W Holding Company, Inc., et al v. Chartis Insurance Company

Filing

OPINION issued by Rogeriee Thompson, Appellate Judge; Bobby R. Baldock, Appellate Judge and Kermit V. Lipez, Appellate Judge. Published. [12-2008]

Case: 12-2008

Document: 00116667934

Page: 1

Date Filed: 03/31/2014

Entry ID: 5811859

United States Court of Appeals
For the First Circuit

No. 12-2008
W HOLDING COMPANY, INC.; FRANK STIPES-GARCÍA; JUAN C. FRONTERAGARCÍA; HÉCTOR DEL RÍO-TORRES; WILLIAM M. VIDAL-CARVAJAL; CÉSAR
RUIZ; PEDRO R. DOMÍNGUEZ-ZAYAS,
Plaintiffs, Appellees,

LUÍS BARTOLOMÉ RIVERA CUEBAS, as Trustee of the Socio Cultural
Conservation Trust,
Plaintiff,
v.
AIG INSURANCE COMPANY — PUERTO RICO,
Defendant, Appellant.

MARLENE CRUZ-CABALLERO; CONJUGAL PARTNERSHIP FRONTERA-CRUZ;
LILLIAM DÍAZ-CABASSA; CONJUGAL PARTNERSHIP RÍO-DÍAZ; GLADYS
BARLETTA-SEGARRA; CONJUGAL PARTNERSHIP VIDAL-BARLETTA; HANNALORE
SCHMIDT-MICHELS; CONJUGAL PARTNERSHIP RUIZ-SCHMIDT; SONIA
SOTOMAYOR-VICENTY; CONJUGAL PARTNERSHIP DOMÍNGUEZ-SOTOMAYOR; JOSÉ
M. BIAGGI-LANDRÓN; JANE DOE; CONJUGAL PARTNERSHIP BIAGGI-DOE;
MIGUEL A. VÁZQUEZ-SEIJO; SHARON MCDOWELL-NIXON; CINDY M. COSTAS
SANTIAGO; CONJUGAL PARTNERSHIP VÁZQUEZ-MCDOWELL,
Defendants, Appellees.
RICARDO CORTINA-CRUZ; CONJUGAL PARTNERSHIP CORTINA-ALDEBOL;
ELIZABETH ALDEBOL DE CORTINA; JULIA FUENTES DEL COLLADO; MARIO A.
RAMÍREZ-MATOS; CORNELIUS TAMBOER; OLGA MORALES-PÉREZ; CONJUGAL
PARTNERSHIP TAMBOER-MORALES; JANE DOE, as Trustee for the
Domínquez Sotomayor Family Trust; JOHN DOE, as Trustee for the
Domínguez Sotomayor Family Trust; CARLOS GONZÁLEZ ALONSO; XL
SPECIALTY INSURANCE COMPANY; LIBERTY MUTUAL INSURANCE COMPANY;
ACE INSURANCE COMPANY,
Defendants.

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APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Gustavo A. Gelpí, U.S. District Judge]

Before
Thompson, Baldock,* and Lipez,
Circuit Judges.

Melissa A. Murphy-Petros, with whom James K. Thurston and
Wilson Elser Moskowitz Edelman & Dicker LLP, and Luis N. Saldaña,
Fernando Sabater-Clavell, and Carvajal & Vélez-Rivé, P.S.C. were on
brief, for appellant.
Andrés Rivero, with whom Alan H. Rolnick, Charles E. Whorton,
M. Paula Aguila, and Rivero Mestre LLP were on brief, for
appellees.
Colleen J. Boles, Assistant General Counsel, Lawrence H.
Richmond, Senior Counsel, and Jaclyn C. Taner, Federal Deposit
Insurance Corporation, and John A. Gibbons, Andrew M. Reidy,
Catherine J. Serafin, and Dickstein Shapiro LLP, on brief for
amicus curiae Federal Deposit Insurance Corporation in support of
appellees.

March 31, 2014

*

Of the Tenth Circuit, sitting by designation.

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THOMPSON, Circuit Judge.
PREFACE
In today's case (more procedurally complicated than
substantively complex), a district judge issued an order requiring
Chartis Insurance Company to advance defense costs to former
directors and officers of Westernbank of Puerto Rico, who find
themselves in the cross-hairs of the Federal Deposit Insurance
Corporation ("FDIC," for easy reading).1

Chartis appeals.

And

after confirming our jurisdiction, we affirm.
HOW THE CASE GOT HERE
Westernbank's run as one of Puerto Rico's leading banks
came to an end in the late 2000s when local regulators ordered it
closed and appointed a federal regulator — the FDIC — receiver.
Jumping in with gusto, the FDIC investigated what had gone on
there.

And it did not like what it found.

Certain bank directors

and officers had breached their "fiduciary duty" by jeopardizing
the bank's financial soundness, the FDIC claimed in a letter sent
to (among others) the directors and officers and their insurer,
Chartis.

Concluding that these breaches had caused more than $367

million in losses to the bank, the FDIC demanded that the directors
and officers pay that amount.

1

Chartis is now known as AIG Insurance Company. But we will
continue to refer to Chartis throughout this opinion, just like the
parties do in their briefs. Also, anyone interested in knowing the
directors' and officers' names should check out our case caption.
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Without

missing

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a

beat,

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the

officers

directors

and

notified Chartis of the FDIC's multimillion-dollar claim.
naturally,

they

asked

Chartis

to

confirm

coverage

And,

under

a

directors' and officers' liability-insurance policy issued by
Chartis to Westernbank's owner, W Holding Company, Inc.

Known in

the insurance world as a "D&O" policy, this particular policy
declares (in capital letters) that Chartis "must advance defense
costs, excess of the applicable retention, pursuant to the terms
herein prior to the final disposition of a claim."

The policy's

advancement provision (emphasis ours) repeats further on that
Chartis "shall advance, excess of any applicable retention amount,
covered Defense Costs." "Defense Costs" include "reasonable and
necessary fees, costs and expenses consented to by the Insurer."
The policy says, too, that Chartis shall pay for certain "Loss[es]
of an Organization arising from a Claim made against an Insured
Person for any Wrongful Act of such Insured Person."

"Loss[es]"

include defense costs. "Organization" includes the "Named Entity,"
which is W Holding, plus its "Subsidiar[ies]," which include
Westernbank.

And

"Insured

Person[s]"

include

directors

and

officers.
Chartis denied coverage five months later, relying (most
pertinently) on the policy's "insured versus insured" exclusion.
A standard proviso in D&O policies, this exclusion says that
Chartis

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shall not be liable to make any payment for
Loss in connection with any Claim made against
an Insured . . . which is brought by, on
behalf of or in the right of, an Organization
or any Insured Person other than an Employee
of an Organization, in any respect and whether
or not collusive.
"Claim," the policy adds, includes "a written demand" for money.
"Insured" means "Insured Person" or "Organization."

And, again,

the directors and officers come within the policy's definition of
"Insured Person[s]," while W Holding and Westernbank fall within
the policy's definition of "Organization."

Also, the policy

neither mentions the FDIC nor bars coverage for suits by FDIC-type
regulators like some policies do.2
Convinced that the FDIC, "[a]s receiver," had stepped
squarely into Westernbank's "shoes," Chartis also wrote that any
claims that the FDIC had "against the directors and officers of
Westernbank are 'on behalf of' or 'in the right of' Westernbank."
That triggered the insured-versus-insured exclusion, the FDIC
added, which meant no coverage.

The directors and officers were

2

The policy does discuss claims brought by "governmental
regulators" in a "Securities Claims Exclusion" — but (broadly
speaking) only in the context of claims arising from "the purchase
or sale, or offer or solicitation of an offer to purchase or
sell[,] any security of the Organization." Contrastingly, Chartis
apparently sells a "Broad Form" (which the judge judicially
noticed) that expressly excludes coverage for claims "brought by or
on behalf of . . . any State or Federal regulatory or
administrative agency . . . in its capacity as receiver,
conservator, liquidator, securities holder or assignee of" the
bank's "depositors or creditors." Again, that exclusion is not
part of this policy.
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not willing to take this lying down, however.

Entry ID: 5811859

Together with W

Holding, they sued Chartis in Puerto Rico superior court, seeking
a declaratory judgment of coverage and saying that "coverage
includes all costs and expenses . . . incurred" in defending
against the FDIC.
claim

against

They also alleged that the FDIC had asserted a

them

on

behalf

of

third-party

creditors

and

depositors. Eventually, the FDIC got involved in this suit, filing
a complaint in intervention.

That complaint accused the directors

and officers of violating their fiduciary duties to Westernbank,
causing over $176 million in damages to the bank.

The complaint

also stressed that the FDIC had "succeeded to all of the rights and
assets of Westernbank, including its rights and claims against its
former officers and directors, and its rights, interests and claims
in and to the policies against Chartis under" Puerto Rico's directaction statute.

See 26 L.P.R.A. § 2003 (declaring that "[a]ny

individual sustaining damages and losses" may sue an insurance
company directly without joining the named insured, provided the
suit is pursued in Puerto Rico).
The FDIC then promptly removed the entire case to federal
court. See 12 U.S.C. § 1819(b)(2)(B). It amended its complaint to
bring more directors and officers (as well as their spouses and
conjugal partners) into the case and to add cross claims against
them, too.

This pleading sounded a familiar theme:

that the FDIC

had sued in its capacity as Westernbank's receiver and that the

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directors

and

officers

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had

Date Filed: 03/31/2014

breached

their

Entry ID: 5811859

fiduciary

resulting in the bank's loss of over $176 million.

duties,

But the FDIC

also estimated there that the bank's closing could result in the
federal deposit-insurance fund's losing over $4 billion.
Chartis fired back with a motion to dismiss all claims
brought against it by the directors and officers and by the FDIC.
See Fed. R. Civ. P. 12(b)(6).

What matters for our purposes is

that Chartis asserted again that because the FDIC was pursuing the
directors

and

officers

"on

behalf

of

or

in

the

right

of"

Westernbank, there is no coverage under the insured-versus-insured
exclusion and so their coverage claim should be jettisoned.

The

directors and officers opposed the dismissal motion, arguing (at
the risk of oversimplification) that a clear "majority of courts"
refuse to stretch the insured-versus-insured exclusion "to include
the FDIC."
Believing that there is at least a "remote possibility"
of coverage, the directors and officers also moved the judge to
order Chartis to advance their defense costs.3

"This is not a

preliminary injunction motion," they wrote in support of their
motion.

But they were quick to note that (a) they would be

irreparably harmed if their motion failed, because many of them are

3

Helpfully, the parties agree that Puerto Rico's "remote
possibility" standard applies here. And we accept that concession.
See, e.g., Manganella v. Evanston Ins. Co., 702 F.3d 68, 72 (1st
Cir. 2012); Kali Seafood, Inc. v. Howe Corp., 887 F.2d 7, 8 (1st
Cir. 1989).
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"elderly," "unemployed," "retired," and "living on fixed incomes,"
and so cannot shoulder the defense costs; that (b) Chartis's duty
to advance defense costs to them is plain as day; and that (c) the
public's

interest

in

making

sure

that

insurers

keep

their

commitments and that insureds get what they paid for cannot be
questioned.
motion,
controls

Undaunted,

insisting
and

bars

that

Chartis
the

opposed

the

cost-advancement

insured-versus-insured

coverage.

And

no

coverage,

exclusion

the

argument

continued, means no obligation to advance defense costs — because
costs tied to an excluded claim are not "covered Defense Costs."
The FDIC chimed in, moving without opposition for leave
to file a second amended complaint in intervention, see Fed. R.
Civ. P. 15(a) — a motion the judge granted.

As best we can tell,

the big difference between the first and second amended complaints
is the latter's saying that the FDIC, as receiver,
succeeded to all rights, claims, titles,
powers, privileges, and assets of Westernbank
and
its
stockholders,
members,
account
holders, depositors, officers, or directors of
Westernbank with respect to the institution
and the assets of the institution, including
the right to bring this action against the
former officers and directors of Westernbank.
As

support

for

§ 1821(d)(2)(A)(i).
Institutions

its

claim,

the

FDIC

cited

12

U.S.C.

That provision — one of many in the Financial

Reform,

Recovery,

and

-8-

Enforcement

Act

of

1989

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("FIRREA," for now on)4 — says that the FDIC "shall, as . . .
receiver, and by operation of law, succeed to . . . all rights,
titles,

powers,

institution,

and

and
of

privileges
any

of

the

stockholder,

insured

member,

depository

accountholder,

depositor, officer, or director of such institution with respect to
the institution and the assets of the institution."
Not surprisingly, the directors and officers and Chartis
responded by filing separate motions to dismiss the FDIC's second
amended complaint.

See Fed. R. Civ. P. 12(b)(6).

Among other

arguments, the directors and officers claimed that they had not
acted in a grossly negligent fashion.

Chartis, on the other hand,

raised the same insured-versus-insured argument as before.
not surprisingly, the FDIC opposed the dismissal motions.

Also
And

responding to Chartis's insured-versus-insured theory, the FDIC
said that "overwhelming case authority" establishes that this
exclusion does "not apply to entities like the FDIC."
Taking up the cost-advancement matter first, the judge
granted the directors and officers' motion in an electronic docket
entry that said:
ORDER GRANTING . . . Motion for Miscellaneous
Relief (advance defense costs).
PR law
requires insurers to advance defense costs if
there is even a remote possibility that a
claim ultimately will be covered. This ruling
is without prejudice of Chartis eventually
being entitled to repayment.

4

See Pub. L. No. 101-73, 103 Stat. 183 (1989).
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The judge denied Chartis's motion to reconsider that order, too.
And he then denied all motions to dismiss the FDIC's second amended
complaint. As for Chartis's all-encompassing dismissal motion (the
only one that matters somewhat here, because it touched on the
insured-versus-insured issue), the judge said that the insuredversus-insured exclusion barred the FDIC from suing on behalf of
Westernbank's

members,

officers,

and

directors,

plus

also

Westernbank's shareholders (consisting only of W Holding, a party
to the case).

But because the FDIC also sued on behalf of account

holders, depositors, and the drawn-down FDIC-insurance fund, the
judge concluded that the FDIC's claims fell outside the insuredversus-insured exclusion.5
The parties' frenetic motion practice continued, however.
Here is one example.

The directors and officers later moved for

sanctions against Chartis, citing Rule 44.1 of the Puerto Rico
Rules of Civil Procedure — a rule that authorizes the "payment of
a sum for attorneys' fees" if "any party or its lawyer has acted
obstinately or frivolously."

In their view, Chartis's no-remote-

possibility-of-coverage position was nothing short of obstinate or
frivolous.

Essentially crying "gotcha," they spotlighted the

position Chartis took in a substantially similar case, Bradford v.
Gibraltar Nat'l Ins. Co., No. CV2010-1145 (Ark. Cir. Ct. 13th Div.

5

At oral argument Chartis's lawyer conceded that the reasons
the judge gave for denying the dismissal motion help explain why he
granted the cost-advancement motion.
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an. 18, 2012).

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There, Chartis had no problem advancing defense

costs to directors of a defunct company, despite an insured-versusinsured exclusion.

What Chartis did in Bradford, they added,

"amounts to an admission" that the FDIC's claims are "covered" and
that the exclusion does not apply. And they sought attorneys' fees
from Chartis as a penalty for its litigating the cost-advancement
question here.

Chartis responded that its insured-versus-insured

argument in the current case constitutes a reasoned position based
on a "novel" issue that is "reasonably debatable."

Chartis also

claimed that the exclusion in Bradford looks nothing like the one
at issue here.

So, Chartis reasoned, no court could find its

actions sanctionable.

But the judge noted that there are cases

(nothing binding) going both ways on whether the insured-versusinsured exclusion applies to situations like ours.

And because

some caselaw points to coverage, the judge found that Chartis's noremote-possibility-of-coverage notion represented the height of
obstinacy.

Consequently, he granted the directors and officers'

sanctions motion, awarding them the costs that they incurred in
fighting for the advancement.
Which brings us at last to Chartis's appeal of the costadvancement
questions:

order

—

an

appeal

that

pivots

around

two

Do we have jurisdiction to hear the parties?

so, did the judge bungle the cost-advancement ruling?

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basic

And, if

We answer

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"yes" to the first question and "no" to the second, for the reasons
we now explain.
OUR TAKE ON THE CASE
(1)
Appealability
The directors and officers think we have no authority
over this matter because, they say, the cost-advancement edict is
not an appealable order, given that there is no final judgment
disposing of all claims against all parties.

Like Chartis, we

think the opposite is true.
Normally, only final judgments are appealable.

See

Morales Feliciano v. Rullán, 303 F.3d 1, 6 (1st Cir. 2002) (citing
28 U.S.C. § 1291).
granting injunctions.

An exception exists, however, for orders
See 28 U.S.C. § 1292(a)(1).6

And the

judge's cost-advancement order certainly seems to fit the bill.
For sure, the judge did not label his ruling an "injunction" —
perhaps because the directors and officers said that they were not

6

The following excerpt from § 1292(a)(1) should be enough to
give the reader a flavor of that provision:
(a) . . . [T]he courts of appeals shall have jurisdiction
of appeals from:
(1) Interlocutory orders of the district courts
. . ., or of the judges thereof, granting,
continuing, modifying, refusing or dissolving
injunctions, or refusing to dissolve or modify
injunctions except where a direct review may be had
in the Supreme Court[.]
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asking for one.7

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But an order's character does not depend on what

the judge calls it — no, its "nature" depends on "its operative
terms and effects," we recently said.

See Fryzel v. Mortg. Elec.

Registration Sys., Inc., 719 F.3d 40, 43 (1st Cir. 2013) (Souter,
J.).

With this in mind, and knowing what makes an injunction an

injunction, we see that the order here is aimed at a particular
party (Chartis), is enforceable by contempt, and provides some of
the relief (costs) that the directors and officers seek in the
case.

Given these characteristics, the edict is an injunction,

see, e.g., id. (citing Bogosian v. Woloohojian Realty Corp., 923
F.2d 898, 901, 903-04 (1st Cir. 1991) (Breyer, J.)) — a mandatory
preliminary injunction, actually, because it "disturb[s], rather
than

preserve[s],

the

status

quo"

by

requiring

defense-cost

advancements, see United Steelworkers of Am., AFL-CIO v. Textron,
Inc., 836 F.2d 6, 8 (1st Cir. 1987) (Breyer, J.).

7

And that means

Do not forget, though, how their cost-advancement motion
played up the "irreparable and increasing" financial "harm" they
face in defending themselves against the FDIC.
Many are
unemployed, elderly, and on fixed incomes, or so they wrote. And
"[i]t is uncertain," they added ominously, "how" they can come up
with the cash to fend off the FDIC "if Chartis is not ordered to
advance the cost of their defense."
Also, they alleged that
Chartis had a clear duty to pay (subject to recoupment if the judge
later found no coverage). They alleged, too, that the public had
an interest in ensuring insurers honor their contractual
obligations and that insureds get the benefit of the insurance they
purchased. These are things an injunction seeker would stress, as
we will soon see. See, e.g., Braintree Labs., Inc. v. Citigroup
Global Mkts., Inc., 622 F.3d 36, 40 (1st Cir. 2010).
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the order is immediately appealable regardless of finality.

See,

e.g., Fryzel, 719 F.3d at 43; Bogosian, 923 F.2d at 901, 903-04.
So, in other words, we have jurisdiction. To the merits,
then.
(2)
The Merits
Both

sides

bombard

us

with

arguments.

But

before

entering the fray, we pause to highlight some important legal
principles.
(a)
Injunction Basics
Whether a mandatory preliminary injunction should issue
typically depends on the exigencies of the situation, taking into
account four familiar factors:

the moving party's likelihood of

success on the merits, the possibility of irreparable harm absent
an injunction, the balance of equities, and the impact (if any) of
the injunction on the public interest. See, e.g., Braintree Labs.,
Inc., 622 F.3d at 40-41.
equally, however.

These factors are not all weighted

See, e.g., Ross Simons of Warwick, Inc. v.

Baccarat, Inc., 102 F.3d 12, 16 (1st Cir. 1996).

Truth be told,

"[l]ikelihood

wall"

"framework."

of

success

is

the

main

bearing

of

this

Id.; accord Corporate Techs., Inc. v. Harnett, 731

F.3d 6, 10 (1st Cir. 2013).

When it comes to the merits, Chartis

stakes everything on persuading us that the directors and officers
are not likely to succeed on their coverage claim and so should not

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get cost advancements. Given this development, we need not concern
ourselves with the other elements of the four-part test.

See,

e.g., Corporate Techs., Inc., 731 F.3d at 10-13 (taking a similar
tack in a similar situation); Ross-Simons of Warwick, Inc., 102
F.3d at 16 (ditto).
As for our standard of review, the Federal Reporter is
chock full of cases saying how we scan preliminary-injunction
decisions for "abuse of discretion."

See, e.g., Diálogo

v.

Santiago-Bauzá, 425 F.3d 1, 3 (1st Cir. 2005); Langlois v. Abington
Housing Auth., 207 F.3d 43, 47 (1st Cir. 2000); Ocean Spray
Cranberries, Inc. v. Pepsico, Inc., 160 F.3d 58, 61 & n.1 (1st Cir.
1998).

But the standard depends on the issue under review,

obviously.

See, e.g., Diálogo, 425 F.3d at 3; Langlois, 207 F.3d

at 47; Ocean Spray Cranberries, Inc., 160 F.3d at 61 n.1.

For

example, within this rubric, we review questions of fact for clear
error, issues of law de novo, and judgment calls with deference.
See, e.g., Diálogo, 425 F.3d at 3; Langlois, 207 F.3d at 47; Ocean
Spray Cranberries, Inc., 160 F.3d at 61 n.1.

Of course, as the

appealing party, Chartis bears the burden of showing reversible
error.

See, e.g., Ross-Simons of Warwick, Inc., 102 F.3d at 16;

Gately v. Massachusetts, 2 F.3d 1221, 1225 (1st Cir. 1993).

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(b)
Cost-Advancement Basics
Puerto Rico law holds that an insurance company must
advance defense costs if a complaint against an insured alleges
claims that create even a "remote possibility" of coverage.

See

Cuadrado Rodríguez v. Fernández Rodríguez, No. KLCE200601588, 2007
WL 1577940, at *5 (TCA Mar. 30, 2007) (certified translation
provided by the parties).8
"actuality" of coverage.

Think about that for a second.

Not an

Not even a "probability" of coverage.

No, a mere "possibility" of coverage will do — regardless of how
"remote" it may be.

A pretty low standard, indeed.

On top of

that, courts must read the complaint's allegations "liberal[ly]"
when doing a remote-possibility check. See Triple-S Mgmt. Corp. v.
Am. Int'l Ins. Co. of P.R., Nos. KLAN0900022, KLCE0900025, 2009 WL
2419937, at *13 (TCA May 19, 2009) (certified translation provided
by the parties); see also Cuadrado Rodríguez, 2007 WL 1577940, at
*6.

And the allegations need not be "perfect," either, to trigger

the insurer's duty to advance defense costs.
2007 WL 1577940, at *6.

Cuadrado Rodríguez,

Also, any doubt about an insurer's

advancement obligation "must be resolved in the insured's favor."
See Pagán Caraballo v. Silva Delgado, 22 P.R. Offic. Trans. 96, 103
(P.R. 1988); see also Cuadrado Rodríguez, 2007 WL 1577940, at *6.

8

Cuadrado Rodríguez is a duty-to-advance case. But the court
looked to duty-to-defend cases, too, in resolving the advancement
issue.
See id. (discussing Fernández v. Royal Indem. Co., 87
D.P.R. 859, 863 (1963)).
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Seemingly what animates these rules "is that the purpose of
insurance policies is to provide protection for the insured."
Triple-S

Mgmt.

Corp.,

2009

WL

2419937,

at

*12

See

(emphasis

in

original); see also Cuadrado Rodríguez, 2007 WL 1577940, at *5.
(c)
Applying These Basics
Looking at the cost-advancement issue through the prism
of preliminary-injunction principles makes an already insuredfriendly situation under Puerto Rico law friendlier still. At this
stage,

you

see,

"certainty"

of

the
a

directors

"remote

and

officers

possibility"

of

need

not

coverage.

show
On

a

the

contrary, only a "likelihood" of a "remote possibility" of coverage
is required.

Cf. generally Narragansett Indian Tribe v. Guilbert,

934 F.2d 4, 6 (1st Cir. 1991) (talking in terms of "probability of
success" (emphasis added)).
Chartis pins its reversal hopes on the strength of the
following six-step argument (which is basically a reprise of its
position in the district court).

Step one:

The policy only

obliges Chartis to advance the costs of defending against "covered"
claims.

Step two:

The policy's insured-versus-insured exclusion

blocks coverage for claims "brought . . . on behalf of or in the
right of" Westernbank.

Step three:

There would be no coverage if

Westernbank had sued its directors and officers like the FDIC has,
because that scenario would activate the insured-verus-insured
exclusion.

Step four:

Having slipped into Westernbank's shoes as
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its receiver, the FDIC must be suing the directors and officers "on
behalf of or in the right of" Westernbank.

Step six:

Add this all

up and there is no remote possibility of a covered claim and thus
no duty to advance defense costs.
Chartis's theory has a certain appeal, at least at first
glance.

But it is not persuasive, for the simplest of reasons:

It

gives lip service — and no more — to the words "remote possibility"
in the pertinent phrase "remote possibility of coverage."

And it

ignores that the procedural posture of the case only requires a
mere likelihood of a remote possibility of coverage to jump-start
the cost-advancement duty.

Viewed in the proper light, the flaws

in Chartis's thesis stand out in bold relief.
Let's
argument:

zero

in

on

step

four

of

Chartis's

six-step

that the FDIC is only suing on behalf of or in the right

of Westernbank — that it simply donned the bank's wingtips, if you
will.

Quoting from the FDIC's second amended complaint, Chartis

writes that the FDIC alleges that it, "as Receiver of Westernbank,"
seeks millions in "damages caused by the gross negligence" of the
bank's former directors and officers.

But remember, the FDIC did

more than allege that it had succeeded to Westernbank's rights. It
also alleged that it had succeeded to the rights of Westernbank's
depositors and account holders — rights that included the right to
"bring this action."

And it alleged, too, that it was suing to

recover money the FDIC-insurance fund had shelled out after the

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bank had shut down.

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Eyeing that pleading liberally, see Triple-S

Mgmt. Corp., 2009 WL 2419937, at *13, while knowing also that
pleading perfection is not required, see Cuadrado Rodríguez, 2007
WL 1577940, at *6, we think that these allegations make it likely
possible — even if only remotely so — that the FDIC is suing on
these non-insureds' behalf.
Relatedly, Chartis argues — a unique argument, to say the
least — that what role the FDIC has assumed is set when it makes
its first claim.

And, Chartis writes, the FDIC did not say in its

demand letter to the directors and officers that it is pursuing
claims on behalf of or in the interest of Westernbank's depositors
and account holders or the FDIC's run-down insurance fund.

But

Chartis cites no cases holding that the FDIC must disclose its
representative capacities and interests in any demand dispatch.
Ultimately, nothing Chartis advances on this front shows there is
no likelihood of even the remotest possibility that the FDIC sued
on behalf of non-insureds.

Enough said on that.

Ever persistent, both sides continue battling over the
remote-possibility-of-coverage question, citing a corps of cases to
support their competing positions on the effect an insured-versusinsured exclusion has in circumstances like the present.

None

binds us, however — on that everyone agrees.
Chartis, for example, musters decisions involving the
FDIC and bank directors and officers where, it says, courts did

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the

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insured-versus-insured

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exclusion.9

Entry ID: 5811859

The

courts'

rationale, Chartis tells us, is that the FDIC stands in the failed
bank's stead, so that any FDIC-asserted claim is a claim on behalf
of the bank, meaning the fought-over exclusion holds sway.
Wait a minute, our directors and officers respond, in
those cases — unlike this one — the FDIC either did not sue any
bank directors or officers or chose not to assert any claims on
behalf of non-insureds.

And going on the offensive, they then

march out cases that, they say, hold the insured-versus-insured
exclusion inapplicable when the FDIC (acting as a defunct bank's
receiver) sues as a creditor itself, on behalf of other creditors,
or as a subrogee to the rights of the depositors.10

A big part of

9

See St. Paul Mercury Ins. Co. v. Miller, No. 12-CV-0225,
2013 WL 4482520 (N.D. Ga. Aug. 19, 2013); Hyde v. Fid. & Deposit
Co. of Md., 23 F. Supp. 2d 630 (D. Md. 1998); Mt. Hawley Ins. Co.
v. FSLIC, 695 F. Supp. 469 (C.D. Cal. 1987); Evanston Ins. Co. v.
FDIC, No. 88-CV-407, 1988 U.S. Dist. LEXIS 16263 (C.D. Cal. 1988).
A quick word about St. Paul Mercury Insurance Co. Chartis gave us
that case by way of a post-briefing motion for leave to cite
supplemental authority. The directors and officers countered with
a motion to strike. An order of the court construed the motion to
supplement as a Rule 28(j) letter and the motion to strike as a
response. See Fed. R. App. P. 28(j). Yet even so construed, that
response still asks that we strike Chartis's filing. We deny that
request.
10

See, e.g., Progressive Cas. Ins. Co. v. FDIC, 926 F. Supp.
2d 1337 (N.D. Ga. 2013); Am. Cas. Co. of Reading, Pa. v. FDIC, 791
F. Supp. 276 (W.D. Okla. 1992); FDIC v. Zaborac, 773 F. Supp. 137
(C.D. Ill. 1991), aff'd on other grounds sub nom. FDIC v. Am. Cas.
Co. of Reading, Pa., 998 F.2d 404 (7th Cir. 1993); FDIC v. Am. Cas.
Co. of Reading, Pa., 814 F. Supp. 1021 (D. Wyo. 1991); Am. Cas. Co.
of Reading, Pa. v. Baker, 758 F. Supp. 1340 (C.D. Cal. 1991), aff'd
on other grounds, 22 F.3d 880 (9th Cir. 1994); Fid. & Deposit Co.
of Md. v. Zandstra, 756 F. Supp. 429 (N.D. Cal. 1990); Branning v.
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what drove those decisions, they write, is that the FDIC can do
much more than jump into a failed bank's boots, because the FIRREA
invests the FDIC with great power, giving it not only all the
rights and privileges of the departed bank but also those of its
depositors, creditors, and account holders (among others), too.
Not to be outdone, Chartis snipes at the directors and
officers' cases.
proclaims.

Some are too "conclusory" to be helpful, Chartis

Others, it adds, involve policies containing insured-

versus-insured exclusions significantly different from the one
here.
What we have is a classic battle of dueling caselaw. But
such a state of affairs hurts Chartis.

With no controlling

authority on whether an insured-versus-insured exclusion applies to
the FDIC in a situation like ours; with non-binding cases pointing
in different directions; and with our obligation to resolve any
doubts in the insured's favor, see Pagán Caraballo, 22 P.R. Offic.
Trans. at 103 — Chartis's suggestion that there is zero likelihood
of a remote possibility of coverage falls flat.

Keep in mind (and

we cannot stress this enough): likelihood — not certainty — is the
name of the game, and possibility — not actuality or probability —
suffices, no matter how remote that possibility is.

And that

CNA Ins. Cos., 721 F. Supp. 1180 (W.D. Wash. 1989); Am. Cas. Co. of
Reading, Pa. v. FSLIC, 704 F. Supp. 898 (E.D. Ark. 1989); Am. Cas.
Co. of Reading, Pa. v. FDIC, 713 F. Supp. 311 (N.D. Iowa 1988);
FDIC v. Nat'l Union Fire Ins. Co. of Pittsburgh, Pa., 630 F. Supp.
1149 (W.D. La. 1986).
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standard is met here.
stands.

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So the judge's cost-advancement edict

But we add — lest anyone be confused — that having lost

the likelihood-of-success skirmish, Chartis may still "win" the
coverage

"war

at

a

succeeding

trial

on

the

merits."

See

Narragansett Indian Tribe, 934 F.2d at 6; see also Univ. of Texas
v. Camenisch, 451 U.S. 390, 394 (1981) (cautioning that one should
not "equate[] 'likelihood of success' with 'success'").
FINAL WORDS
For the reasons cast above, we affirm the challenged
order.
appeal.

Also, we award the directors and officers their costs on
See Fed. R. App. P. 39(a)(2).
So Ordered.

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