Fidelity Southern Corporation v. Chartis Specialty Insurance Company
Filing
33
ORDER granting Defendant's 23 Motion for Summary Judgment and the Clerk is DIRECTED to enter judgment in Defendant's favor as to all of Plaintiff's claims. Plaintiff's 12 Motion for Partial Summary Judgment is DENIED. The parties' motions regarding supplemental authority 30 , 32 are GRANTED nunc pro tunc. Signed by Judge Richard W. Story on 8/7/2013. (cem)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
FIDELITY BANK,
Plaintiff,
v.
CIVIL ACTION NO.
1: 12-CV-4259-RWS
CHARTIS SPECIALTY
INSURANCE COMPANY,
Defendant.
ORDER
This matter is before the Court for consideration of the parties' competing
motions for summary judgment. [Docs. 12, 23]. After careful consideration, this
Court concludes that Defendant is entitled to judgment in its favor.
Bacground
The factual background ofthis case is straightforward. Plaintiff Fidelity Bank
is a bank that purchased a Management and Professional Liability for Financial
Institutions policy from Defendant Chartis Specialty Insurance Company. Plaintiff
was sued by its customers in a class action lawsuit in DeKalb County State Court. In
simple terms, the complaint in the underlying action claimed that the fee that Plaintiff
charged its customers for overdrafts amounted to a usurious interest charge in
violation of Georgia law. According to the underlying complaint, when one of
Plaintiff's customers attempted to withdraw cash or make a purchase by check or debit
card in an amount in excess of that customer's balance, Plaintiff would advance the
funds to cover the purchase and charge a $29 fee regardless ofthe amount advanced.
The underlying complaint raised four counts: Count I: Violation of Georgia's Civil
Usury Laws, Count II: Violation of Georgia's Criminal Usury Laws, Count III:
Conversion, and Count IV: Money Had and Received. 1
Plaintiff notified Defendant about the suit, and Defendant agreed to provide
funds to defend the suit but not to indemnify Plaintiff for any sums that Plaintiff
would have to pay in a judgment or a settlement. Plaintiff settled the underlying suit
and instituted the instant action claiming that Defendant, under the terms of the
insurance policy, has a duty to indemnify Plaintiff for the sums that it lost as a result
of the suit.
According to the policy,
This policy shall pay the Loss ofeach and every Insured arising from a
Claim first made against such Insured during the Policy Period or
Discovery Period (if applicable) and reported to the Insurer pursuant
to the terms of this policy for any Wrongful Act of the Insured in the
Money had and received is a somewhat arcane common law doctrine that,
according to the Georgia Court of Appeals, is based on the ancient writ of assumpsit
and under which recovery is authorized "against one who holds unspecified sums of
money of another which he ought in equity and good conscience to refund." Taylor
v. Powertel. Inc., 551 S.E.2d 765, 770 (Ga. Ct. App. 2001).
1
2
rendering of or failure to render Professional Services. The Insurer
shall, in accordance with Clause 4 of this Coverage Section, advance
Defense Costs of such Claim prior to its final disposition.
[Doc. 12, Exh. A (hereinafter "Policy") at 5].
The words and phrases in bold type in the foregoing policy language are defined
terms. There is no dispute that Plaintiffis an "Insured," that the underlying suit arose
during the term ofthe policy, or that Plaintiff properly and timely notified Defendant
about the suit.
The policy defines "Wrongful Act" as "any actual or alleged breach of duty,
neglect, error, misstatement, omission or act by the Company."
[Id. at 6].
"Professional Services" are defined as
those services, including online banking services, ofthe Company as set
forth in an endorsement to this policy by the Insurer, which services are
permitted by law or regulation, to be rendered by an Insured pursuant to
a written agreement with the customer or client as long as such service
is rendered for or on behalfofa customer or client ofthe Company (i) in
return for a fee, commission or other compensation ("Compensation"),
or (ii) without Compensation as long as such non-compensated services
are rendered in conjunction with services rendered for Compensation.
[Id.].
The policy also contains several exclusions. Relevant to this discussion,
Exclusion (h) states that Defendant is not
liable to make any payment for Loss in connection with any Claim made
against any Insured . . . alleging, arising out of, based upon or
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attributable to, directly or indirectly, any dispute involving fees,
commissions or other charges for any Professional Service rendered or
required to be rendered by the Insured, or that portion of any settlement
or award representing an amount equal to such fees, commissions or
other compensations; provided, however, that this exclusion shall not
apply to Defense Costs incurred in connection with a Claim alleging a
Wrongful Act;
[Id. at 7].
Discussion
Summary Judgment Standard
Pursuant to Rule 56(c) of the Federal Rules of Civil Procedure, summary
judgment is appropriate "ifthe pleadings, depositions, answers to interrogatories, and
admissions on file, together with the affidavits, if any, show that there is no genuine
issue as to any material fact and that the moving party is entitled to jUdgment as a
matteroflaw." Fed. R. Civ. P. 56(c); Eberhardt v. Waters, 901 F.2d 1578,1580 (lIth
Cir. 1990). In analyzing the motion, the Court views the facts in the light most
favorable to the nonmoving party and makes all factual inferences in favor of that
party. Hairston v. Gainesville Sun Publishing Co., 9 F.3d 913, 918 (lIth Cir. 1993);
Rollins v. TechSouth. Inc, 833 F.2d 1525, 1529 (lIth Cir. 1997). "The court must
avoid weighing conflicting evidence or making credibility determinations." Hairston,
at 919. "Where a reasonable fact finder may' draw more than one inference from the
4
facts, and that inference creates a genuine issue ofmaterial fact, then the court should
refuse to grant summary judgment. '" Id. (quoting Barfield v. Brierton, 883 F .2d 923,
933-34 (11 th Cir. 1989)).
Georgia Insurance Law
In Georgia, insurance is a matter of contract, and the parties to an
insurance policy are bound by its plain and unambiguous terms. Thus,
when faced with a conflict over coverage, a trial court must first
determine, as a matter of law, whether the relevant policy language is
ambiguous. A policy which is susceptible to two reasonable meanings is
not ambiguous ifthe trial court can resolve the conflicting interpretations
by applying the rules of contract construction. Where a term of a policy
of insurance is susceptible to two or more reasonable constructions, and
the resulting ambiguity cannot be resolved, the term will be strictly
construed against the insurer as the drafter and in favor of the insured.
If a policy exclusion is unambiguous, however, it must be given effect
even if beneficial to the insurer and detrimental to the insured. We will
not strain to extend coverage where none was contracted or intended.
Hays v. Georgia Farm Bureau Mut. Ins. Co., 722 S.E.2d 923,925 - 926 (Ga. Ct. App.
2012) (citations, quotations, alterations and punctuation omitted).
Discussion of the Parties' Arguments
Defendant argues that it is not obligated to indemnify Plaintiff for four reasons:
(1) Fidelity's decision to charge overdraft fees was a deliberate business
decision, not a "Wrongful Act," as defined in the Policy; (2) the
Underlying Action does not make allegations regarding Fidelity's
"Professional Services," instead taking issue with the amount of fees
charged; (3) the amounts that Fidelity paid to settle the Underlying
5
Action are uninsurable as a matter of law because they amount to
restitution; and (4) the Policy excludes claims arising out of disputes
over fees.
[Doc. 23 at 2].
This Court concludes that the third and fourth reasons set forth above are
compelling. First, looking at the facts of the underlying dispute, the money at issue
- the damages claimed by the underlying plaintiffs - was not money that Plaintifflost
as would be the case if Plaintiff had, for example, negligently negotiated forged
checks. Rather, Plaintiff was deducting to its own use funds from its customers'
accounts in a manner that was not legally authorized. As a result of the lawsuit,
Plaintiff was required to return its customers' funds in the same manner that it would
ifPlaintiff had mistakenly deducted funds from a customer's account because of, for
example, a computer error.
To require Defendant to pay restitution for amounts Plaintiffcollected pursuant
to illegal practices would result in a windfall to Plaintiff. Ifthis Court were to require
Defendant to indemnify Plaintiff under these facts, it would amount to a ruling that
Plaintiff is free to collect fees and make profits from its customers through illegal
conduct, and the insurer is on the hook when the customers sue while Plaintiff keeps
the ill-gotten gains.
6
Although this Court could not locate Georgia case law that speaks to this issue,
courts in several states have a rule that "one may not insure against the risk of being
ordered to return money or property that has been wrongfully acquired. Such orders
do not award 'damages' as that term is used in insurance policies." Bank ofthe West
v. Superior Court, 833 P.2d 545,553 (Cal. 1992); see, e.g., Central Dauphin School
District v. American Casualty Co., 426 A.2d 94 (Pa. 1981) (insurance company not
required to cover a court-ordered refund of taxes which the insured school district
collected through unlawful tax measure); Level 3 Comm .. Inc. v. Fed. Ins. Co., 272
F .3d 908,911 (7th Cir. 2001) (applying Illinois law) ("An insured incurs no loss within
the meaning ofthe insurance contract by being compelled to return property that it had
stolen, even ifa more polite word than 'stolen' is used to characterize the claim for the
property's return."); Granite State Ins. Co. v. Aamco Transmissions. Inc., 57 F .3d 316,
320 (3d Cir. 1995) ("We also point out that if 'unfair competition' includes coverage
for a claim by a customer against an insured, the insured 'would simply shift the loss
to its insurer and, in effect, retain the proceeds of its unlawful conduct."); Alanco
Techs.. Inc. v. Carolina Cas. Ins. Co., 2006 WL 1371633, at *4 (D. Ariz. 2006)
(applying Arizona law) ("Because rescissory damages are uninsurable under the law,
and defense costs are recoverable only for covered losses, Plaintiffs have suffered no
loss under the policy."); Vigilant Ins. Co. v. Credit Suisse First Boston Corp., 10
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A.D.3d 528 (N.Y. App. Div. 2004) ("As indicated, restitution ofill-gotten funds is not
insurable under the law."); Nortex Oil & Gas Corp.
~.
Harbor Ins. Co., 456 S.W.2d
489,494 (Tex. Civ. App. 1970) ("An insured ... does not sustain a covered loss by
restoring to its rightful owners that which the insured, having no right thereto, has
inadvertently acquired.... The insurer did not contract to indemnify the insured for
disgorging that to which it was not entitled in the first place.").
While this Court hesitates to purport to announce a "new" Georgia rule, it is
clear that Exclusion (h) speaks to exactly this type of claim. As is noted above,
Exclusion (h) excludes from indemnification (but not defense) disputes involving fees
and commissions or, in other words, amounts that Plaintiff was accused ofwrongfully
or excessively charging its customers. This Court acknowledges that the underlying
lawsuit referred to Plaintiff's overdraft fees as usurious interest and that Georgia case
law indicates that overdraft fees constitute "interest" ifthe bank charges for advancing
funds and renders no other service to its customer in exchange for the fee. See
Synovus Bank v. Griner, 739 S.E.2d 504,511 (Ga. Ct. App. 2013). However, the fact
that Georgia law treats a fee as interest in a certain context does not mean that it
cannot also be a fee.
This Court disagrees with Plaintiff's argument that Endorsement 2(13) of the
policy, [see Policy at 13], provides coverage for disputes regarding interest. Rather,
8
that endorsement simply states that the servicing of loans, leases, and extensions of
credit falls within the definition of "Professional Services." The underlying suit in
this matter was not brought by the owner of a note asserting a claim regarding
Plaintiffs improper servicing of a note.
As such, Endorsement 2(13) has no
application, and it obviously does not conflict with Exclusion (h).2 In summary, this
Court concludes that under the tenns of Exclusion (h), Defendant has no duty to
indemnify Plaintiff for the funds Plaintiff paid to its customers in settling the
underlying action.
Briefly, in order to complete the record, this Court disagrees with Defendant's
argument that Plaintiffs "decision to charge overdraft fees was a deliberate business
decision, not a 'Wrongful Act,' as defmed in the Policy." [Doc. 23 at 2]. The plain
meaning of"Wrongful Act" as defined in the policy is very broad, including any "act"
which causes a "Loss," and this Court agrees with Plaintiff that Plaintiff's improperly
charging interest to its customers constituted an act that caused a Loss under the tenns
ofthe policy.
This Court notes that the definition of "Loan Servicing" in the policy
expressly excludes "Lending Acts." [Policy at 5-6]. Without delving too deeply into
a discussion ofthe two defined tenns, this Court reads this language to mean that Loan
Servicing under the policy does not include the servicing ofloans that Plaintiff owns.
As a result, Endorsement 2(13) would not apply to the overdraft fees that are the
subject ofthe underlying lawsuit even ifthis Court were to consider those fees to be
purely interest charges.
2
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This Court further disagrees with Defendant's argument that the underlying
lawsuit "does not make allegations regarding Fidelity's 'Professional Services,'
instead taking issue with the amount of fees charged." [Doc. 23 at 2]. Again, the
plain meaning of the definition of"Professional Services" under the policy, set forth
above, is quite broad, and this Court considers Plaintiffs practice of covering its
customers' overdrafts to be a service "rendered for or on behalf ofa customer or client
ofthe Company 0 in return for a fee, commission or other compensation." [Policy at
6]. Given the requirement under Georgia law that an insurance contract is to be "read
as a layman would read it and not as it might be analyzed by an insurance expert or
an attorney," State Farm Mut. Auto. Ins. Co. v. Staton, 685 S.E.2d 263, 265 (Ga.
2009) (quotation and citation omitted), this Court concludes that a claim regarding a
rendered service includes claims about the fee charged for that service. Having
disagreed with Defendant's arguments regarding Loss, Wrongful Act, and
Professional Services, this Court need not address Plaintiffs contention that
Defendant waived those arguments.
Conclusion
For the reasons discussed above,
10
•
IT IS HEREBY ORDERED that Defendant's motion for summary judgment,
[Doc. 23], is GRANTED and the Clerk is DIRECTED to enter judgment in
Defendant's favor as to all ofPlaintifP s claims. Plaintiff's motion for partial summary
judgment, [Doc. 12], is DENIED. The parties' motions regarding supplemental
authority, [Docs. 30, 32], are GRANTED nunc pro tunc.
IT IS SO ORDERED, this
TIA day of tt~
RIC
W. STORY
UNITED STATES DISTRICT JUDGE
11
,2013.
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