Big Win For Policyholders In Related Claims Dispute

Hunton Andrews Kurth reports on an important directors and officers insurance decision in Louisiana federal court. In November, a Louisiana judge granted the Federal Deposit Insurance Corporation’s motion for partial summary judgment in a D&O liability coverage dispute.

The dispute involved “related” claims arising from the 2017 failure of First NBC Bank. A series of legal actions followed, including criminal charges against the bank’s former president and CEO that resulted in a 14-year prison sentence.

It was a victory for policyholders who are involved in similar disputes and indicates that specific policy language and governing law play a big role in determining related claims issues.

When it failed, First NBC Bank had D&O insurance policies in place. It claimed coverage for breach of fiduciary duty and gross negligence claims against the executives in approving certain loans. The claim was denied. The insurer argued that the claims against executives were not “first made” during the policy period because the new claims related to multiple claims and notices made during the 2016 policy period.

In the ensuing litigation, the FDIC, which had been appointed as receiver, and the 2017 insurers cross-moved for partial summary judgment.

The policyholder’s win was based on Louisiana law, and interpretation of causation language used in the related claims and prior notice provisions. The parties settled shortly after the court’s decision.

Hunton Andrews Kurth calls the decision notable for a few reasons. It illustrates that related-claims analysis is highly fact-specific and factors including specific policy language, underlying allegations and applicable state law are key.

It also highlights the importance of governing state law. These vary significantly and can be dispositive on critical issues. In this case, the decision was based on the interpretation of causation language under Louisiana law.

Finally, It serves as a reminder for banks to have a formal process for regularly reviewing their insurance coverages. The review should cover the amount and scope of coverage provided by each individual policy, and how policies interact with the overall insurance program. This will help avoid the risk of surprise denials.