For want of good corporate officers …
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An appellate court judge waxed poetical in his Tuesday decision denying a bank executive coverage under a directors and officers liability policy.
Ed Carnes, chief judge for the 11th U.S. Circuit Court of Appeals in Montgomery, Alabama, ruled on an appeal involving a Florida bank caught up in the financial crisis that switched D&O insurers in 2008 and then sought coverage from its new insurer — a Houston-based unit of Tokio Marine HCC.
Setting the scene for his ruling, Judge Carnes added an insurance twist in his allusion to the proverbial loss of a nail.
“For want of good corporate officers, BankUnited Financial Corp. engaged in risky lending practices before November 2008. For want of good lending practices, BankUnited became insolvent. For want of solvency, BankUnited's transfers of money to its subsidiary were fraudulent,” he wrote.
Not wanting to let a good pun fade, he continued: “Wanting their money back, BankUnited’s creditors sued its officers for authorizing those transfers. Wanting protection from the resulting liability, the officers asked their insurer — U.S. Specialty — to indemnify them. Not wanting to do that, U.S. Specialty refused based in part on a policy exclusion that barred coverage for claims ‘arising out of’ conduct that occurred before November 2008. The question is whether the fraudulent transfers ‘arose out of’ the officers’ pre-November 2008 misconduct.”
And as the lack of a nail lead to a kingdom’s demise, so did the timing of the shortfalls by the corporate officers fell the insurance claim: Judge Carnes affirmed the lower court’s decision denying coverage in Zucker v. U.S. Specialty Insurance Co.
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