U.S. Bank National Association et al v. Indian Harbor Insurance Company et al
Filing
148
ORDER GRANTING 125 MOTION for Summary Judgment filed by U.S. Bancorp, U.S. Bank National Association (Written Opinion). Let Judgment Be Entered Accordingly. Signed by Judge Paul A. Magnuson on December 16, 2014. (ALT)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
U.S. Bank National Association and
U.S. Bancorp,
Case No. 12-cv-3175 (PAM/JSM)
Plaintiffs,
v.
MEMORANDUM AND ORDER
Indian Harbor Insurance Company and
ACE American Insurance Company,
Defendants.
___________________________________________________________
This matter is before the Court on U.S. Bank’s Motion for Summary Judgment.
For the reasons that follow, the Court grants the Motion.
BACKGROUND
This is a fiercely contested insurance case. U.S. Bank National Association and
U.S. Bancorp (collectively “U.S. Bank”) are suing Indian Harbor Insurance Company
and ACE American Insurance Company (collectively the “Insurers”) for coverage of both
$30 million out of a $55 million settlement payment and related defense costs in an
overdraft-fee dispute. Though the issues are complicated, the facts are straightforward.
A.
Overdraft Fees
U.S. Bank, like many banks, offers overdraft protection to its customers with
checking accounts. When customers attempt transactions for more money than is in their
accounts, they overdraw the accounts. As a service, U.S. Bank pays the transactions. To
compensate for that service, U.S. Bank charges a fee for each overdraft. Customers are
assessed overdraft fees for transactions that initially overdraw their accounts and for
additional transactions until they deposit funds to cover the overdrafts.
Because U.S. Bank charges customers overdraft fees for transactions that either
cause their accounts to be overdrawn or happen while their accounts are overdrawn, the
point at which the accounts become overdrawn—and thus the order in which the
transactions post to the accounts—matters. If smaller transactions post before larger
transactions, the accounts will deplete and become overdrawn at a slower rate, fewer
transactions will remain to post after the accounts became overdrawn, and fewer
overdraft fees will be assessed for the remaining transactions. But if larger transactions
post before smaller transactions, the opposite will occur.
To illustrate, take this example. A customer has $200 in her checking account.
Her bank charges a $25 fee each time she overdraws the account. One day, she makes
five purchases with her debit card in this order: $4 café Americano, $20 dozen doughnuts
for the office, $30 birthday gift for her daughter, $300 airplane ticket to Florida, and
$50 theater tickets. If the transactions post to her account from smallest to largest, only
the airplane ticket will overdraw the account and incur one overdraft fee of $25. If the
transactions post chronologically, both the airplane ticket and the theater tickets will
overdraw the account and incur two overdraft fees of $50. And if the transactions post
from largest to smallest, all the transactions will overdraw the account and incur five
overdraft fees of $125.
B.
Underlying Class Actions
Beginning in 2009, three class actions were brought against U.S. Bank for
overcharging overdraft fees to its customers. 1 (Gilinsky Aff. (Docket No. 128) Exs. 1-3.)
In particular, the class actions alleged that U.S. Bank unlawfully engaged in high-to-low
posting—in that it posted customers’ debit-card transactions to their checking accounts
from largest to smallest—to create the most overdrafts and maximize the assessed
overdraft fees. (Id.) The class actions also alleged that U.S. Bank inadequately disclosed
to its customers that it posted their transactions from high to low. (Id.) The class actions
asserted claims for breach of contract, unconscionability, conversion, and unjust
enrichment; and sought remedies of declaratory relief, return of the excess overdraft fees,
and damages. (Id.) Eventually, the class actions were transferred to a multi-district
litigation in the Southern District of Florida. 2 (Savage Aff. (Docket No. 127) ¶ 2.)
At the time, U.S. Bank maintained professional-liability insurance with the
Insurers. (Gilinsky Aff. Exs. 4-5.) It had purchased a primary policy from Indian Harbor
with a $20 million liability limit, subject to a $25 million deductible. (Gilinsky Aff.
Ex. 4.) It had also purchased an excess policy from ACE American with a $15 million
liability limit. (Gilinsky Aff. Ex. 5.) The policies grant coverage for “Loss which [U.S.
Bank] shall become legally obligated to pay as result of any Claim first made against [it]
1
The class actions were Speers v. U.S. Bank, N.A., No. 3:09-cv-409 (HU) (D. Or. filed
April 17, 2009); Waters v. U.S. Bancorp, No. 3:09-cv-2071 (JSW) (N.D. Cal. filed May
12, 2009); and Brown v. U.S. Bank, N.A., No. 2:10-cv-356 (RMP) (E.D. Wash. filed Oct.
13, 2010).
2
See In re Checking Account Overdraft Litig., No. 1:09-md-2036 (JLK) (S.D. Fla.).
during the Policy Period arising out of any Wrongful Act committed by [it] during or
prior to the Policy Period while performing Professional Services.” (Gilinsky Aff. Ex. 4,
at 15.) The policies further require that U.S. Bank obtain the Insurers’ consent before
settling a claim. (Id. at 17.)
In 2012, U.S. Bank entered into private mediation to resolve the class actions and
discovered an opportunity to reach a settlement. (Savage Aff. ¶ 9.) Complying with the
policies, it asked the Insurers for consent. (Id. ¶ 10.) Indian Harbor consented to a
settlement of $45 million and ACE American consented to a settlement of $60 million,
yet both Insurers reserved their rights to later challenge coverage. (Gilinsky Aff. Exs. 2627.) Having received the Insurers’ consent, U.S. Bank settled the class actions in 2013
for $55 million. (Gilinsky Aff. Exs. 25, 28.) Under the settlement, U.S. Bank agreed to
pay the $55 million into a fund to be allocated among the class members. (Id.) But U.S.
Bank did not admit liability on the claims. (Id.) Nor did the settlement characterize the
payment as restitution. (Id.)
C.
Current Coverage Lawsuit
U.S. Bank next sought insurance coverage from the Insurers for the amount paid
to defend against and settle the class actions. (See Savage Aff. ¶ 12.) Within the policy
terms, it demanded coverage for more than the $25 million deductible but less than the
total $35 million liability limit, or $30 million plus defense costs. (Id.)
The Insurers denied coverage, principally on the ground that the settlement was
not a “Loss” under the policies. (Id.; Gilinsky Aff. Ex. 31.) The policies define “Loss”
as “the total amount which [U.S. Bank] becomes legally obligated to pay on account of
each Claim . . . in each Policy Period . . . made against [it] for Wrongful Acts . . .
including, but not limited to, damages, judgments, settlements, costs, pre-judgment and
post-judgment interest and Defense Costs.” (Gilinsky Aff. Ex. 4, at 21.) The policies
except from the loss definition, as relevant here, either “[m]atters which are uninsurable
under the law pursuant to which this Policy is construed” (the “Uninsurable Provision”)
or “principal, interest, or other monies either paid, accrued, or due as the result of any
loan, lease or extension of credit by [U.S. Bank]” (the “Extension-of-Credit Provision”).
(Id. at 22.) And although it may be a loss, the policies exclude from coverage “any
payment for Loss in connection with any Claim made against [U.S. Bank] . . . brought
about or contributed in fact by any . . . profit or remuneration gained by [U.S. Bank] to
which [it] is not legally entitled . . . as determined by a final adjudication in the
underlying action” (the “Ill-Gotten Gains Provision”). (Id. at 15.) In the Insurers’ view,
the Uninsurable Provision barred coverage because the settlement constitutes restitution
and restitution is uninsurable as a matter of public policy. (Gilinsky Aff. Ex. 31.)
U.S. Bank disagreed and sued the Insurers for breach of contract and a declaratory
judgment. (Compl. (Docket No. 1).) It alleged that the settlement falls within the
policies’ loss definition and is covered, the Insurers must pay the covered amount, their
refusal to do so is a breach of the policies, and they are responsible for the resulting
damages. (Id. ¶¶ 67-83.) The Insurers denied the allegations. (Ans. (Docket Nos. 24 &
33).)
The Insurers then moved for judgment on the pleadings, arguing that the
settlement was not a covered loss under the policies based on the Uninsurable Provision
and the Extension-of-Credit Provision. (See Mem. & Order (Docket No. 105) 1-3.)
Applying the policies’ plain language, the Court denied judgment on the pleadings on
both bases. (Id. at 3-11.)
Discontent with that decision, the Insurers proceeded to secure its immediate
reversal. They first sought reconsideration of the decision, which the Court denied.
(Order (Docket No. 108).) They also sought certification of the decision for interlocutory
appeal under 28 U.S.C. § 1292(b), and for legal resolution to the Delaware Supreme
Court, both of which the Court denied. (Mem. & Order (Docket No. 139).)
U.S. Bank now moves for summary judgment.
Because the parties have
conducted relatively no meaningful discovery since the Court denied judgment on the
pleadings (other than the production of documents about the underlying class actions and
general claims-handling processes), the current record is effectively the same as it was
then.
DISCUSSION
Summary judgment should be granted if the moving party shows that there are no
genuine disputes of material fact and that it is entitled to judgment as a matter of law.
Fed. R. Civ. P. 56(a). A fact is material if its resolution affects the outcome of the case.
Paine v. Jefferson Nat’l Life Ins. Co., 594 F.3d 989, 992 (8th Cir. 2010). A dispute is
genuine if the evidence could cause a reasonable jury to return a verdict for either party.
Id. When evaluating a motion for summary judgment, the Court must view the facts in
the light most favorable to the nonmoving party and draw all reasonable inferences in that
party’s favor. Marlowe v. Fabian, 676 F.3d 743, 746 (8th Cir. 2012).
The overarching issue here is whether the policies cover the settlement. The
parties do not dispute that the settlement relates to a claim made against U.S. Bank during
the policy period for a wrongful act allegedly committed by it while performing
professional services. Instead, they dispute that the settlement is a loss. Whether the
settlement is a loss turns on the interpretation of the policies’ definition of loss.
When interpreting an insurance policy, the Court—a federal court sitting in
diversity—applies state substantive law. E-Shops Corp. v. U.S. Bank Nat’l Ass’n, 678
F.3d 659, 663 (8th Cir. 2012). The policies are governed by Delaware law. (Gilinsky
Aff. Ex. 4, at 25.) Under Delaware law, the interpretation of an insurance policy is a
question of law. Rhone-Poulenc Basic Chemicals Co. v. Am. Motorist Ins. Co., 616 A.2d
1192, 1195 (Del. 1992). Delaware courts interpret an insurance policy, like all contracts,
“in a common sense manner, giving effect to all provisions so that a reasonable
policyholder can understand the scope and limitation of coverage.” Penn Mut. Life Ins.
Co. v. Oglesby, 695 A.2d 1146, 1149 (Del. 1997). If the policy language is clear and
unambiguous, its plain meaning must be enforced. ConAgra Foods, Inc. v. Lexington
Ins. Co., 21 A.3d 62, 69 (Del. 2011). But if the policy language is ambiguous—in that it
is susceptible to two or more reasonable interpretations—it is to be construed against the
insurer who drafted it and for the insured. Id.
The parties do not dispute that the settlement satisfies the policies’ general loss
definition, as outlined above. Rather, they dispute that the settlement falls within one of
these two exceptions to that definition: the Uninsurable Provision and the Extension-ofCredit Provision.
Pertinent to those exceptions, the material facts are undisputed. The Insurers
contend that factual disputes exist and further discovery is needed mainly on three issues:
the underwriting intent of the policies, the nature and propriety of high-to-low posting
and the settlement, and the account balances of customers who were assessed overdraft
fees. (See Sandnes Aff. (Docket No. 136).) But as explained below, those issues do not
raise genuine disputes of material fact because the policy language is unambiguous and
extrinsic evidence of intent is inconsequential, the legality of high-to-low posting is not
for the Court to determine and the settlement speaks for itself, and customers’ account
balances are not dispositive.
To resolve whether the policies cover the settlement, the Court is therefore left to
decide, as a matter of law, whether the settlement falls within either the Uninsurable
Provision or the Extension-of-Credit Provision and thus is not a loss.
A.
Uninsurable Provision
The Insurers primarily argue that the settlement is not a loss under the Uninsurable
Provision.
According to the Insurers, the settlement requires U.S. Bank to return
unlawfully assessed overdraft fees to its customers, returning something that one
wrongfully took to its rightful owner constitutes restitution, and restitution is uninsurable
under Delaware law. U.S. Bank responds that high-to-low posting complies with the law,
the Ill-Gotten Gains Provision indicates that coverage exists when claims alleging illgotten gains and seeking disgorgement of those gains are settled before a final
adjudication in the underlying action, and no Delaware authority forbids insurance
coverage for restitution.
1.
Is Restitution Insurable Under Delaware Law?
If the Insurers are correct that the settlement constitutes restitution, the Court
would need to examine whether restitution is insurable under Delaware law.
Unfortunately, the Insurers have failed to cite, and the Court cannot locate, any Delaware
statute or case law reaching that issue. The parties have previously speculated on how a
Delaware court would rule. U.S. Bank suggested that Delaware courts do not readily
void insurance coverage based on public-policy considerations due to their “procontractarian,” “pro-banking,” and “pro-policyholder” tilt. And the Insurers insisted that
Delaware courts would simply follow the lead of other States that prohibit coverage.
But the Court need not decide the insurability of restitution under Delaware law
because, even if restitution is not insurable, the policies require the settlement to actually
be—and not just allegedly be—restitution to be uninsurable. For this Motion, the Court
will therefore assume without deciding that Delaware law precludes insurance coverage
for restitution as a matter of public policy. That assumption makes sense because an
insured does not suffer loss when it wrongfully takes money or property and is forced to
return it; asking the insurer to pick up the tab would only bestow an unjustified windfall
on the insured. See J.P. Morgan Sec. Inc. v. Vigilant Ins. Co., 21 N.Y.3d 324, 335-36
(2013) (“[A] ‘loss’ within the meaning of an insurance contract does not include the
restoration of an ill-gotten gain.” (citation and quotation marks omitted)).
Consistent with that assumption, the policies unambiguously do not cover
restitution. The Uninsurable Provision carves out from the loss definition “[m]atters
which are uninsurable” under Delaware law. (Gilinsky Aff. Ex. 4, at 22.) If restitution is
uninsurable under Delaware law, it is obviously not a covered loss under the policies.
2.
If Not, Does the Settlement Constitute Restitution?
That conclusion, however, does not end the analysis. The crux of this dispute is
not whether restitution is insurable, but whether the settlement constitutes restitution.
This is because another provision in the policies, the Ill-Gotten Gains Provision, directly
addresses the circumstance when an insured pursues coverage for a payment that resolves
claims alleging ill-gotten gains and seeking disgorgement of those gains—or put
differently, restitution.
The provision excludes from coverage a payment for loss
connected to a claim resulting from money to which U.S. Bank “is not legally entitled . . .
as determined by a final adjudication in the underlying action.” (Id. at 15.) The insertion
of that provision in the policies begs the question: Can a payment be restitutionary and
uninsurable under the policies based on (1) a settlement resolving claims that allege illgotten gains and seek disgorgement of those gains or (2) a final adjudication in the
underlying action determining that the allegations of ill-gotten gains have merit and
ordering the disgorgement of those gains? The policies choose the second answer.
The policies unambiguously require that a final adjudication in the underlying
action determine that a payment is restitution before the payment is barred from coverage
as restitution. The Court must interpret the loss definition and its exceptions consistently
with all policy provisions—even the exclusions. See O’Brien v. Progressive N. Ins. Co.,
785 A.2d 281, 287 (Del. 2001) (directing that provisions of insurance policies be read “as
a whole” and not be rendered “meaningless”); Westfield Ins. Co. v. Robinson Outdoors,
Inc., 700 F.3d 1172, 1175 (8th Cir. 2012) (explaining that exclusions equally affect the
scope of coverage). The Uninsurable Provision omits from coverage restitution, and the
Ill-Gotten Gains Provision omits from coverage a payment that a final adjudication in the
underlying action determined is restitution. If the Court interpreted the Uninsurable
Provision to preclude coverage for a payment based on a settlement resolving claims for
restitution, it would nullify the Ill-Gotten Gains Provision that precludes coverage for a
payment based only on a final adjudication determining that the claims warrant
restitution. So to interpret the two provisions consistently, the Court must read the
Uninsurable Provision to bar coverage for a payment that a final adjudication in the
underlying action determined is restitution.
Under that interpretation, the settlement is not a payment that a final adjudication
in the underlying action determined is restitution. When an underlying action alleging illgotten gains and seeking disgorgement of those gains settles before trial, there is no final
adjudication in that action determining that the gains were ill-gotten and ordering the
return of those gains. See AT & T v. Clarendon Am. Ins. Co., No. 04C-11-167 (JRJ),
2008 WL 2583007, at *7 (Del. Super. Ct. June 25, 2008). Here, where the class actions
alleging that U.S. Bank unlawfully assessed overdraft fees and seeking the return of those
fees settled before trial and without an admission of liability, there was no final
adjudication determining that U.S. Bank committed unlawful conduct and ordering the
refund of the profits derived from that conduct. In other words, the settlement allegedly
constitutes restitution but is not a final adjudication determining restitution.
The Court emphasizes that it will not automatically presume—as the Insurers do—
that the settlement constitutes restitution because it resolved claims alleging ill-gotten
gains and seeking disgorgement of those gains. Not only does the clear policy language,
and especially the Ill-Gotten Gains Provision, prevent the Court from doing so. But the
common-sense effect of a settlement does as well.
If a settlement resolves claims
alleging unlawful activity but excludes an admission of liability for the activity, it does
not establish that the underlying allegations are true or false. See Atwell v. RHIS, Inc.,
974 A.2d 148, 155 (Del. 2009) (“We cannot allow litigants to imply that one party’s
decision to settle means that the settling party has admitted liability.”).
Instead, a
settlement represents the parties’ willingness to resolve the claims after weighing the
negotiated settlement amount against the potential judgment amount and accounting for
the costs and benefits of continued litigation. That is exactly what this settlement was. 3
3.
Are Any of the Insurers’ Counterarguments Availing?
The Insurers quarrel with the Court’s interpretation and application of the
Uninsurable Provision on five noteworthy grounds.
First, the Insurers contend that the Ill-Gotten Gains Provision cannot affect the
Uninsurable Provision because the Uninsurable Provision grants coverage and the IllGotten Gains Provision excludes coverage. It is, say the Insurers, a maxim of insurance
law that an exclusion cannot generate a grant. What the Insurers fail to recognize,
3
The Court also emphasizes that it is not its role to decide whether U.S. Bank unlawfully
assessed overdraft fees. As the Court reads the Ill-Gotten Gains Provision, the court in
the underlying action must finally adjudicate whether the allegations of ill-gotten gains
have merit, not the court in the coverage action. The Court can decide whether there was
a final adjudication in the underlying action, and has determined here that there was not.
however, is that the existence of a coverage exclusion may alter the scope of a coverage
grant.
Parties have no reason to exclude a particular matter from coverage in an
insurance policy if they did not intend that the policy initially granted coverage for that
matter. Concluding to the contrary would strip the coverage exclusion of any purpose,
and it must have effect. So too here. By excluding from coverage a payment that a final
adjudication in the underlying action determined to be restitution, the parties implicitly
granted coverage for a payment that is merely alleged to be restitution.
Second, the Insurers contend that the Ill-Gotten Gains Provision also cannot affect
the Uninsurable Provision because exceptions (like the Uninsurable Provision) narrowly
focus on the loss recoverable under the policies, where exclusions (like the Ill-Gotten
Gains Provision) relate more broadly to claims covered by the policies. As the dispute
here hinges on the whether the settlement is a loss and not a claim, the Insurers implore
the Court to disregard the Ill-Gotten Gains Provision. The Court agrees that there is a
distinction between a claim and a loss—the policy defines them separately and observes
that a claim could include both covered and uncovered loss. The Court further agrees
that the Uninsurable Provision is an exception to a loss and the Ill-Gotten Gains Provision
is an exclusion to a claim.
But the Court gives no credence to the Insurers’ notion that a loss exception and a
claim exclusion have no bearing on each other. For one, the Insurers have presented no
legal authority to support otherwise.
And two, the concepts of claim and loss are
connected in the context of this case. If a claim depends on the underlying allegations
and a loss depends on the requested remedy, whether a loss exists first depends on
whether a claim exists because no remedy is warranted if the allegations lack merit. Or if
the allegations are for ill-gotten gains and the remedy is for disgorgement of those gains,
but a final adjudication must determine whether the allegations have merit to trigger a
claim exclusion, the final adjudication also impacts whether the remedy is warranted and
could trigger a loss exception. Hence, a claim exclusion can affect a loss exception.
Third, the Insurers protest that the interpretation leads to an absurd result where
settlements resolving claims for restitution are loss but judgments ordering restitution are
not loss. The Insurers highlight a myriad of cases for the proposition that, in determining
whether a settlement resolving claims that allege ill-gotten gains and seek disgorgement
of those gains is an insurable loss, the Court must look to the nature of the underlying
allegations and requested remedies and not to whether those allegations and remedies
were finally adjudicated. In short, according to the Insurers, it is irrelevant whether U.S.
Bank actually did anything wrong and must pay restitution so long as the settlement
resolved claims alleging wrongdoing and seeking relief that is restitutionary.
But that is not what the policies require. As discussed at length above, the policies
require that a final adjudication in the underlying action determine that claims for
restitution actually warrant restitution.
Under a policy with a final-adjudication
requirement, mere allegations are insufficient. If allegations of unlawful activity are
never determined to be true, a payment to dispose of those allegations is not restitution
because restitution can only occur if that which is being returned was wrongfully taken.
So if U.S. Bank’s assessment of overdraft fees was lawful, the return of those fees cannot
be restitution because U.S. Bank is legally entitled to those fees.
In that regard, all of the cases the Insurers cite are distinguishable. Several of the
cases concluding that restitution is uninsurable whether by settlement or judgment did not
involve policies that include a final-adjudication requirement. See, e.g., CNL Hotels &
Resorts, Inc. v. Twin City Fire Ins. Co., 291 F. App’x 220, 223-24 (11th Cir. 2008);
Level 3 Commc’ns, Inc. v. Fed. Ins. Co., 272 F.3d 908, 910-12 (7th Cir. 2001). The
cases holding that an allegedly restitutionary settlement is uninsurable despite policy
language requiring a final adjudication failed to otherwise analyze the impact of the finaladjudication requirement. See, e.g., Dobson v. Twin City Fire Ins. Co., No. 11-cv-0192
(DOC/MLG), 2012 WL 2708392, at *9-10 (C.D. Cal. July 5, 2012); Aon Corp. v. Certain
Underwriters at Lloyd’s of London, No. 06-16852 (Ill. Cir. Ct. Ch. Div. Dec. 3, 2010).
And the two cases barring coverage for a settlement in an overdraft-fee dispute relied on
specific fee exclusions in the policies that the policies here do not contain. See PNC Fin.
Servs., Grp., Inc. v. Houston Cas. Co., No. 13-cv-331, 2014 WL 2862611, at *2-3 (W.D.
Pa. June 24, 2014); Fidelity Bank v. Chartis Specialty Ins. Co., No. 1:12-cv-4259 (RWS),
2013 WL 4039414, at *3-4 (N.D. Ga. Aug. 7, 2013).
Fourth, the Insurers contend that the Court is erroneously allowing parties to
contract around public policy and agree to cover uninsurable restitution.
See CSX
Transp., Inc. v. Mass. Bay Transp. Auth., 697 F. Supp. 2d 213, 229 (D. Mass. 2010)
(“Even sophisticated parties cannot contract around public policy.”). But the Court does
not conclude that parties may contract to insure a payment, like restitution, that is
uninsurable under public policy. All the Court concludes is that parties may agree to
ensure that a payment truly fits within a category of matters that are legally uninsurable.
That contractual ability does not change the categories themselves and render insurable
that which is uninsurable. If restitution is uninsurable by public policy, the parties may
contract to require that the payment is actually—and not just allegedly—restitution. That
conclusion is consistent with public policy.
Finally, the Insurers warn that the interpretation will incentivize banks to settle
rather than litigate these types of lawsuits to obtain coverage for restitution.
That
warning echoes the sentiment expressed in other cases. See, e.g., Level 3, 272 F.3d at
911 (declaring that it “can’t be right” that coverage for restitution could pivot on whether
it was made by way of settlement or judgment because the insured, “seeing the
handwriting on the wall,” could simply agree “to pay the plaintiffs in the fraud suit all
they were asking for” and then “retain the profit it had made from a fraud” through a
coverage reimbursement). Yet insurance companies can counter that incentive by not
consenting to the settlement. The policies require that the Insurers consent before U.S.
Bank may settle a claim. If the Insurers were concerned that the settlement constituted
restitution, they could have refused consent or conditioned consent on an admission of
liability for wrongdoing or a stipulation that the payment was restitution. The Insurers
would have been wiser to refuse or condition consent at the outset rather than consent and
later contest coverage in avoidable litigation.
Bottom line, the dispute on the Uninsurable Provision is not about whether
restitution is insurable; the Court assumes that it is not. The dispute is about whether the
settlement constitutes restitution. The clear policy language controls on that question,
and requires that for a payment to be restitution, it must be based on a final adjudication
in the underlying action determining it is restitution instead of a settlement resolving
claims for restitution. Because the settlement is not a payment that a final adjudication in
the underlying action determined is restitution, the Uninsurable Provision does not
prevent the settlement from being a loss.
B.
Extension-of-Credit Provision
The Insurers alternatively argue that the settlement is not a loss under the
Extension-of-Credit Provision. They say that the settlement comprises the return of
overdraft fees paid or accrued as the result of overdraft protection and overdraft
protection is an extension of credit. U.S. Bank responds that the provision contemplates
losses due to unpaid loans and not fees for lending services, and the overdraft fees were
assessed while customers still had positive account balances and before any overdraft
protection was provided.
To be sure, the Extension-of-Credit Provision unambiguously removes from the
loss definition “monies either paid, accrued, or due as the result of . . . an extension of
credit.” (Gilinsky Aff. Ex. 4, at 22.) And a few courts have held that a bank’s practice of
paying transactions that overdraw customers’ accounts constitutes a loan to its customers
for insurance purposes. See Sayan v. Riggs Nat’l Bank of Wash., D.C., 544 A.2d 267,
269 (D.C. 1988) (stating that the “payment of an overdraft by the bank carries with it an
implicit agreement by the customer to repay the loan”); Affiliated Bank/Morton Grove v.
Hartford Accident & Indem. Co., No. 91-cv-4446, 1992 WL 91761, at *6 (N.D. Ill. Apr.
22, 1992) (reasoning that “an overdraft by a bank depositor is treated as a loan from the
bank to the depositor just as depositors with positive balances are considered creditors of
the bank”).
That said, this case is not about the provision of overdraft protection, but the
assessment of overdraft fees. The settlement resolved claims that ultimately alleged as
injury that U.S. Bank overcharged overdraft fees through high-to-low posting and not that
U.S. Bank offered overdraft protection in the first place. This is a distinction that makes
a difference given that an overdraft fee is simply a fee for a service and overdraft
protection is likely an extension of credit. If the settlement had compensated customers
for improperly provided overdraft protection, it would have been paid as the result of a
loan. But if the settlement returned the assessed overdraft fees, as the Insurers urge, it
was paid as the result of a fee. The second scenario describes this case.
Because the settlement was not paid as the result of an extension of credit, the
Extension-of-Credit Provision does not prevent the settlement from being a loss. As the
Court decides this issue on that basis, it need not address the parties’ arguments about
whether the provision encompasses only loan losses and whether the overdraft fees were
assessed against positive account balances.
CONCLUSION
The settlement falls within neither the Uninsurable Provision nor the Extension-ofCredit Provision—the Insurers’ only defenses to coverage—and thus is a covered loss
under the policies. The Insurers must indemnify U.S. Bank for $30 million out of the
$55 million settlement payment and reimburse it for related defense costs. Accordingly,
IT IS HEREBY ORDERED that U.S. Bank’s Motion for Summary Judgment (Docket
No. 125) is GRANTED.
LET JUDGMENT BE ENTERED ACCORDINGLY.
Dated: _December 16, 2014_
_s/Paul A. Magnuson__
Paul A. Magnuson
United States District Court Judge
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