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St. Paul Mercury Insurance Co. v. Federal Deposit Insurance Corp.

United States Court of Appeals, Eleventh Circuit

December 17, 2014

ST. 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

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

For ST. PAUL MERCURY INSURANCE COMPANY, Plaintiff - Appellee: 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 FEDERAL DEPOSIT INSURANCE CORPORATION, as receiver for Community Bank & Trust of Cornelia, Georgia, Defendant - Appellant: Michelle Ognibene, Federal Deposit Insurance Corporation, Appellate Litigation - Legal Division, ARLINGTON, VA; Kristin C. Davis, Catherine J. Serafin, Dickstein Shapiro, LLP, WASHINGTON, DC; Steven L. Hoard, Sarah D. Pelley, Mullin Hoard & Brown, LLP, AMARILLO, TX; Andrew Reidy, Lowenstein Sandler, LLP, WASHINGTON, DC; Jon Douglas Stewart, Stewart Melvin & Frost, LLP, GAINESVILLE, GA.

For TRENT D. FRICKS, as receiver for Community Bank & Trust of Cornelia, Georgia, CHARLES M. MILLER, as receiver for Community Bank & Trust of Cornelia, Georgia, Defendants - Appellants: Julie A. Lierly, Stephen E. Hudson, Ellen Parker McCarley, Kilpatrick Townsend & Stockton, LLP, ATLANTA, GA; Tyechia L. White, Kilpatrick Townsend & Stockton, LLP, WASHINGTON, DC.

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

OPINION

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.

I.

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, ...

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