Ameris Bank v. Lexington Insurance Company

Filing 82

ORDER granting in part and denying in part 42 Motion for Partial Summary Judgment; granting in part and denying in part 45 Motion for Summary Judgment. Signed by Judge William T. Moore, Jr on 9/25/15. (bcw)

IN THE UNITED STATES DISTRICT COURT FOR
THE SOUTHERN DISTRICT OF GEORGIAU.H
SAVANNAH DIVISION

SEP 25 Th

AMERIS BANK, as assignee of
the Federal Deposit Insurance
Corporation, receiver of
)
Darby Bank and Trust Co.,
)

CLER

Plaintiff,
V

CASE NO. CV413-241

.

LEXINGTON INSURANCE COMPANY,
Defendant and Third-Party Plaintiff,
V

.

COASTAL BIOFUELS, INC.,
Third-Party Defendant,

ORDER

Before the Court are Plaintiff Ameris Bank's Motion
for Partial Summary Judgment (Doc. 42) and Defendant
Lexington Insurance Company's Motion for Summary Judgment
(Doc. 45) . For the following reasons, both motions are
GRANTED IN PART and DENIED IN PART:

Plaintiff is entitled

to summary judgment only with respect to its claim for
breach of contract. Defendant is entitled to summary
judgment on Plaintiff's claims for bad faith adjustment and
conversion, which are both hereby DISMISSED.

BACKGROUND

In this case, Plaintiff Ameris Bank alleges that
Defendant Lexington Insurance Company ("Lexington") failed
to properly pay the proceeds of an insurance policy issued
by Defendant Lexington to Third-party Defendant Coastal
Biofuels ("Coastal") . In October 2009, Defendant Coastal
entered into a leasing agreement' with Darby Bank for pieces
of heavy equipment. (Doc. 45, Attach. 1 at 3; Doc. 16, Ex.
A at 1, 5, 9.) As part of the agreement, Darby Bank
required Defendant Coastal to insure the equipment and
identify Darby Bank as a mortgagee. (Doc. 45, Attach. 1 at
3.) To meet this requirement, Defendant Coastal purchased
from Defendant Lexington policy number 43924991, which
listed Defendant Coastal as the named insured and Darby
Bank as a mortgagee. (Id.; Doc. 16, Ex. B at 1.)
Specifically, Item 6 of the policy's declarations page
recognized the policy's mortgage clause and stated that
"[l]oss, if any shall be payable to: Darby Bank, Attn: K
Rossiter." (Id.) The policy's mortgage clause provided that
"[l]oss or damage, if any, under this policy shall be

1

While styled as a lease, the contract was more accurately
a purchase agreement whereby Defendant Coastal would own
the equipment after successful completion of the lease
term. (Doc. 42 at 2 n.1) To this end, Darby Bank perfected
a security interest in the equipment. (Id. at 2.)
2

payable to the mortgagee(s), as scheduled on this policy,
as their interest(s) may appear." (Id. at 47.)
On October 13, 2009, a fire destroyed the equipment.
(Doc. 45, Attach. 1 at 3.) In response, Defendant Coastal
filed a claim on the policy. (Id.) Defendant Lexington
engaged an independent contractor—Mr. Curtis Cramer—to
adjust Defendant Coastal's claim. (Id.) According to
Defendant Lexington, Mr. Cramer spoke with an individual at
Darby Bank who informed him that "Darby did not possess any
liens and all payments were current." (Id.) Based on this
information, Defendant Lexington paid to Defendant Coastal
policy proceeds in the amount of $1,145,245.58, of which
$568,000.00 was for damage to the equipment. (Id.)
Defendant Lexington took possession of the equipment,
ultimately disposing of it due to the lack of any salvage
value. (Id. at 4.)
At the time of the fire, Defendant Coastal owed Darby
Bank $507,269.00 under the terms of the lease agreement.
(Doc. 42 at 3.) While Defendant Coastal purchased
replacement equipment with the policy proceeds (Doc. 45,
Attach. 1 at 4), it failed to notify Darby Bank that the
equipment had been destroyed (Doc. 42 at 3) . In addition,
Defendant Coastal continued to make the required payments
under the terms of the lease agreement. (Id. at 6.)

3

However, Defendant Coastal ultimately defaulted on the
agreement with $318,448.00 in remaining lease payments.
(Id.)
In November 2010, the Georgia Department of Banking
and Finance closed Darby Bank and appointed the Federal
Deposit Insurance Corporation ("FDIC") as receiver. (Doc.
45, Attach. 1 at 4.) Plaintiff subsequently entered into a
Purchase and Assumption Agreement with the FDIC and
acquired Darby Bank's assets. (Id.) After reviewing the
Darby Bank files, Plaintiff sent a February 4, 2013 letter
to Defendant Lexington requesting information about the
equipment and any related insurance proceeds. (Id. at 5.)
Receiving no response, Plaintiff inquired on March 27, 2013
about any insurance proceeds distributed based on the 2009
fire and offered to submit proof of loss. (Id.) Plaintiff
sent a third inquiry in May 2013, ultimately demanding
payment in a July 17, 2013 letter. (Id.)
On September 30, 2013, Plaintiff filed suit against
Defendant Lexington in the State Court of Chatham County.
(Doc. 1, Ex. 1.) Defendant Lexington invoked this Court's
diversity jurisdiction and removed this case pursuant to 18
U.S.C. § 1332. Plaintiff amended its complaint, alleging
claims against Defendant Lexington for breach of contract
based on Defendant Lexington's failure to pay under the

4

insurance policy, bad faith adjustment with respect to
Plaintiff Lexington's mishandling the insurance proceeds,
and conversion centered on Defendant Lexington's possession
and disposal of the equipment. (Doc. 16.) Defendant
Lexington filed a third-party complaint against Defendant
Coastal for indemnification, alleging Defendant Coastal
wrongfully converted the insurance proceeds. (Doc. 17.)
In its Motion for Summary Judgment, Plaintiff argues
that Defendant Lexington clearly breached the mortgage
clause of the insurance policy by failing to pay Darby Bank
as a named mortgagee. (Doc. 42 at 9-11.) In this regard,
Plaintiff contends that Defendant Lexington has either
waived any defense to the breach of contract claim, or is
estopped from denying coverage under D'Oench, Duhme & Co.
V.

FDIC, 315 U.S. 447 (1942), and the Financial

Institutions Reform, Recovery, and Enforcement Act of 1989
("FIRREA"), 12 U.S.C. § 1821. (Doc. 42 at 11-13.) In
addition, Plaintiff maintains that Defendant Lexington's
refusal to pay for Plaintiff's claim under the policy was
in bad faith, entitling Plaintiff to additional damages and
attorney's fees under O.C.G.A. § 33-4-6(a). (Doc. 42 at 1319.)
In response, Defendant Lexington argues that it is
entitled to summary judgment because Plaintiff's claim for

5

breach of contract is barred by the two-year suit
limitation provision contained in the insurance policy.
(Doc. 45, Attach. 1 at 7-13.) Defendant Lexington also
contends that the insurance policy was not properly
assigned to Plaintiff. (Id. at 13-14.) In addition,
Defendant Lexington maintains that Plaintiff is estopped
from seeking payment under the policy based on Darby Bank's
purported representation that it had no liens on the
equipment. (Id. at 14-18.) With respect to the claim for
bad faith, Defendant Lexington asserts that Plaintiff
failed to make a proper demand under O.C.G.A. § 33-4-6 and
that Darby Bank did not assign Plaintiff any claim for bad
faith. (Doc. 45, Attach. 1 at 18-22.) Finally, Defendant
Lexington avers that Plaintiff's conversion claim fails
because Plaintiff was not damaged by the disposal of the
valueless equipment. (Id. at 22-23.)
ANALYSIS

I.

SUMMARY JUDGMENT STANDARD
According to Fed. R. Civ. P. 56(a), "[a] party may

move for summary judgment, identifying each claim or
defense—or the part of each claim of defense—on which
summary judgment is sought." Such a motion must be granted
"if the movant shows that there is no genuine dispute as to
any material fact and the movant is entitled to judgment as

a matter of law." Id. The "purpose of summary judgment is
to 'pierce the pleadings and to assess the proof in order
to see whether there is a genuine need for trial.'
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S.
574, 587 (1986)

(quoting Fed. R. Civ. P. 56 advisory

committee notes)
Summary judgment is appropriate when the nonmovant
"fails to make a showing sufficient to establish the
existence of an element essential to that party's case, and
on which that party will bear the burden of proof at
trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
The substantive law governing the action determines whether
an element is essential. DeLong Equip. Co. v. Wash. Mills
Abrasive Co., 887 F.2d 1499, 1505 (11th Cir. 1989).
As the Supreme Court explained:
[A] party seeking summary judgment always bears
the initial responsibility of informing the
district court of the basis for its motion, and
identifying those portions of the pleadings,
depositions, answers to interrogatories, and
admissions on file, together with the
affidavits, if any, which it believes
demonstrate the absence of a genuine issue of
material fact.
Celotex, 477 U.S. at 323. The burden then shifts to the
nonmovant to establish, by going beyond the pleadings, that
there is a genuine issue as to facts that are material to

7

the nonmovant's case. Clark v. Coats & Clark, Inc., 929
F.2d 604 1 608 (11th Cir. 1991)
The Court must review the evidence and all reasonable
factual inferences arising from it in the light most
favorable to the nonmovant. Matsushita, 475 U.S. at 587-88.
However, the nonmoving party "must do more than simply show
that there is some metaphysical doubt as to the material
facts." Id. at 586. A mere "scintilla" of evidence, or
simply conclusory allegations, will not suffice. see, e.g.,
Tidwell v. Carter Prods., 135 F.3d 1422, 1425 (11th Cir.
1998) . Nevertheless, where a reasonable fact finder may
"draw more than one inference from the facts, and that
inference creates a genuine issue of material fact, then
the Court should refuse to grant summary judgment."
Barfield v. Brierton, 883 F.2d 923, 933-34 (11th Cir.
1989)
II. BREACH OF CONTRACT
What is clear in this case is that the insurance
policy named Darby Bank as a mortgagee and the mortgage
clause required Defendant Lexington to pay Darby Bank the
value of its interest in the equipment in the event of any
loss. (Doc. 16, Ex. B at 1, 48.) The parties' dispute
centers on whether Defendant Lexington has any valid
defenses for its failure to properly pay Darby Bank. To

[;]

this end, Defendant Lexington raises three defenses it
argues prohibit Plaintiff from seeking payment under the
policy: a two-year suit limitations provision contained in
the insurance policy (Doc. 59 at 4-7), equitable estoppel
based on representations made by a Darby Bank
representative (id. at 7-8), and lack of a valid assignment
of the insurance policy from Darby Bank to Plaintiff (Doc.
45, Attach. 1 at 13-14) . Plaintiff counters by contending
that a six-year statute of limitations is applicable to
this claim (Doc. 67 at 4-7), Defendant Lexington is barred
from raising an estoppel defense (id. at 9-11), Defendant
Lexington cannot establish the elements of estoppel (Id. at
7-9), and assignment is not required for the transfer of
the insurance policy (id. at 11)
A.

Limitations Period

Defendant Lexington argues that Plaintiff's claim for
breach of contract is barred by the two-year suit
limitations period contained in the insurance policy. (Doc.
59 at 4-7.) FIRREA contains a provision granting to the
FDIC a six-year statute of limitations for breach of
contract claims, stating that
[n]otwithstanding any provision of any contract,
the applicable statute of limitations with regard
to any action brought by the Corporation as
conservator or receiver shall be-

Oj

(i) in the case of any contract claim, the longer
of—
(I) the 6-year period beginning on the date
the claim accrues;
(II) the period applicable under State law.
12 U.S.C. § 1821(d) (14) (A) (i)

While the Eleventh Circuit

has yet to decide the issue, most federal courts
interpreting this statute have determined that an assignee
of the FDIC also enjoys the extended six-year statute of
limitations. See, e.g., UMLIC VP LLC v. Matthias, 364 F.3d
125, 131-33 (3d Cir. 2004); FDIC

V.

Bledsoe, 989 F.2d 805,

810-12 (5th Cir. 1993); Mountain States Fin. Res. Corp. v.
Agrawal, 777 F. Supp. 1550, 1552 (W.D. Okla. 1991) . Contra
Joslin v. Grossman, 107 F. Supp. 2d 150, 155-57 (D. Conn.
2000); LR1-A Ltd. P'ship v. Patterson, 1997 WL 1146319, at
*2_3 (D.N.H.); Remington Invs., Inc. v. Kadenacy, 930 F.
Supp. 446, 450-51 (C.D. Cal. 1996) . In light of FIRREA's
purpose to preserve assets of failed banking institutions,
this Court is inclined to agree that the federal statute
grants to assignees of the FDIC the protection of the sixyear statute of limitations.
Moreover, those federal courts declining to permit an
assignee to enjoy the six-year limitations period rely on
the Supreme Court's decision in O'Melveny & Meyers v. FDIC,
512 U.S. 79 (1994), for the proposition that the applicable
state law of assignments determines whether an assignee

10

receives the FDIC's extended limitations period. First
State Bank of Nw. Ark. v. McClelland Qualified Pers.
Residential Tr., 2014 WL 6801803, at

*6 (M.D. Ga.). In

Georgia, "an assignee 'stands in the shoes' of the
assignor." S. Telecom, Inc. v. TW Telecom of Ga. L.P., 321
Ga. App. 110, 114, 741 S.E.2d 234, 237 (2013). The rights
passed down to the assignee "are neither enhanced nor
diminished by assignment." Id. Therefore, the outcome in
this case is the same under either federal or state law—
Plaintiff is entitled to rely on the six-year statute of
limitations contained in § 1821(d) because that right
flowed from the FDIC to Plaintiff. Accordingly, the suit
limitations period does not operate to bar Plaintiff's
claim for breach of contract.
B.

Equitable Estoppel

Defendant Lexington argues that Plaintiff is estopped
from seeking payment under the insurance contract because
an unnamed representative at Darby Bank informed the
adjuster that Defendant Coastal's "payments were current
and that there were no liens on the property." (Doc. 59 at
8.) The elements of federal common law equitable estoppel
in the Eleventh Circuit are
"(1) the party to be estopped misrepresented
material facts; (2) the party to be estopped was
aware of the true facts; (3) the party to be

11

estopped intended that the misrepresentation be
acted on or had reason to believe the party
asserting the estoppel would rely on it; (4) the
party asserting the estoppel did not know, nor
should it have known, the true facts; and (5) the
party asserting the estoppel reasonably and
detrimentally relied on the misrepresentation."
Busby v. JRHBW Realty, Inc., 513 F.3d 1314, 1326 (11th Cir.
2008) (quoting Nat. Cos. Health Benefit Plan v. St.
Joseph's Hosp. of Atlanta, Inc., 929 F.2d 1558, 1572 (11th
Cir. 1991)) . However, this Court concludes that Defendant
Lexington has failed to point to evidence in the record
that satisfies these elements.
First, Defendant Lexington fails to identify evidence
supporting the notion that Darby Bank misrepresented any
material fact. Mr. Cramer states that Darby Bank advised
him "that there were no liens [on the equipment] and
payments were all current." (Doc. 59, Ex. 3 at 14:3-4.)
While Mr. Cramer possibly interpreted this statement as
meaning that Darby Bank lacked any interest in the
equipment, this misunderstanding does not change the
factual accuracy of Darby Bank's representations. As a
result, Darby Bank did not misrepresent any material fact.
Second, Defendant Lexington should have known that
Darby Bank retained an interest in the property. As
previously noted, the insurance policy itself identifies
Plaintiff as a mortgagee. (Doc. 16, Ex. B at 1.)

12

Additionally, the policy's mortgage clause requires payment
to the mortgagee. (Id. at 18.) Defendant Lexington offers
several reasons why it might be plausible for Mr. Cramer to
think that Darby Bank lacked any interest in the equipment.
However, Mr. Cramer's single undocumented phone
conversation with an unknown Darby Bank employee falls
short of establishing that Defendant Lexington neither knew
nor should have known that Darby Bank was due to receive
proceeds under the terms of the policy. Because Defendant
Lexington is unable to point to evidence in the record that
would permit a reasonable jury to conclude that Plaintiff
should be equitably estopped from seeking payment under the
terms of the insurance policy, this defense does not bar
Plaintiff's claim for breach of contract. 2
C.

Assiqnment of the Insurance Polic

Defendant

Lexington

contends

that

Plaintiff

is

prohibited from seeking enforcement of the insurance policy
because an assignment of rights from Darby Bank to
Plaintiff violates the policy's requirement that Defendant
Lexington consent to any assignment in writing. However,

2

Because the Court concludes that Defendant Lexington has
not met the elements of equitable estoppel, the Court
declines to address Plaintiff's arguments concerning
Defendant Lexington's ability to raise this defense in
light of FIRREA and Defendant Lexington's failure to pay
the policy proceeds under a reservation of rights.
13

this argument is foreclosed by FIRREA, which permits the
FDIC to "transfer any asset or liability of the institution
in default . . . without any approval, assignment, or
consent with respect to such transfer." 12 U.S.C.
§ 1821(d) (2) (G) (1) (II). Therefore, the lack of a valid
assignment does not preclude Plaintiff's claim for breach
of contract. 3
III. BAD FAITH
In response to Plaintiff's claim for bad faith
adjustment, Defendant Lexington argues that Plaintiff
failed to both make a proper demand under O.C.G.A. § 33-4-6
(Doc. 45, Attach. 1 at 18-21) and show bad faith (Doc. 59
at 15-20) . Parties asserting claims for bad faith pursuant
to o.C.G.A. § 33-4-6 must establish "(1) that the claim is
covered under the policy, (2) that a demand for payment was
made against the insurer within 60 days prior to filing
suit, and (3) that the insurer's failure to pay was
motivated by bad faith." Lawyers Title Ins. Corp. v.

The Court notes that an insurance policy is considered an
asset of the bank under 12 U.S.C. § 1821. See generally
Nat'l Union Fire Ins. Co. v. City Say., F.S.B., 28 F.3d
376, 384 (3d Cir. 1994)
Defendant Lexington also argues that the bad faith claim
was not properly assigned to Plaintiff. (Doc. 45, Attach. 1
at 22.) Because the Court has already determined that a
valid assignment is not required in this case, see supra
Analysis.II.C, it need not address this argument with
respect to Plaintiff's claim for bad faith.
14

Griffin, 302 Ga. App. 726, 730, 691 S.E.2d 633, 636-37
(2010) (quoting BayRock Mortg. Corp. v. Chi. Title Ins.
Co., 286 Ga. App. 18, 19, 648 S.E.2d 433, 435 (2007)
However, bad faith penalties are not permitted where the
insurer has any reasonable ground to contest the claim or
there is a disputed question of fact. S. Fire & Cas. Co. v.
Nw. Ga. Bank, 209 Ga. App. 867, 868, 434 S.E.2d 729, 730
(1993) (quoting Fortson v. Cotton States Nut. Ins. Co., 168
Ga. App. 155, 158, 308 S.E.2d 382, 385 (1983)). While the
determination of bad faith is ordinarily left to the jury,
the court should disallow bad faith claims " 'when there is
no evidence of unfounded reason[s] for the nonpayment, or
if the issue of liability is close.' " Homick v. Am. Cas.
Co., 209 Ga. App. 156, 157, 433 S.E.2d 318, 318 (1993)
(quoting Int'l Indem. Co. v. Collins, 258 Ga. 236, 238, 367
S.E.2d 786, 788 (1988)).
Assuming Plaintiff made the proper demand, it is
difficult for the Court to see how Defendant Lexington
should be subject to bad faith penalties in this case.
Plaintiff came to Defendant Lexington seeking payment on an
insurance policy under which Defendant Lexington had
already paid out over $1,000,000. This request came nearly
two-and-a-half years after Defendant Lexington made full
payment to Defendant Coastal for the very same loss.

15

Furthermore, the party seeking payment was not the named
mortgagee under the policy, but had purchased the assets of
that failed banking

institution

from the FDIC. Given the

set of circumstances faced by Defendant Lexington, the
Court finds unsurprising Defendant Lexington's trepidation
to conclude Plaintiff was entitled to payment under the
policy. 5 In any event, the Court's review of the record has
failed to uncover ' 'evidence of unfounded

reason[s] for

the nonpayment.' " Id. Accordingly, Defendant Lexington is
entitled to summary judgment on this claim.
IV. CONVERSION
Defendant Lexington argues that it is entitled to
summary judgment on Plaintiff's claim for

conversion

because Plaintiff is unable to prove the equipment had any
value following the fire. (Doc. 45, Attach. 1 at 22-23.) In
response, Plaintiff contends that they should be able to
pursue this claim because Lexington has failed and refused
to provide any information concerning the salvage value of
the equipment. In Georgia, a party seeking to establish a
prima facie case of conversion must establish (1) title to

While the Court has ultimately decided the breach of
contract issue in Plaintiff's favor, the Court finds no
evidence of bad faith in Defendant Lexington's decision not
to repay policy proceeds to an assignee of a third-party
beneficiary to the policy nearly three years after the loss
occurred.

the property; (2) possession by the defendant; (3) a demand
for possession; (4) a refusal to surrender the property;
and (5) value of the property. City of Coil. Park v.
Sheraton Savannah Corp., 235 Ga. App. 561, 564, 509 S.E.2d
371, 374 (1998) (quoting Buice v. Campbell, 99 Ga. App.
334, 335, 108 S.E.2d 339, 341 (1959)).
In this case, Plaintiff has not pointed to any
evidence in the record establishing the value of the
property. By all accounts the equipment was completely
destroyed following the fire. Plaintiff engaged in
extensive discovery, but still failed to uncover evidence
or testimony that the equipment retained any value. While
Plaintiff now alleges that Defendant Lexington "failed and
refused to provide that information" during discovery, the
proper remedy for withholding discovery would have been for
Plaintiff to file a timely motion to compel. (Doc. 57 at
19.) That time has come and gone, leaving Plaintiff with no
evidence showing that the equipment allegedly converted by
Defendant Lexington had any value at all. 6 Accordingly,
Defendant Lexington is entitled to summary judgment with
respect to this claim.

6

The lack of any discoverable evidence establishing a value
for the destroyed equipment may very well mean that it
lacked any value at all.
17

CONCLUSION

For the foregoing reasons, Plaintiff's Motion for
Partial Summary Judgment (Doc. 42) and Defendant Lexington
Insurance Company's Motion for Summary Judgment (Doc. 45)
are both GRANTED IN PART and DENIED IN PART:

Plaintiff is

entitled to summary judgment only with respect to its claim
for breach of contract. Defendant is entitled to summary
judgment on Plaintiff's claims for bad faith adjustment and
conversion, which are both hereby DISMISSED.
SO ORDERED this

ry

2..r da y

of September 2015.

WILLIAM T. MOORE, J
~~
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF GEORGIA
--0-

W.