Justia Insurance Law Opinion SummariesArticles Posted in Banking
United Bank v. Buckingham
The Court of Appeals held that a change in life insurance beneficiary constitutes a conveyance under the Maryland Uniform Fraudulent Conveyance Act (MUFCA), Md. Code Comm. Law 15-201(c), and that a guardian of property is not granted the authority to change a life insurance beneficiary on a policy of the ward under section 15-102(t) of the Estates and Trusts Article (ET).In a case arising from a decade-long dispute between the adult children of the Buckingham family and United Bank, the United States District Court for the District of Maryland certified two questions of law to the Court of Appeals regarding whether the children intentionally defrauded the Bank when they successfully diverted significant amounts of life insurance proceeds away from the declining family business and to their personal use. The Court of Appeals answered the questions as follows: (1) a change of the beneficiary designation of a life insurance policy constitutes a conveyance under MUFCA; and (2) the guardian of property does not have the authority to change the beneficiary on a life insurance policy of a ward under ET 15-102(t). View "United Bank v. Buckingham" on Justia Law
Apex Mortgage Corp. v. Great Northern Insurance Co.
The Dais obtained a loan from Apex secured by a mortgage on their laundromat. The laundromat ceased operations; the Dais defaulted. Apex agreed to accept a deed in lieu of foreclosure if the property was marketable. A December 2008 inspection revealed that it was in disrepair, exposed to the elements, and open to vagrants. Apex took measures to preserve the property and returned the deed to the Dais in April 2009. In December 2010, two Chicago firefighters lost their lives battling a blaze at the abandoned laundromat. Their estates sued Apex. Apex and the estates settled. Apex's insurer, Federal, denied coverage, citing a policy exclusion for any liability or loss "arising out of property you acquire by foreclosure, repossession, deed in lieu of foreclosure or as mortgagee in possession.” The district court granted Federal summary judgment.The Seventh Circuit vacated, applying Pennsylvania law. Summary judgment was inappropriate given the open question of material fact: who possessed the property at the time of the fire. Apex instructed its realtor to post a notice informing the Dais how to obtain keys for the new locks. Apex urged the Dais to inspect and secure the property. In July 2009, Dai ordered a handyman to board up the property after being cited for building code violations. In October 2009, Dai entered into a settlement to cure the code infractions by November 2010. He failed to do so and served 180 days in jail. Apex had no contact with the property after April 2009. View "Apex Mortgage Corp. v. Great Northern Insurance Co." on Justia Law
Leo v. Nationstar Mortgage LLC of Delaware
A mortgage conveys an interest in real property as security. Lenders often require borrowers to maintain hazard insurance that protects the property. If the borrower fails to maintain adequate coverage, the lender may buy the insurance and force the borrower to cover the cost (force-placed coverage). States generally require insurers to file their rates with an administrative agency and may not charge rates other than the filed rates. The filed-rate is unassailable in judicial proceedings even if the insurance company defrauded an administrative agency to obtain approval of the rate.Borrowers alleged that their lender, Nationstar, colluded with an insurance company, Great American, and an insurance agent, Willis. Great American allegedly inflated the filed rate filed so it and Willis could return a portion of the profits to Nationstar to induce Nationstar’s continued business. The borrowers paid the filed rate but claimed that the practice violated their mortgages, New Jersey law concerning unjust enrichment, the implied covenant of good faith and fair dealing, and tortious interference with business relationships; the New Jersey Consumer Fraud Act; the Truth in Lending Act, 15 U.S.C. 1601–1665; and RICO, 18 U.S.C. 1961–1968.The Third Circuit affirmed the dismissal of the suit. Once an insurance rate is filed with the appropriate regulatory body, courts have no ability to effectively reduce it by awarding damages for alleged overcharges: the filed-rate doctrine prevents courts from deciding whether the rate is unreasonable or fraudulently inflated. View "Leo v. Nationstar Mortgage LLC of Delaware" on Justia Law
SEC v. Stanford International Bank, Ltd.
Appellants challenged the approval of a global settlement between the receiver for Stanford International Bank and related entities, and various insurance company underwriters, who issued policies providing coverage for fidelity breaches, professional indemnity, directors and officers protection, and excess losses.The Fifth Circuit vacated the district court's order approving the settlement and bar orders, holding that the district court lacked authority to approve the receiver's settlement to the extent it nullified the coinsureds' claims to the policy proceeds without an alternative compensation scheme; released claims the estate did not possess; and barred suits that could not result in judgments against proceeds of the underwriters' policies or other receivership assets. Accordingly, the court remanded for further proceedings. View "SEC v. Stanford International Bank, Ltd." on Justia Law
BancorpSouth Inc. v. Federal Insurance Co.
In 2009, Bancorp, which provides checking and savings accounts to individuals, purchased a bankers’ professional liability insurance policy from Federal. The policy stated: [Federal] shall pay, on behalf of an Insured, Loss on account of any Claim first made against such Insured during the Policy Period … for a Wrongful Act committed by an Insured or any person for whose acts the Insured is legally liable while performing Professional Services, including failure to perform Professional Services" but that Federal “shall not be liable for Loss on account of any Claim … based upon, arising from, or in consequence of any fees or charges” (Exclusion 3(n)). The 2010 Swift Complaint sought damages for Bancorp's "unfair and unconscionable assessment and collection of excessive overdraft fees.” Swift sought to represent a class of all U.S. BancorpSouth customers who "incurred an overdraft fee as a result of BancorpSouth’s practice of re-sequencing debit card transactions from highest to lowest.” In 2016, Bancorp agreed to pay $24 million to resolve all the claims, $8.4 million of which was for attorney’s fees, plus $500,000 in class administrative costs. Federal denied coverage. The Seventh Circuit agreed that Exclusion 3(n) excluded from coverage losses arising from fees and affirmed the dismissal of breach of contract claims and a bad faith claim. View "BancorpSouth Inc. v. Federal Insurance Co." on Justia Law
Indian Harbor Insurance Co. v. Zucker
Reid founded Capitol, which owned commmunity banks, and served as its chairman and CEO. His daughter and her husband served as president and general counsel. Capitol accepted Federal Reserve oversight in 2009. In 2012, Capitol sought Chapter 11 bankruptcy reorganization and became a “debtor in possession.” In 2013, Capitol decided to liquidate and submitted proposals that released its executives from liability. The creditors’ committee objected and unsuccessfully sought derivative standing to sue the Reids for breach of their fiduciary duties. The Reids and the creditors continued negotiation. In 2014, they agreed to a liquidation plan that required Capitol to assign its legal claims to a Liquidating Trust; the Reids would have no liability for any conduct after the bankruptcy filing and their pre-petition liability was limited to insurance recovery. Capitol had a management liability insurance policy, purchased about a year before it filed the bankruptcy petition. The liquidation plan required the Reids to sue the insurer if it denied coverage. The policy excluded from coverage “any claim made against an Insured . . . by, on behalf of, or in the name or right of, the Company or any Insured,” except for derivative suits by independent shareholders and employment claims (insured-versus-insured exclusion). The Liquidation Trustee sued the Reids for $18.8 million and notified the insurer. The Sixth Circuit affirmed a declaratory judgment that the insurer had no obligation with respect to the lawsuit, which fell within the insured-versus-insured exclusion. View "Indian Harbor Insurance Co. v. Zucker" on Justia Law
Travelers Cas. & Sur. Co. v. Wash. Trust Bank
An employee of a nonprofit serving disabled adult clients used her position to embezzle more than half a million dollars held by the nonprofit for its clients. After the embezzlement was discovered, Travelers Casualty & Surety Company, the nonprofit's insurance company, made the nonprofit whole. Travelers then sought contribution from the bank in federal court. By submitting certified questions of Washington law, that court has asked the Washington Supreme Court to decide, among other things, whether a nonpayee's signature on the back of a check was an indorsement. Furthermore, the Court was also asked whether claims based on unauthorized indorsements that are not discovered and reported to a bank within one year of being made available to the customer are time barred. The Supreme Court answered yes to both questions. View "Travelers Cas. & Sur. Co. v. Wash. Trust Bank" on Justia Law
FDIC v. Kansas Bankers Surety Company
Plaintiff-Appellant Federal Deposit Insurance Corporation (FDIC) sought to recover on a financial institution crime bond and appealed the district court’s grant of summary judgment in favor of Defendant-Appellee Kansas Bankers Surety Co. (KBS) and the subsequent denial of reconsideration. The district court held that the underlying bank, the New Frontier Bank of Greeley, Colorado, (Bank) had failed to submit a timely and complete proof of loss, thereby barring FDIC’s recovery on the bond. Finding no error in the district court's decision, the Tenth Circuit affirmed. View "FDIC v. Kansas Bankers Surety Company" on Justia Law
In re Liquidation of Freestone Ins. Co.
Freestone Insurance Company was a Delaware-domiciled insurer that was placed in liquidation. The liquidation proceeding was governed by the Uniform Insurers Liquidation Act (the Uniform Act). The order that placed Freestone into liquidation contained an injunction (the Anti-Suit Injunction) barring third parties from pursuing claims against Freestone other than through the statutory process for receiving evaluating, and paying claims (the Claims Process). U.S. Bank National Association (the Bank) moved to lift the Anti-Suit Injunction, claiming that it wished to litigate against Freestone outside of the Claims Process and establish the amount of its claims and its status as a general creditor of Freestone. The Court of Chancery denied the Bank’s motion, holding that granting relief on the facts of this case would contravene the policies of the Uniform Act, interfere with the Claims Process, and impose unnecessary costs on Freestone and the Insurance Commissioner of the State of Delaware, who was serving as the receiver for Freestone. View "In re Liquidation of Freestone Ins. Co." on Justia Law
BMO Harris Bank N.A. v. Edward E. Gillen Co.
BMO Harris Bank holds a security interest in the assets of Gillen, formerly in the construction business. Gillen failed to perform on a subcontract with Meyne, which received an arbitration award of $1.8 million. Liberty Mutual, Gillen’s primary insurer, paid Meyne $1 million, the policy’s limit. Gillen unsuccessfully sought to set aside the award, then appealed. To avoid execution of the judgment, Gillen posted a supersedeas bond, underwritten by F&D. The appeal was settled and dismissed; as part of that agreement, F&D paid Meyne the remaining $800,000 and stepped into its shoes as Gillen’s creditor. ICSOP, the insurer under an “excess” policy, paid $1.2 million into the court’s registry. BMO sought the entire amount, arguing that its status as a secured creditor put it ahead of F&D and Gillen. The district court awarded $800,000 to F&D, because it is subrogated to Meyne’s rights, and Meyne could have collected from ICSOP without impairing the Bank’s security interest. The remaining $400,000 was awarded to BMO as Gillen's secured creditor. The Seventh Circuit affirmed. Under Wisconsin law insurance bypasses security interests. Wisconsin is a direct‐action jurisdiction in which the victim of an insured wrong can collect from the insurer, Wis. Stat. 632.24. In Wisconsin, even the insolvency of the client and the presence of other creditors does not affect the victim’s rights. View "BMO Harris Bank N.A. v. Edward E. Gillen Co." on Justia Law