On Tuesday, December 16, in U.S. Bank Nat. Ass’n v. Indian Harbor Ins. Co., 2014 WL 7183851 (D. Minn. Dec. 16, 2014), the US District Court for the District of Minnesota granted US Bank’s summary judgment motion, finding insurance coverage in an overdraft-fee dispute settlement.
The three underlying class action lawsuits were filed against US Bank National Association and US Bancorp by plaintiffs claiming the bank unlawfully inflated customers’ overdraft fees. The banks provided customers with account overdraft protection and charged a fee for each over drafting transaction. The claims alleged that the banks rearranged daily transactions by posting the highest transactions first in order to deplete account funds quicker, yielding more account overdrafts (and more overdraft fees).
The defendant insurers, ACE American Insurance Co. providing excess coverage, insured the banks for professional liability. The banks sought and acquired consent from both insurers to settle the class-action lawsuits for $55 million. When the banks sought coverage from the insurers, the defendant insurers denied coverage claiming the settlement did not constitute a loss as the money paid is considered restitution and not insurable. The plaintiff banks brought this action seeking defense costs and $30 million, the amount of the settlement paid beyond the banks’ $25 million deductible. The court granted the banks’ motion for summary judgment, finding that the settlement paid fell within the insurance policy and that no exclusions applied.
The court, analyzing the policy under Delaware law, was required to define loss as it existed within the policy and whether the exclusions of uninsurable losses or extension of credit losses applied. Under the policy, any losses not insurable as a matter of law were not insured by the policy. The insurers claimed that the settlement constituted restitution as the allegations amounted to ill-gotten gains by unlawful banking practices. Restitution was assumed by the court to be uninsurable; however, the court found that the settlement offer did not constitute restitution, as it was not a final adjudication of the claims. The court found that the explicit provision excepting adjudications of ill-gotten gains would be nullified if the court found an exclusion of coverage for allegations and claims of similar conduct. In reading the contract as a whole and giving effect to each provision, the court held that a final determination of wrongful appropriation is required to consider losses thereto as restitution. Otherwise, as here, it is simply a settlement.
Additionally, the policies contained a provision barring coverage for monies paid as a result of an extension of credit. The insurers claimed that the overdraft fees constituted extensions of credit and were excludable; however, the court disagreed finding that the exclusion did not apply as the issue was not regarding the provision of overdraft protection, but how the fees were assessed for such protection.