D&O Insurer Gets Bounced Out of Court Based on Federal Statute

03.27.2014

OneBeacon Midwest Ins. Co. v. F.D.I.C., 2014 WL 869286 (N.D. Ga. Mar. 5, 2014) came before the Court on a motion for reconsideration filed by the plaintiff, the D&O insurer.  OneBeacon’s original complaint sought a declaratory judgment that certain exclusions and carve-outs barred coverage under the Professional Liability Insurance Policy (the “Policy”) for the FDIC’s claims.

In their subsequent Motion to Dismiss, the D&O defendants argued, and the Court ultimately agreed, that OneBeacon’s Complaint should be dismissed under Rule 12(b)(1) of the Federal Rules of Civil Procedure because the Court lacked subject matter jurisdiction.  Specifically, the Court held that issuing a declaratory judgment on OneBeacon’s claims would affect the FDIC’s ability to collect money due to Habersham Bank.  Thus, OneBeacon’s claims ran afoul of 12 U.S.C. § 1821(j) of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”), which states in pertinent part: “[N]o court may take any action, except at the request of the Board of Directors by regulation or order, to restrain or affect the exercise of powers or functions of the [FDIC] as a conservator or a receiver.”  Pursuant to Rule 59(e), OneBeacon moved the Court to reconsider its order granting the Motion to Dismiss and to permit the filing of an amended complaint.

In support of its Motion for Reconsideration and Motion to Amend, OneBeacon argued that the proposed amended complaint cured the jurisdictional defects by dropping the FDIC as a party and by seeking declaratory judgment that the D&Os are not entitled to defense coverage under the Policy.  OneBeacon relied heavily on F.D.I.C. v. OneBeacon Midwest Ins. Co., 2013 WL 951107 (N.D. Ill, Mar. 12, 2013) (“Wheatland II”) in support of its arguments for reconsideration and amendment.

In Wheatland II, the Northern District of Illinois found that the plaintiff’s proposed amended claims were not barred by § 1821(j) because they did not “restrain or affect” the FDIC’s interests in the D&O policy.  In reaching that ruling, the court noted that all parties agreed that the FDIC would not be bound because it was not a party to the amended claim.  Further, in Wheatland II, the FDIC conceded that § 1821(j) did not bar the amended complaint.  The Northern District of  Georgia analyzed these facts and concluded that the Wheatland II court was persuaded to amend its prior order because the proposed amendment was uncontested.  In this case, however, both the D&O defendants and the FDIC opposed OneBeacon’s position.

In denying OneBeacon’s motion for reconsideration and motion to amend, the Court explained that § 1821(j) prohibits courts from taking any action to restrain or affect the exercise of the powers or functions of the FDIC.  According to the Court, OneBeacon’s claims in this case would “restrain or affect” the FDIC in the exercise of its function as receiver to collect money due to Habersham Bank.  Importantly, OneBeacon conceded in its amended claims that the FDIC had an interest in the Policy as a tort claimant.  Therefore, even as amended, OneBeacon’s claims were enough to trigger the jurisdictional bar of § 1821(j).

The Court went on to explain that the operation of § 1821(j) does not leave OneBeacon without a remedy—the plaintiff may pursue its claims through FIRREA’s administrative process and if they are not adequately addressed, the plaintiff is entitled to de novo review in federal district court.  This discussion is confusing in that it suggests that an insurer may proceed in federal district court with a claim that is otherwise jurisdictionally barred by § 1821(j), provided the plaintiff first pursues its claim through the administrative process.  Clearly, the courts are hesitant to run the risk of stepping on the FIRREA’s toes.  Even if the FDIC is not a party to the case, and the action seeks a determination of coverage, the Court may find that the claims “restrain or affect” the FDIC.  Based upon Judge Story’s opinion, insurance carriers would be wise to consider going forward with an administrative action before filing in federal court.

Jaime Wisegarver is an associate in the Litigation Section, where she handles a variety of civil and commercial matters, including insurance recovery litigation and counseling. For more information, please contact Jaime at (804) 771-5634 or jwisegarver@hf-law.com.