St. Paul Mercury Ins. Co. v. Miller
(N.D. Ga. Aug. 19, 2013)
A Georgia court recently held that an insured-vs-insured exclusion in a directors and officers policy precluded coverage for two former officers of a failed bank sued by the FDIC.
The FDIC took over the failed Community Bank & Trust of Cornelia, Georgia and then sued two former officers in connection with their role in improperly approving loans. The bank’s D&O insurer agreed to defend the officers subject to a reservation of rights. In the ensuing declaratory judgment action, the insurer argued that it was not obligated to defend or indemnify the officers in light of the policy’s insured-vs-insured exclusion, which excluded coverage for claims “brought or maintained by or on behalf of any Insured or Company in any capacity,” with certain exceptions.
The court held that the insured-vs-insured exclusion barred coverage for the claim because the FDIC stepped into the shoes of the failed bank when it took it over, meaning that it was an “insured” within the meaning of the policy. The court observed that, to hold otherwise, would essentially ignore the exclusion’s express language that applied to claims brought “on behalf of” an insured. In so ruling, the court rejected that the FDIC’s argument that public policy required a different result.