins. Corp.

Decision Date17 December 2014
Docket NumberNo. 13–14228.,13–14228.
Citation774 F.3d 702
PartiesST. PAUL MERCURY INSURANCE COMPANY, Plaintiff–Appellee, v. FEDERAL DEPOSIT INSURANCE CORPORATION, as receiver for Community Bank & Trust of Cornelia, Georgia, Charles M. Miller; Trent D. Fricks, Defendants–Appellants.
CourtU.S. Court of Appeals — Eleventh Circuit


G. Eric Brunstad, Jr., Dechert LLP, Hartford, CT, Thomas James Judge, Richard W. Boone, Jr., Jeffrey J. Ward, Loss Judge & Ward, LLP, Washington, DC, David Allen Harris, Gregory Ralph Veal, Freeman Mathis & Gary, LLP, Atlanta, GA, for PlaintiffAppellee.

Michelle Ognibene, Federal Deposit Insurance Corporation, Appellate Litigation–Legal Division, Arlington, VA, Kristin C. Davis, Catherine J. Serafin, Dickstein Shapiro, LLP, Andrew Reidy, Lowenstein Sandler, LLP, Tyechia L. White, Kilpatrick Townsend & Stockton, LLP, Washington, DC, Steven L. Hoard, Sarah D. Pelley, Mullin Hoard & Brown, LLP, Amarillo, TX, Jon Douglas Stewart, Stewart Melvin & Frost, LLP, Gainesville, GA, Julie A. Lierly, Stephen E. Hudson, Ellen Parker McCarley, Kilpatrick Townsend & Stockton, LLP, Atlanta, GA, for DefendantsAppellants.

Appeals from the United States District Court for the Northern District of Georgia. D.C. Docket No. 2:12–cv–00225–RWS.

Before WILSON and ROSENBAUM, Circuit Judges, and SCHLESINGER, * District Judge.

SCHLESINGER, District Judge:

This appeal arises from a declaratory judgment action initiated by St. Paul Mercury Insurance Company, a subsidiary of The Travelers Companies, Inc. (St. Paul). St. Paul filed this action in response to a separate federal lawsuit brought by the Federal Deposit Insurance Corporation (FDIC), as receiver (“FDIC–R”) for Community Bank & Trust (Bank), against Charles M. Miller and Trent D. Fricks, former Bank officers (“Officer defendants). In that separate action, the FDIC–R sought recovery from the Officer defendants' for alleged gross negligence and breaches of fiduciary duty related to the Bank's Home Funding Loan Program (“FDIC–R action”). St. Paul disputes coverage for the separate FDIC–R action, and brought this lawsuit seeking a determination of coverage and its duty to advance defense costs to the Officer defendants in the separate FDIC–R action.


On January 29, 2010, the Georgia Department of Banking and Finance closed the Bank and appointed the FDIC as receiver. Upon appointment, the FDIC–R assumed the obligation to determine and pay creditors' claims from receivership assets. The FDIC in its corporate capacity became one of the receivership's primary creditors—after paying insured deposits from its Deposit Insurance Fund, the FDIC acquires a subrogated claim for those deposits. As part of its effort to secure assets to pay creditors, including the FDIC's Deposit Insurance Fund, the FDIC–R brought its action against the Officer defendants. In that action, the FDIC–R alleged that the Officer defendants' tortious conduct caused over $15 million in damages by, in the case of Fricks, approving loans in violation of the Bank's loan policy and prudent lending practices, and, in the case of Miller, failing to adequately supervise Fricks and implement corrective measures.

The Policy, drafted by St. Paul, provided liability coverage to Directors and Officers of the Bank for:

Loss for which the Insured Persons are not indemnified by the Company and which the Insured Persons become legally obligated to pay on account of any Claim first made against them, individually or otherwise ... for a Management Practices Act.

The Policy contains five separate insuring agreements applicable to: (1) management liability; (2) employment practices liability; (3) fiduciary liability; (4) trust liability; and (5) bankers professional liability, including lender liability and professional services liability.

FDIC–R seeks coverage under the management liability insuring agreement, particularly the “Directors and Officers Individual Coverage” (“Officer Coverage”). The Officer Coverage provides, in relevant part: “The Insurer shall pay on behalf of the Insured Persons Loss for which the Insured Persons ... become legally obligated to pay on account of any Claim first made against them ... for a Management Practices Act....”

The Policy's definition of a “Claim” includes a “civil proceeding against any Insured.” A “Claim” also includes a “formal administrative or regulatory proceeding ... commenced by ... a notice of filed charges, a formal investigative order or a similar legal document.”

The Policy defines “Insured” to include “Insured Persons,” which encompasses “Directors or Officers.” A “Director or Officer” is defined as “any natural person who was, now is or shall be a duly elected or appointed director, officer, member of the board of managers, or management committee member of any Company....” “Company” is defined to include Community Bankshares, Inc., and its subsidiaries, including CB & T.

The Policy also contains an “insured-versus-insured” exclusion, applicable to all insuring agreements, including the Officer Coverage. This exclusion provides:

The Insurer shall not be liable for Loss [including Defense Costs] on account of any Claim made against any Insured:

* * * 4. brought or maintained by or on behalf of any Insured or Company [including CB & T] in any capacity, except:

(a) a Claim that is a derivative action brought or maintained on behalf of the Company by one or more persons who are not Directors or Officers and who bring and maintain such Claim without the solicitation, assistance or active participation of any Director or Officer;

(b) a Claim brought or maintained by a natural person who was a Director or Officer, but who has not served as a Director or Officer for at least six-years preceding the date the Claim is first made, and who brings and maintains the Claim without the solicitation, assistance or active participation of any Director or Officer who is serving as a Director or Officer or was serving as a Director or Officer within such six-year period;

(c) a Claim brought or maintained by or on behalf of any Insured Person for an Employment Practices Act;

(d) a Claim brought or maintained by any Insured Person for contribution or indemnity, if the Claim results from another Claim covered under this Policy;

(e) only with respect to any Fiduciary Liability Insuring Agreement made part of this Policy, a Claim brought or maintained by or on behalf of any Employee of the Company for any Fiduciary Act;

(f) a Claim brought by an Insured Person solely in his or her capacity as a customer of the Company for a Trust Act or a Professional Services Act, provided that such Claim is instigated totally independent of, and totally without the solicitation, assistance, active participation, or intervention of, any other Insured; or

(g) a Claim brought or maintained in a jurisdiction outside of the United States of America, Canada or Australia by an Insured Person of a Company incorporated or chartered in a jurisdiction outside of the United States of America, Canada or Australia.

Finally, the Policy's Officer coverage extends only to a “Loss” as defined in the Policy. The Policy defines “Loss” in pertinent part as: [T]he amount which the Insureds become legally obligated to pay on account of each Claim ... for Wrongful Acts for which coverage applies, including Damages, judgments, settlements and Defense Costs....”

The Policy then carves out certain items from the definition of covered Loss. Of importance here, this includes the unrepaid loan carve-out in subsection (c) of the definition of Loss, which provides that an “amount” that constitutes “any unrepaid, unrecoverable or outstanding loan, lease or extension of credit to any Affiliated Person or Borrower” is not included as a covered Loss.

The definition of “Affiliated Person” used in the unrepaid loan carve-out expressly includes any “Director, Officer or Employee” of the Bank. On the other hand, the term “Borrower” used in the carve-out is defined to mean “any individual or entity that is not an Affiliated Person and to which the Company extends, agrees to extend, or refuses to extend, a loan, lease or extension of credit.”


On September 21, 2012, St. Paul filed suit in the United States District Court for the Northern District of Georgia seeking a declaration that the Policy bars coverage for the FDIC–R action. On December 26, 2012, St. Paul requested summary judgment. Following additional briefing on whether the applicable Policy provisions were ambiguous, the district court determined: that the unrepaid loan carve-out provision was ambiguous in this context; that the insured v. insured exclusion was “not ambiguous, that any ambiguity in the policy c[ould] be resolved without resort to parol evidence;” that no further discovery was necessary; and that St. Paul “ha[d] no duty under the policy to pay to defend or to indemnify” the Officer defendants.


This Court reviews de novo the district court's decision to grant summary judgment. Beach Cmty. Bank v. St. Paul Mercury Ins. Co., 635 F.3d 1190, 1194 (11th Cir.2011). A court may grant a motion for summary judgment only where the moving party has demonstrated the absence of any genuine issue of material fact and entitlement to judgment as a matter of law. Fed.R.Civ.P. 56(a); Beach Cmty. Bank, 635 F.3d at 1194.


This case presents us with the following issues. First, whether claims brought by the FDIC–R as receiver for a closed bank against former directors and officers of the bank are covered under the Policy that excludes from coverage actions brought “by or on behalf of” any “Insured” or the “Company.” Second, whether the district court erred in concluding that the Policy unambiguously precluded coverage and refusing to consider extrinsic evidence or allow further discovery. Third, and finally, whether the unrepaid loan carve-out provision precludes coverage for damages that are unrepaid loans.


The FDIC–R maintains that the plain language of the insured...

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