Again reviving a coverage claim by a former bank director against her D&O insurer, the United States Court of Appeals for the Eighth Circuit performed a useful service by closely analyzing the policy’s grant of coverage and exclusionary clauses. The result is a reminder to carriers, insureds, and counsel alike that they must pay careful attention to the actual language used in an insurance policy when deciding whether coverage exists for a particular claim. The published decision is Wintermute v. The Kansas Bankers Surety Company, -- F.3d --, No. 09-2806 (8th Cir. Jan 6, 2011). A copy of the slip opinion is available here.

Susan Wintermute and her late husband purchased the Sinclair National Bank in Arkansas in 2000. Thereafter, Wintermute served as one of the bank’s directors. The two were subsequently indicted on criminal charges for filing false statements in connection with their purchase of the bank, and for bank fraud in connection with loans that the two later caused the bank to buy from two companies in which they held a financial interest. Wintermute was convicted on the false-statement charges in 2004, but she was acquitted on the bank-fraud charges.

Wintermute’s D&O carrier had disclaimed any coverage obligation. In her second amended complaint in this coverage action, which she filed after her conviction, Wintermute recognized that the D&O policy’s coverage did not extend to the false-statement charges, because those charges addressed activities prior to the time that she became a bank director.

In a prior decision, the Eighth Circuit had found that the policy did not limit its coverage to claims that relied solely upon the insured’s status as a director. On remand, the district court ruled that Wintermute had no claim to coverage because she could not establish that she had suffered a “loss” within the meaning of the policy. Specifically, the district court held that Wintermute had not had a “claim for Loss” made against her as a director, with the result that the policy’s coverage had never been triggered.

The Eighth Circuit again reversed the district court, holding that, under Arkansas law, the plain language in the policy’s grant of coverage required only a showing that there had been an allegation of a “wrongful act” against a person who served as a director. The parties did not dispute that the criminal indictment alleged that Wintermute had engaged in “wrongful acts,” nor did they dispute that her defense costs were amounts she became legally obligated to pay while she was a director as a result of those “wrongful acts.” Coverage, then, had been triggered.

The court then turned to the policy’s exclusions, stating that they reaffirmed the basic proposition that the policy would provide no coverage if one of them applied. It remanded the case to the district court for further proceedings – including trial, if necessary – on whether the facts would permit the carrier to invoke either the personal profit or the dishonesty exclusions.