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Chubb, Travelers win dispute over bank DOJ settlement


A Louisiana bank cannot recover the $11.7 million settlement it reached with the federal government under its professional liability coverage with Chubb Ltd. and Travelers Cos. Inc. units because the government was not the bank’s client, said a federal appeals court Wednesday, in affirming a lower court ruling.

Lafayette, Louisiana-based IberiaBank Corp. reached the settlement with the U.S. Department of Justice in late 2017 under which it acknowledged it had provided mortgage certifications to the Department of Housing and Urban Development that did not meet all HUD requirements, according to Wednesday’s ruling by the 5th U.S. Circuit Court of Appeals in New Orleans in IberiaBank Corp. v. Illinois Union Insurance Co.; Travelers Casualty & Surety Co. of America.

The settlement also resolved claims arising from a whistleblower suit alleging violations of the False Claims Act.

IberiaBank had a primary banker’s professional liability insurance policy with a $10 million limit with Chubb unit Illinois Union and a $5 million excess policy with Travelers Corp. unit Travelers Casualty, according to the ruling.

After the insurers denied the bank’s claim, IberiaBank filed suit in U.S. District Court in New Orleans, charging breach of contract, arguing the DOJ settlement “fell squarely” within the policies’ coverage.

The District Court ruled in the insurers’ favor and was upheld by a three-judge appeals court panel. The policies provide coverage for professional services performed by a policyholder or third-party client of the bank, said the ruling.

Under the policies’ terms, the “‘client for consideration’ is the same client toward whom IberiaBank’s ‘Wrongful Acts in rendering or failing to render’ its services were directed,” said the ruling

“IberiaBank did not, however, engage in ‘Wrongful Act’ in providing mortgage loans to borrowers; rather IberiaBank engaged in ‘Wrongful Acts’ when it certified certain borrowers’ creditworthiness to HUD when those borrowers did not meet all HUD requirements,” said the ruling, in concluding the government did not become IberiaBank’s “client” as a result of the HUD program, and therefore the DOJ settlement claim is not covered by the policies.

Attorneys in the case could not be reached for comment.





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