St. Paul Mercury Insurance Co. v. Federal Deposit Insurance Corp. , 669 F. App'x 851 ( 2016 )

FILED
NOT FOR PUBLICATION
OCT 19 2016
UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
ST. PAUL MERCURY INSURANCE No. 14-56830
COMPANY,
D.C. No.
Plaintiff-Appellant, 8:13-cv-00424-AG-RNB
v.
MEMORANDUM*
FEDERAL DEPOSIT INSURANCE
CORPORATION, as receiver for Pacific
Coast National Bank,
Defendant-Appellee.
Appeal from the United States District Court
for the Central District of California
Andrew J. Guilford, District Judge, Presiding
Argued and Submitted October 6, 2016
Pasadena, California
Before: REINHARDT, OWENS, and FRIEDLAND, Circuit Judges
St. Paul Mercury Insurance Company, a subsidiary of The Travelers
Companies, Inc. (Travelers), appeals from the district court’s decision granting the
Federal Deposit Insurance Corporation (FDIC)’s motion for summary judgment
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
and denying Travelers’ motion for summary judgment. As the parties are familiar
with the facts, we do not recount them here. We review de novo the district court’s
decision. Avery v. First Resolution Mgmt. Corp., 568 F.3d 1018, 1021 (9th Cir.
2009). We have jurisdiction under 28 U.S.C. § 1291, and we affirm.
1. Preliminarily, we note that the precise language of this precise insurance
policy has been held to be ambiguous by the Eleventh Circuit, which concluded
that the FDIC was entitled to relief for the same reasons it advances here. See St.
Paul Mercury Ins. Co. v. FDIC, 774 F.3d 702, 710-11 (11th Cir. 2014). We are
reluctant to afford a different meaning to the provisions of an insurance policy than
it has been given in another circuit in the absence of a clearly erroneous
construction by that circuit. Here, we can by no means so characterize the
Eleventh Circuit’s interpretation of the policy. In fact, we believe it to be correct.
2. The district court properly held that the insurance policy’s “unrepaid loan
carve-out” does not unambiguously bar coverage for the damages sought by the
FDIC in its action against the directors and officers and that it therefore must be
construed to allow coverage. The FDIC is not seeking repayment of loans but is
instead using charge-offs on loans to calculate the losses caused by the directors’
and officers’ allegedly tortious conduct in operating and managing the lending
function of the now-defunct Pacific Coast National Bank. Had Travelers intended
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the carve-out to apply unambiguously to these damages, it could have used broader
language, similar to language it used elsewhere in the insurance policy, to bar
coverage for loss that is “based upon, arising out of, or attributable to” any loan. In
the absence of that broader language, the carve-out does not apply unambiguously
to the tort damages the FDIC seeks. Even if one reasonable interpretation of the
carve-out would bar coverage, another reasonable interpretation exists that would
allow coverage, and therefore, the carve-out is ambiguous. Waller v. Truck Ins.
Exch., Inc., 900 P.2d 619, 627 (Cal. 1995) (“A policy provision will be considered
ambiguous when it is capable of two or more constructions, both of which are
reasonable.”).
This ambiguity should be construed against Travelers, the insurer, “to
protect the insured’s reasonable expectation of coverage.” Powerine Oil Co., Inc.
v. Superior Ct., 118 P.3d 589, 598 (Cal. 2005) (quoting Foster-Gardner, Inc. v.
Nat’l Union Fire Ins. Co., 959 P.2d 265, 273 (Cal. 1998)). Here, it was reasonable
for the insureds to expect that the policy would provide coverage for damages
awarded as the result of tortious mismanagement by the bank’s directors and
officers. Accordingly, we affirm the district court’s conclusion that the “unrepaid
loan carve-out” does not bar coverage for the damages sought by the FDIC.
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3. The district court also properly held that the insurance policy’s “insured
v. insured” exclusion is ambiguous as applied to the FDIC as receiver and therefore
must be construed in favor of coverage. Contrary to Travelers’ contentions, neither
the Supreme Court’s decision in O’Melveny & Myers v. FDIC, 512 U.S. 79 (1994),
nor our decision in Biltmore Associates, LLC v. Twin City Fire Insurance
Company, 572 F.3d 663 (9th Cir. 2009), compels a contrary result, because neither
addressed the specific issue that this appeal raises. Instead, it is ambiguous
whether the FDIC as receiver is pursuing its claims against the directors and
officers “on behalf of” the defunct bank within the meaning of the “insured v.
insured” exclusion, because the FDIC as receiver represents a number of interests
and does not operate as a normal successor in interest. See FDIC v. O’Melveny &
Myers, 61 F.3d 17, 19 (9th Cir. 1995) (per curiam). Furthermore, the “insured v.
insured” exclusion does not refer to claims brought by the FDIC as receiver, and
the insurance policy does not contain a regulatory exclusion.
As the insurer, Travelers bears the burden to “phrase exceptions and
exclusions in clear and unmistakable language” and of establishing that a “claim is
specifically excluded.” MacKinnon v. Truck Ins. Exch., 73 P.3d 1205, 1213 (Cal.
2003) (citations omitted). Travelers failed to carry that burden, despite having
notice that similar exclusions had been deemed ambiguous by other courts.
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Accordingly, we affirm the district court’s determination that the “insured v.
insured” exclusion is ambiguous and does not bar coverage for the FDIC’s action
against the directors and officers.
AFFIRMED.
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