Why it matters

A policy that excluded coverage for suits brought by a “receiver” of the insured barred coverage for a claim filed by the Federal Deposit Insurance Corporation (FDIC) in its capacity as the receiver of a failed bank, a California federal court ruled. The court held that the “insured v. insured” exclusion barred coverage because the FDIC brought the claims against the former officers in its capacity as a “receiver.” The court rejected the FDIC’s position that the exclusion’s reference to “receiver” referred only to a court-appointed receiver, ruling that “while the FDIC attempts to differentiate itself from other types of receivers, it fails to identify any significant distinction that would justify an interpretation of [the insured v. insured exclusion] that would treat the FDIC differently from any other type of receiver.”

Detailed Discussion

In February 2009, the California Department of Financial Institutions closed state-chartered County Bank and the FDIC was appointed as receiver. The agency then filed a civil action against five former officers of the bank, alleging that they were negligent and breached their fiduciary duties to the bank.

The officers requested a defense from the bank’s insurer BancInsure. Although the officers qualified as insured persons under the policy, the insurer denied coverage based on an insured v. insured exclusion that barred coverage for “a claim by, or on behalf of, or at the behest of, any other insured person, the company, or any successor, trustee, assignee or receiver of the company.”

In cross-motions for summary judgment, the FDIC and BancInsure sought a ruling on the application of the insured v. insured exclusion. While BancInsure argued that the claims were excluded because the FDIC was appointed as “receiver” of County Bank, the agency said it was not a “receiver” within the meaning of the policy, which was intended to reference a court-appointed receiver.

As the term “receiver” was not defined in the policy, the court looked to the “ordinary and popular” meaning of the term. Finding Black’s Law Dictionary’s definition, which does not limit the term “receiver” to those appointed by courts, to be representative of the “ordinary and popular” meaning of the term, the court concluded that the FDIC meets the definition of “receiver,” relieving the insurer of its coverage obligations.

An argument that the exclusion was at odds with the parties’ reasonable expectations similarly did not sway the court, which granted summary judgment for BancInsure.

To read the order in Hawker v. BancInsure, Inc., click here.