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FDIC can’t recover from bank’s directors and officers’ insurer

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A federal appeals court has reversed a lower court ruling and held that the Federal Deposit Insurance Corp. is not entitled to recover from the directors and officers’ liability policy of a bank for which it acts as a receiver.

The FDIC had filed suit seeking coverage under the D&O policy issued by Oklahoma City-based BankInsure Inc. to West Los Angeles-based Security Pacific Bank, which was taken over by regulators in 2008, according to Tuesday’s ruling by the 9th U.S. District Court of Appeals in San Francisco in Federal Deposit Insurance Corp. as receiver for Security Pacific Bank v. BankInsure Inc., an Oklahoma Corporation.

The U.S. District Court in Pasadena, California, ruled the FDIC was entitled to coverage under the policy, but a 2-1 appeals court panel reversed that ruling.

The appellate panel said it disagreed with the FDIC that an exception to the insured-versus-insured exclusion for losses arising from a shareholder’s derivative action applied.

“The D&O policy’s insured-versus-insured exclusion would exclude from coverage losses from a direct suit by the FDIC against Security Pacific’s former directors and officers,” said the ruling.

“The shareholder-derivative-suit exception does not change that result or render the insured-versus insured exclusion ambiguous with respect to the FDIC as receiver merely because the FDIA also succeeded to the right of Security Pacific’s shareholders to bring a derivative action,” said the ruling, in remanding the case for further proceedings.

The minority opinion said there was ambiguity as to the exclusion.