#In response to the Oct. 16 Arkansas Blog post

[oselatra]

In response to the Oct. 16 Arkansas Blog post "UA Little Rock picks firm to study football"

I guess UALR has money to waste. This study will probably conclude with the same results the 30 Crossing [study] did, i.e. this is a "have to" idea.

From the web

In response to the Oct. 16 Arkansas Blog post "UA Little Rock picks firm to study football":

I guess UALR has money to waste. This study will probably conclude with the same results the 30 Crossing [study] did, i.e. this is a "have to" idea. Then UALR can follow the ASU model of funding it, charge the students, use tax dollars, and borrow from the budgets of other departments.

arkdemocrat

Great idea. Then let big daddy UA give them Bielema to finish out his contract as their coach. He'll probably last about a month in that job given the "talent" that surely exists at UALR. That should be enough to save UA the cost of firing him or buying out the contract.

Razorblade

If UALR is fortunate enough to gain a marching band, I pray that they'll have saucy majorettes instead of those whiney flag squads.

louie

No no no no.

Who thinks this is remotely a good idea? With the growing evidence of health concerns combined with the vast majority of schools losing money on football, what the what?

Their AD answered the question — don't waste money, especially if it's a veiled excuse to try and save the crappy War Memorial Stadium. That ship has sailed and so should any serious thought that money should be spent to discover something already answered.

yapperjohn

Look for a "study" that says, "It's Time For Some Big-Time Collegiate Football in War Memorial Stadium!" Schools don't puke up big bux for studies that say, "Naw, You Small-Time Colleges With No On-Campus Student Body Would Be Pissing Money Down a Rat Hole If You Ponied Up $5M a Year for a Top Rated Coach Like Bret Bielema to Put You in the Alabama-Buckeyes Big Time." Claude Bahls

Well, it's a good thing they aren't wasting any of that money on expanding academic programs or scholarships for underrepresented populations.

tsallernarng

A feasibility study does not actually give a recommendation. It puts numbers on start-up and annual costs. Those numbers are based on things like what stadium will be used, what conferences the school can play in, and what the average revenue and expenses of programs in those conferences are like.

LRreporter

In response to the Oct. 16 Arkansas Blog post "Fort Smith legislator paid almost $700,000 on port concept. A waste, says one evaluation.":

Conservative welfare at its finest.

What is it about Fort Smith elected officials? Jake Files and now this guy. I think the finances of all our legislators need to be examined.

Poison Apple

Does [Mat] Pitsch have ANY professional qualifications in the freight transportation area? The Arkansas Department of Transportation has multimodal planning responsibilities and actually has qualified consultants on retainer for river port studies. This should have come through them IF there was a need to study, which there was not.

Arbiter of All Things AOAT

[He said] he has had to pay taxes on his income and bear the cost of his "family's benefits package."

Oh, wow! Just imagine if everyone had to do that! And on an average of, what, about $80,000 a year — not including his income, etc., from his legislative boondoggling, er, work, of course.

Doigotta

Fort Smith and Sebastian County seem to be most eager to allow members of the legislature to rip them off for projects that never get built. I guess that is the conservative ethic at work.

Plainjim

In response to the Arkansas Times' Oct. 12 profile of attorney Mike Laux, who has sued the Little Rock Police Department five times over police-involved shootings. Yes, there are criminals that should be arrested for breaking the law, but glossing over unjustified excessive force and fatal shootings is making the city of Little Rock more violent. Mr. Laux explained what he sees happening in Little Rock and I agree with his comments. You can pray about the violence until you are blue in the face, but nothing will change until the state government, city officials and the police department show the public that they take police shootings seriously, want the truth and will pursue justice, so everyone else involved will take it seriously. If they don't, the violence will get worse and it will be their fault.

ShineonLibby

In response to the Times' Oct. 12 story "DHS rule change threatens disabled care: ARChoices algorithm inspires state and federal lawsuits."

Now how did DHS "lose the data" for the algorithm that determined the level of care? This is not believable. Either someone is lying or incompetent. Legal Services needs to depose Tami Harlan, the deputy director of medical services under oath. Let us see what Tami Harlan says.

Orval Falsebus

Choosing levels of care by the use of the abacus is the same as length of the rope vs. body weight to insure a successful hanging. Medical care is not Moneyball. This is the situation of getting what you want but not wanting what you get.

Going for the record again

Why can't DHS or any state agency answer questions? This attitude of we don't have to account to anyone for why or what we do is increasing and it is approved of by the governor. It sounds like they are covering up something they don't want the public to know. I consider lying a sin, even if it isn't on Charlton Moses Heston's Ten Commandments chart. What happened to the Arkansas government's morals, integrity, and common decency toward other human beings? You would almost think they want people who are elderly, disabled, sick and poor to die so they won't be a liability to the state budget. If that were true, they should not be governing or in charge of people's lives. They practice fetus worship but kill off people they think aren't important to their voter base. They are really pro-death. There is nothing pro-life about them. Are they getting their orders from Donald? Or has he allowed them to finally show their true natures?

ShineonLibby

From Facebook

In response to the Oct. 16 Arkansas Blog post "Judge objects to trainer's reference to Black Lives Matter," about Pulaski County Judge Wendell Griffen's complaint that during a recent training for courtroom personnel an instructor called BLM a hate group "like the KKK": But which of these groups have a history of murder, intimidation and government sanctioned terror?

Reginald Ford

One group wants to wipe out all others who are not white, Anglo-Saxon Protestants, though it is sometimes vague on just HOW they plan to accomplish that ... as they hold their AR-15s. The other group is protesting the injustice that allows police to kill blacks at a very high rate, with the judiciary further allowing it. Their implementation to accomplish that is peaceful protest, and to continue to bring the blatant injustice to light through video and publicity of cases. HOW is BLM a hate group, again?

Betty J. Rousey

Well, black lies (sic) matter is a violent deceitful hate group, little different than the old-time KKK.

Steve Estrada

Black Lives Matter was begun by grieving mothers of sons slaughtered by police. So this guy equates moms w/the KKK???

Denise Parkinson

I am so pleased that Judge Griffen spoke out.

Margaret Ann Gibson Niven

In response to the Oct. 15 Arkansas Blog post "Talking Turkey, Yellville Turkey Trot Style:

This is godawful and cruel - what kind of a person would participate in this?

Fran Owens

Few People up here take pride in their barbarism. Look who they vote for. As for AG&F's sponsorship, I believe they have a turkey calling contest at the Kelley Slab site. Don't expect Chamber sponsors to effect much change. Remember the Klan exists quite openly just over the county line in Boone. Institutionalized animal cruelty is par for such a community.

J.R. Pinky

Arkansas, you're proving your ignorance by keeping this tradition going another year. This is barbaric. Stop! These turkeys don't always land safely when being thrown from an airplane at 100 mph and the people who think this is funny and entertaining are ridiculous.

Jessica Garrison

Animal cruelty should be EVERYONE'S business. Ditto child abuse, elderly abuse. Arkansas has become the laughing stock of the country, thanks to Yellville. This gene pool needs to be drained, and fast. Such an embarrassment to the State.

Elizabeth Wood

Maybe you should visit a chicken/turkey processing plant and watch the hang them upside down it a dark room and cut their throats so they will bleed out. Then steam their feather off before the suck their guts out with a vacuum. Then dropping them from a plane won't seem so bad.

Sonny Bell

In response to the Oct. 16 Arkansas Blog post "UA Little Rock picks firm to study football"

[simonconsultancypage]

Guest Post: Fee Exclusion Precludes Coverage with No Allowance for Defense Costs

Chris Graham

Shelly Hall

In prior posts (most recently here) I have reviewed cases in which courts considered the question of insurance coverage for a bank’s obligation to repay allegedly improper overdraft fees.  The following guest post discusses a recent overdraft fee coverage case from the Seventh Circuit. BancorpSouth v. Federal Insurance Co. (the opinion can be found here). In this guest post, Chris Graham, a founding partner of Jones Lemon Graham LLP, and Shelly Hall, an attorney at the firm and business law adjunct professor, provide an overview of the Seventh Circuit case and also provides a chronology of other overdraft fee coverage cases.  A prior version of this article previously appeared on the law firm’s website (here). I would like to thank Chris and Shelly for their willingness to allow me to publish their article as a guest post. I welcome guest post submissions from responsible authors on topics of interest to this blog’s readers. Please contact me directly if you would like to submit an article. Here is Chris and Shelly’s guest post.

******************************

Summary: Today’s post focuses on a recent Seventh Circuit decision, BancorpSouth v. Federal Insurance Co., No. 17-1425 (7th Cir. Oct. 12, 2017) (here), affirming dismissal, for failure to state a legally viable claim, of a bank’s complaint against an insurer for alleged breach of a duty to defend and pay for a $24 million settlement of a consumer class action alleging improper overdraft fees, and related “bad faith.” It involved a duty-to-defend policy and a broad “fee” exclusion and, although other policies provide otherwise, this one had no exception for Defense Expenses. At the end of this post, we discuss other cases involving similar issues, but with different policy wording and, in some cases, different results. If you’re a broker or a risk manager, this case and those discussed at the end show why you should insist on a Defense Costs exception to a fee exclusion.

The coverage suit: In BancorpSouth, a bank sued an insurer for breaching a contract by failing to defend a class action and pay for a related $24 million settlement and for bad faith. Citing the policy’s exclusion “for Loss on account of any Claim … arising from … any fees or charges,” the Southern District of Indiana, applying Mississippi law, dismissed the bank’s complaint for failure to state a legally viable claim. Given the allegations in the complaint, the Court concluded that the insurer had no duty to defend. Because the duty to defend is broader than the duty to indemnify, moreover, the insurer had no obligation for the settlement; nor was there bad faith. The Seventh Circuit affirmed.

Policy wording: Subject to the policy’s terms, the insurer agreed to “pay, on behalf of an Insured, Loss on account of any Claim first made against such Insured during the Policy Period…for a Wrongful Act committed by an Insured or any person for whose acts the Insured is legally liable while performing Professional Services, including failure to perform Professional Services.”  The duty-to-defend policy included a “fee” exclusion providing that the insurer “shall not be liable for Loss on account of any Claim…based upon, arising from, or in consequence of any fees or charges.”  “Loss” included “Defenses Costs” and settlement costs. But the fee exclusion had no Defense Costs exception.

Class Action Complaint.  The bank customer’s “opening allegation stated: ‘This is a civil action seeking monetary damages, restitution and declaratory relief from [the bank] arising from its unfair and unconscionable assessment and collection of excessive overdraft fees.’” The complaint alleged that the bank “maximized the amount of overdraft fees it could charge customers through a variety of means, policies, and procedures” including by “reorder[ing] debts from highest to lowest, instead of chronologically,” “fail[ing] to provide accurate balance information, and purposefully delay[ing] posting transactions,” “fail[ing] to notify customers of overdrafts, despite having the capability to ascertain at the point of sale whether there were sufficient funds in a customer’s account,” and “fail[ing] to make their customers aware that they can opt out of [the bank’s] overdraft policy upon request.” The customer asserted counts for breach of contract, unconscionability, conversion, unjust enrichment, and violation of the Arkansas Deceptive Trade Practices Act. He also sought to represent a class of “[a]ll customers in the United States who … incurred an overdraft fee as a result of the bank’s practice of resequencing debit card transactions from highest to lowest.”  As relief, the customer, for himself and the class, sought a declaration that the bank’s “overdraft fee policies and practices” were “wrongful, unfair, and unconscionable,” “[r]estitution of overdraft fees,”‘[d]isgorgement of ill-gotten gains,” ‘[a]ctual damages,” ‘[p]unitive and exemplary damages,” “[p]re-judgment interest,” “costs and disbursements,” and “other relief” as “just and proper.”

Duty to defend: As is typical and as was the case under Mississippi law, whether the insurer had a duty to defend “depend[ed] upon the comparison of the language contained in the policy with the allegations contained in the underlying action.” In this instance, it was about “compar[ing] … [the fee exclusion], which excludes from coverage any claim ‘based upon, arising from, or in consequence of any fees or charges,’ with the allegations in the [customer’s] Complaint.”

That the complaint included allegations that didn’t mention overdraft fees didn’t matter. “[T]hese individual allegations cannot be read in a vacuum, and instead, must be read in the context of the entire complaint.” “Read in its entirety, the only harm alleged by the [customer’s] complaint is [the bank’s] maximization of excessive overdraft fees on its customers.” As the Court explained further:

The very first paragraph of the … Complaint specifically states that the crux of the lawsuit centers on [the bank’s] “unfair and unconscionable assessment and collection of excessive overdraft fees.” Moreover, the complaint defines the class of plaintiffs as customers who “incurred an overdraft fee.” Finally, every claim for relief asserted is specifically premised on the imposition of overdraft fees.

The bank argued that the insurer had a duty to defend inasmuch as, per the complaint, “policies and procedures caused the customers’ alleged injuries, and [excluded] overdraft fees were one type of damages suffered as a result.”  Rejecting that argument, the Court explained: “To be sure, language focusing on ‘overdraft policies and procedures’ appears in a number of places, but it is always connected with the wrongful collection or imposition of overdraft fees.”

The bank also argued that the fee exclusion was ambiguous, inasmuch as it didn’t say whether the “fees” were “payable to or by” the bank.  Rejecting that argument, the Court explained that the fee exclusion by its plain wording, broadly applied to a “Claim … arising from … any fees or charges,” whether paid by or to the bank.

The Court also rejected the bank’s argument that reading the fee exclusion as including overdraft fees paid by customers to the bank would make the “coverage for ‘Defense Costs,’ defined in the policy to include attorneys’ fees, illusory.” The Court explained that the ‘exclusion has no effect on [the bank’s] recovery of any attorneys’ fees on account of claims that are based on something other than fees or charges, such as a claim based on the quality of services provided by [the bank].”

The Court also stressed that an insurer’s “decision” to include a fee exclusion in a professional liability policy “serves a necessary purpose of avoiding ‘moral hazard.’” Without the exclusion, the insured “could freely create other customer fee schemes knowing that they would be readily reimbursed by” its insurer.

Comments: Here’s a summary of other recent cases addressing coverage for overdraft class actions and issues similar to those in BancorpSouth:

Fidelity Bank v. Chartis Specialty Ins. Co., Civil Action No. 1:12-CV-4259-RWS (N.D. Ga. 2013)(here), applying Georgia law, addressed a “fee-dispute” exclusion, applicable to “Loss in connection with any Claim made against any Insured . . . alleging, arising out of, based upon or 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.” Given the “fee-dispute” exclusion’s Defense-Costs exception, the insurer funded the bank’s defense of the overdraft class action. But it refused to pay the settlement. The District Court granted the insurer a summary judgment, holding that the settlement was uninsurable because the payments amounted to restitution and in any event fell within the fee-dispute exclusion.

  U.S. Bank National Association v. Indian Harbor Insurance Company, Case No. 12-CV-3175 (PAM/JSM) (D. Minn. Dec. 16, 2014)(here), applying Delaware law, addressed exceptions to primary and excess policies’ “Loss” definitions, for “[m]atters which are uninsurable under the law pursuant to which this Policy is construed” or “principal, interest, or other monies either paid, accrued, or due as the result of any loan, lease or extension of credit by [the bank]”; and an exclusion for “any payment for Loss in connection with any Claim made against [the bank] . . . brought about or contributed in fact by any . . . profit or remuneration gained by [the bank] to which [it] is not legally entitled . . . as determined by a final adjudication in the underlying action.” The bank settled the underlying overdraft class action for $55 million, and sought coverage for $30 million of that amount plus defense expenses, excess of a $25 million deductible. The District Court granted the bank a summary judgment, rejecting the insurers’ argument that the settlement was uninsurable as restitution. Without deciding whether restitution was insurable, the Court—citing the “final adjudication” wording in the policies’ ill-gotten gains exclusion—explained that 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.” See Kevin LaCroix’s December 22, 2014 D&O Diary blog post (here) for a detailed discussion of this aspect of this somewhat controversial decision. When procuring the policies, US Bank’s broker and risk manager had no need to worry about a Defense Costs exception to a fee exclusion; there was no exclusion.

  First Community Bancshares v. St. Paul Mercury Ins. Co., 593 F. App’x 286, 288 (5th Cir. 2014)(here) involved a fee-dispute exclusion for a claim “based upon, arising out of or attributable to any dispute involving fees or charges,” with no Defense Costs exception, but with duty-to-defend wording. The Fifth Circuit, applying Texas law, affirmed a summary judgment for the bank and against the insurer holding that the insurer had a duty to defend. “Construing the [underlying class action] petitions liberally … at least some of the allegations … are not excluded by the fee-dispute exclusion.” Some of the allegations—“regarding [the bank] providing misleading information on its account practices and customers’ account balances–… do not have a causal connection to a disagreement that necessarily includes fees ….” As the Seventh Circuit in BancorpSouth stated: “Crucial to the … [First Community] holding … was [the Fifth Circuit’s] finding that the primary harm was not the assessment and collection of fees, but rather ‘that “customers could not ascertain their account balances and could not accurately plan spending, withdrawals, and deposits.’” In contrast, the BancorpSouth underlying class-action complaint showed that “excessive overdraft fees were the central and only harm”; so there was no duty to defend or pay the settlement. Although the insurer in First Community was required to defend notwithstanding a fee-dispute exclusion with no Defense-Costs exception, it was only because plaintiff’s complaint fortuitously included some allegations falling outside of that exclusion and the bank benefited from pro-policyholder rules for determining an insurer’s obligations under a duty-to-defend policy. The bank in BancorpSouth had no such luck.

  PNC Financial Services. Group, Inc. v. Houston Casualty Co., 647 F. App’x 112, 120 (3d Cir. 2016) (not precedential) (here) involved policies insuring “Loss,” meaning “Claim Expenses” and “Damages”—defined as “a judgment, award, surcharge, or settlement … and any award of pre- and post- judgment interest, attorneys’ fees and costs,” but with an exception for “fees, commissions or charges for Professional Services paid or payable to an Insured” (the “Professional Services Charge Exception”). “Claim Expenses” (defense costs) for a fee suit, thus, weren’t subject to the Loss definition’s Professional Services Charge Exception or to any fee exclusion; so the insurer here would have been required to pay Claim Expenses exceeding a $25 million self-insured retention. The Third Circuit, applying Pennsylvania law, held that the $102 million paid by the bank to settle the underlying overdraft charge class actions (including $30 million for class counsel fees) fell within the Professional Services Charge Exception; defense expenses presumably fell within the $25 million self-insured retention. As the Seventh Circuit in BancorpSouth explained, the insurer in the PNC case had no duty to indemnify the insured where “the class was defined as those who incurred an overdraft fee” and “settlement payments were based on the number of overdraft fees incurred.” As in BancorpSouth: “The essence of [the bank customer’s] Complaint [in PNC was] clearly [the bank’s] maximization of overdraft fees. Since there’s no other was to construe the … Complaint, [the insurer in PNC] had no duty to defend the overdraft fee claims because they are excluded from coverage.” So too in BancorpSouth.

  The plaintiffs’ bar has targeted banks and others with class actions alleging they improperly charged fees to consumers. Many suits involved multiples of millions in alleged harm and resulted in multi-million dollar settlements. Defense costs also ran into multiples of millions. In 2010, new Federal rules provided consumers a chance to avoid overdraft fees on certain debit card transactions and ATM withdrawals. But, as a simple Google search will show, that didn’t end the overdraft fee class actions. Earlier this year the Consumer Protection Financial Bureau adopted a rule barring banks, credit-card companies, and financial service firms from requiring consumers to agree to arbitration clauses and class-action waivers. But the Trump administration just struck that rule. So presumably we’ll see fewer consumer class actions involving improper fee charges.

Bottom line: But if you’re a broker or risk manager, why not make sure the policy you’re buying at least has Defense Costs coverage for these types of cases.

  The post Guest Post: Fee Exclusion Precludes Coverage with No Allowance for Defense Costs appeared first on The D&O Diary.

Guest Post: Fee Exclusion Precludes Coverage with No Allowance for Defense Costs published first on http://ift.tt/2kTPCwo

[lawfultruth]

Guest Post: Fee Exclusion Precludes Coverage with No Allowance for Defense Costs

Chris Graham

Shelly Hall

In prior posts (most recently here) I have reviewed cases in which courts considered the question of insurance coverage for a bank’s obligation to repay allegedly improper overdraft fees.  The following guest post discusses a recent overdraft fee coverage case from the Seventh Circuit. BancorpSouth v. Federal Insurance Co. (the opinion can be found here). In this guest post, Chris Graham, a founding partner of Jones Lemon Graham LLP, and Shelly Hall, an attorney at the firm and business law adjunct professor, provide an overview of the Seventh Circuit case and also provides a chronology of other overdraft fee coverage cases.  A prior version of this article previously appeared on the law firm’s website (here). I would like to thank Chris and Shelly for their willingness to allow me to publish their article as a guest post. I welcome guest post submissions from responsible authors on topics of interest to this blog’s readers. Please contact me directly if you would like to submit an article. Here is Chris and Shelly’s guest post.

******************************

Summary: Today’s post focuses on a recent Seventh Circuit decision, BancorpSouth v. Federal Insurance Co., No. 17-1425 (7th Cir. Oct. 12, 2017) (here), affirming dismissal, for failure to state a legally viable claim, of a bank’s complaint against an insurer for alleged breach of a duty to defend and pay for a $24 million settlement of a consumer class action alleging improper overdraft fees, and related “bad faith.” It involved a duty-to-defend policy and a broad “fee” exclusion and, although other policies provide otherwise, this one had no exception for Defense Expenses. At the end of this post, we discuss other cases involving similar issues, but with different policy wording and, in some cases, different results. If you’re a broker or a risk manager, this case and those discussed at the end show why you should insist on a Defense Costs exception to a fee exclusion.

The coverage suit: In BancorpSouth, a bank sued an insurer for breaching a contract by failing to defend a class action and pay for a related $24 million settlement and for bad faith. Citing the policy’s exclusion “for Loss on account of any Claim … arising from … any fees or charges,” the Southern District of Indiana, applying Mississippi law, dismissed the bank’s complaint for failure to state a legally viable claim. Given the allegations in the complaint, the Court concluded that the insurer had no duty to defend. Because the duty to defend is broader than the duty to indemnify, moreover, the insurer had no obligation for the settlement; nor was there bad faith. The Seventh Circuit affirmed.

Policy wording: Subject to the policy’s terms, the insurer agreed to “pay, on behalf of an Insured, Loss on account of any Claim first made against such Insured during the Policy Period…for a Wrongful Act committed by an Insured or any person for whose acts the Insured is legally liable while performing Professional Services, including failure to perform Professional Services.”  The duty-to-defend policy included a “fee” exclusion providing that the insurer “shall not be liable for Loss on account of any Claim…based upon, arising from, or in consequence of any fees or charges.”  “Loss” included “Defenses Costs” and settlement costs. But the fee exclusion had no Defense Costs exception.

Class Action Complaint.  The bank customer’s “opening allegation stated: ‘This is a civil action seeking monetary damages, restitution and declaratory relief from [the bank] arising from its unfair and unconscionable assessment and collection of excessive overdraft fees.’” The complaint alleged that the bank “maximized the amount of overdraft fees it could charge customers through a variety of means, policies, and procedures” including by “reorder[ing] debts from highest to lowest, instead of chronologically,” “fail[ing] to provide accurate balance information, and purposefully delay[ing] posting transactions,” “fail[ing] to notify customers of overdrafts, despite having the capability to ascertain at the point of sale whether there were sufficient funds in a customer’s account,” and “fail[ing] to make their customers aware that they can opt out of [the bank’s] overdraft policy upon request.” The customer asserted counts for breach of contract, unconscionability, conversion, unjust enrichment, and violation of the Arkansas Deceptive Trade Practices Act. He also sought to represent a class of “[a]ll customers in the United States who … incurred an overdraft fee as a result of the bank’s practice of resequencing debit card transactions from highest to lowest.”  As relief, the customer, for himself and the class, sought a declaration that the bank’s “overdraft fee policies and practices” were “wrongful, unfair, and unconscionable,” “[r]estitution of overdraft fees,”‘[d]isgorgement of ill-gotten gains,” ‘[a]ctual damages,” ‘[p]unitive and exemplary damages,” “[p]re-judgment interest,” “costs and disbursements,” and “other relief” as “just and proper.”

Duty to defend: As is typical and as was the case under Mississippi law, whether the insurer had a duty to defend “depend[ed] upon the comparison of the language contained in the policy with the allegations contained in the underlying action.” In this instance, it was about “compar[ing] … [the fee exclusion], which excludes from coverage any claim ‘based upon, arising from, or in consequence of any fees or charges,’ with the allegations in the [customer’s] Complaint.”

That the complaint included allegations that didn’t mention overdraft fees didn’t matter. “[T]hese individual allegations cannot be read in a vacuum, and instead, must be read in the context of the entire complaint.” “Read in its entirety, the only harm alleged by the [customer’s] complaint is [the bank’s] maximization of excessive overdraft fees on its customers.” As the Court explained further:

The very first paragraph of the … Complaint specifically states that the crux of the lawsuit centers on [the bank’s] “unfair and unconscionable assessment and collection of excessive overdraft fees.” Moreover, the complaint defines the class of plaintiffs as customers who “incurred an overdraft fee.” Finally, every claim for relief asserted is specifically premised on the imposition of overdraft fees.

The bank argued that the insurer had a duty to defend inasmuch as, per the complaint, “policies and procedures caused the customers’ alleged injuries, and [excluded] overdraft fees were one type of damages suffered as a result.”  Rejecting that argument, the Court explained: “To be sure, language focusing on ‘overdraft policies and procedures’ appears in a number of places, but it is always connected with the wrongful collection or imposition of overdraft fees.”

The bank also argued that the fee exclusion was ambiguous, inasmuch as it didn’t say whether the “fees” were “payable to or by” the bank.  Rejecting that argument, the Court explained that the fee exclusion by its plain wording, broadly applied to a “Claim … arising from … any fees or charges,” whether paid by or to the bank.

The Court also rejected the bank’s argument that reading the fee exclusion as including overdraft fees paid by customers to the bank would make the “coverage for ‘Defense Costs,’ defined in the policy to include attorneys’ fees, illusory.” The Court explained that the ‘exclusion has no effect on [the bank’s] recovery of any attorneys’ fees on account of claims that are based on something other than fees or charges, such as a claim based on the quality of services provided by [the bank].”

The Court also stressed that an insurer’s “decision” to include a fee exclusion in a professional liability policy “serves a necessary purpose of avoiding ‘moral hazard.’” Without the exclusion, the insured “could freely create other customer fee schemes knowing that they would be readily reimbursed by” its insurer.

Comments: Here’s a summary of other recent cases addressing coverage for overdraft class actions and issues similar to those in BancorpSouth:

Fidelity Bank v. Chartis Specialty Ins. Co., Civil Action No. 1:12-CV-4259-RWS (N.D. Ga. 2013)(here), applying Georgia law, addressed a “fee-dispute” exclusion, applicable to “Loss in connection with any Claim made against any Insured . . . alleging, arising out of, based upon or 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.” Given the “fee-dispute” exclusion’s Defense-Costs exception, the insurer funded the bank’s defense of the overdraft class action. But it refused to pay the settlement. The District Court granted the insurer a summary judgment, holding that the settlement was uninsurable because the payments amounted to restitution and in any event fell within the fee-dispute exclusion.

  U.S. Bank National Association v. Indian Harbor Insurance Company, Case No. 12-CV-3175 (PAM/JSM) (D. Minn. Dec. 16, 2014)(here), applying Delaware law, addressed exceptions to primary and excess policies’ “Loss” definitions, for “[m]atters which are uninsurable under the law pursuant to which this Policy is construed” or “principal, interest, or other monies either paid, accrued, or due as the result of any loan, lease or extension of credit by [the bank]”; and an exclusion for “any payment for Loss in connection with any Claim made against [the bank] . . . brought about or contributed in fact by any . . . profit or remuneration gained by [the bank] to which [it] is not legally entitled . . . as determined by a final adjudication in the underlying action.” The bank settled the underlying overdraft class action for $55 million, and sought coverage for $30 million of that amount plus defense expenses, excess of a $25 million deductible. The District Court granted the bank a summary judgment, rejecting the insurers’ argument that the settlement was uninsurable as restitution. Without deciding whether restitution was insurable, the Court—citing the “final adjudication” wording in the policies’ ill-gotten gains exclusion—explained that 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.” See Kevin LaCroix’s December 22, 2014 D&O Diary blog post (here) for a detailed discussion of this aspect of this somewhat controversial decision. When procuring the policies, US Bank’s broker and risk manager had no need to worry about a Defense Costs exception to a fee exclusion; there was no exclusion.

  First Community Bancshares v. St. Paul Mercury Ins. Co., 593 F. App’x 286, 288 (5th Cir. 2014)(here) involved a fee-dispute exclusion for a claim “based upon, arising out of or attributable to any dispute involving fees or charges,” with no Defense Costs exception, but with duty-to-defend wording. The Fifth Circuit, applying Texas law, affirmed a summary judgment for the bank and against the insurer holding that the insurer had a duty to defend. “Construing the [underlying class action] petitions liberally … at least some of the allegations … are not excluded by the fee-dispute exclusion.” Some of the allegations—“regarding [the bank] providing misleading information on its account practices and customers’ account balances–… do not have a causal connection to a disagreement that necessarily includes fees ….” As the Seventh Circuit in BancorpSouth stated: “Crucial to the … [First Community] holding … was [the Fifth Circuit’s] finding that the primary harm was not the assessment and collection of fees, but rather ‘that “customers could not ascertain their account balances and could not accurately plan spending, withdrawals, and deposits.’” In contrast, the BancorpSouth underlying class-action complaint showed that “excessive overdraft fees were the central and only harm”; so there was no duty to defend or pay the settlement. Although the insurer in First Community was required to defend notwithstanding a fee-dispute exclusion with no Defense-Costs exception, it was only because plaintiff’s complaint fortuitously included some allegations falling outside of that exclusion and the bank benefited from pro-policyholder rules for determining an insurer’s obligations under a duty-to-defend policy. The bank in BancorpSouth had no such luck.

  PNC Financial Services. Group, Inc. v. Houston Casualty Co., 647 F. App’x 112, 120 (3d Cir. 2016) (not precedential) (here) involved policies insuring “Loss,” meaning “Claim Expenses” and “Damages”—defined as “a judgment, award, surcharge, or settlement … and any award of pre- and post- judgment interest, attorneys’ fees and costs,” but with an exception for “fees, commissions or charges for Professional Services paid or payable to an Insured” (the “Professional Services Charge Exception”). “Claim Expenses” (defense costs) for a fee suit, thus, weren’t subject to the Loss definition’s Professional Services Charge Exception or to any fee exclusion; so the insurer here would have been required to pay Claim Expenses exceeding a $25 million self-insured retention. The Third Circuit, applying Pennsylvania law, held that the $102 million paid by the bank to settle the underlying overdraft charge class actions (including $30 million for class counsel fees) fell within the Professional Services Charge Exception; defense expenses presumably fell within the $25 million self-insured retention. As the Seventh Circuit in BancorpSouth explained, the insurer in the PNC case had no duty to indemnify the insured where “the class was defined as those who incurred an overdraft fee” and “settlement payments were based on the number of overdraft fees incurred.” As in BancorpSouth: “The essence of [the bank customer’s] Complaint [in PNC was] clearly [the bank’s] maximization of overdraft fees. Since there’s no other was to construe the … Complaint, [the insurer in PNC] had no duty to defend the overdraft fee claims because they are excluded from coverage.” So too in BancorpSouth.

  The plaintiffs’ bar has targeted banks and others with class actions alleging they improperly charged fees to consumers. Many suits involved multiples of millions in alleged harm and resulted in multi-million dollar settlements. Defense costs also ran into multiples of millions. In 2010, new Federal rules provided consumers a chance to avoid overdraft fees on certain debit card transactions and ATM withdrawals. But, as a simple Google search will show, that didn’t end the overdraft fee class actions. Earlier this year the Consumer Protection Financial Bureau adopted a rule barring banks, credit-card companies, and financial service firms from requiring consumers to agree to arbitration clauses and class-action waivers. But the Trump administration just struck that rule. So presumably we’ll see fewer consumer class actions involving improper fee charges.

Bottom line: But if you’re a broker or risk manager, why not make sure the policy you’re buying at least has Defense Costs coverage for these types of cases.

  The post Guest Post: Fee Exclusion Precludes Coverage with No Allowance for Defense Costs appeared first on The D&O Diary.

Guest Post: Fee Exclusion Precludes Coverage with No Allowance for Defense Costs syndicated from http://ift.tt/2qyreAv

[golicit]

Guest Post: Fee Exclusion Precludes Coverage with No Allowance for Defense Costs

Chris Graham

Shelly Hall

In prior posts (most recently here) I have reviewed cases in which courts considered the question of insurance coverage for a bank’s obligation to repay allegedly improper overdraft fees.  The following guest post discusses a recent overdraft fee coverage case from the Seventh Circuit. BancorpSouth v. Federal Insurance Co. (the opinion can be found here). In this guest post, Chris Graham, a founding partner of Jones Lemon Graham LLP, and Shelly Hall, an attorney at the firm and business law adjunct professor, provide an overview of the Seventh Circuit case and also provides a chronology of other overdraft fee coverage cases.  A prior version of this article previously appeared on the law firm’s website (here). I would like to thank Chris and Shelly for their willingness to allow me to publish their article as a guest post. I welcome guest post submissions from responsible authors on topics of interest to this blog’s readers. Please contact me directly if you would like to submit an article. Here is Chris and Shelly’s guest post.

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Summary: Today’s post focuses on a recent Seventh Circuit decision, BancorpSouth v. Federal Insurance Co., No. 17-1425 (7th Cir. Oct. 12, 2017) (here), affirming dismissal, for failure to state a legally viable claim, of a bank’s complaint against an insurer for alleged breach of a duty to defend and pay for a $24 million settlement of a consumer class action alleging improper overdraft fees, and related “bad faith.” It involved a duty-to-defend policy and a broad “fee” exclusion and, although other policies provide otherwise, this one had no exception for Defense Expenses. At the end of this post, we discuss other cases involving similar issues, but with different policy wording and, in some cases, different results. If you’re a broker or a risk manager, this case and those discussed at the end show why you should insist on a Defense Costs exception to a fee exclusion.

The coverage suit: In BancorpSouth, a bank sued an insurer for breaching a contract by failing to defend a class action and pay for a related $24 million settlement and for bad faith. Citing the policy’s exclusion “for Loss on account of any Claim … arising from … any fees or charges,” the Southern District of Indiana, applying Mississippi law, dismissed the bank’s complaint for failure to state a legally viable claim. Given the allegations in the complaint, the Court concluded that the insurer had no duty to defend. Because the duty to defend is broader than the duty to indemnify, moreover, the insurer had no obligation for the settlement; nor was there bad faith. The Seventh Circuit affirmed.

Policy wording: Subject to the policy’s terms, the insurer agreed to “pay, on behalf of an Insured, Loss on account of any Claim first made against such Insured during the Policy Period…for a Wrongful Act committed by an Insured or any person for whose acts the Insured is legally liable while performing Professional Services, including failure to perform Professional Services.”  The duty-to-defend policy included a “fee” exclusion providing that the insurer “shall not be liable for Loss on account of any Claim…based upon, arising from, or in consequence of any fees or charges.”  “Loss” included “Defenses Costs” and settlement costs. But the fee exclusion had no Defense Costs exception.

Class Action Complaint.  The bank customer’s “opening allegation stated: ‘This is a civil action seeking monetary damages, restitution and declaratory relief from [the bank] arising from its unfair and unconscionable assessment and collection of excessive overdraft fees.’” The complaint alleged that the bank “maximized the amount of overdraft fees it could charge customers through a variety of means, policies, and procedures” including by “reorder[ing] debts from highest to lowest, instead of chronologically,” “fail[ing] to provide accurate balance information, and purposefully delay[ing] posting transactions,” “fail[ing] to notify customers of overdrafts, despite having the capability to ascertain at the point of sale whether there were sufficient funds in a customer’s account,” and “fail[ing] to make their customers aware that they can opt out of [the bank’s] overdraft policy upon request.” The customer asserted counts for breach of contract, unconscionability, conversion, unjust enrichment, and violation of the Arkansas Deceptive Trade Practices Act. He also sought to represent a class of “[a]ll customers in the United States who … incurred an overdraft fee as a result of the bank’s practice of resequencing debit card transactions from highest to lowest.”  As relief, the customer, for himself and the class, sought a declaration that the bank’s “overdraft fee policies and practices” were “wrongful, unfair, and unconscionable,” “[r]estitution of overdraft fees,”‘[d]isgorgement of ill-gotten gains,” ‘[a]ctual damages,” ‘[p]unitive and exemplary damages,” “[p]re-judgment interest,” “costs and disbursements,” and “other relief” as “just and proper.”

Duty to defend: As is typical and as was the case under Mississippi law, whether the insurer had a duty to defend “depend[ed] upon the comparison of the language contained in the policy with the allegations contained in the underlying action.” In this instance, it was about “compar[ing] … [the fee exclusion], which excludes from coverage any claim ‘based upon, arising from, or in consequence of any fees or charges,’ with the allegations in the [customer’s] Complaint.”

That the complaint included allegations that didn’t mention overdraft fees didn’t matter. “[T]hese individual allegations cannot be read in a vacuum, and instead, must be read in the context of the entire complaint.” “Read in its entirety, the only harm alleged by the [customer’s] complaint is [the bank’s] maximization of excessive overdraft fees on its customers.” As the Court explained further:

The very first paragraph of the … Complaint specifically states that the crux of the lawsuit centers on [the bank’s] “unfair and unconscionable assessment and collection of excessive overdraft fees.” Moreover, the complaint defines the class of plaintiffs as customers who “incurred an overdraft fee.” Finally, every claim for relief asserted is specifically premised on the imposition of overdraft fees.

The bank argued that the insurer had a duty to defend inasmuch as, per the complaint, “policies and procedures caused the customers’ alleged injuries, and [excluded] overdraft fees were one type of damages suffered as a result.”  Rejecting that argument, the Court explained: “To be sure, language focusing on ‘overdraft policies and procedures’ appears in a number of places, but it is always connected with the wrongful collection or imposition of overdraft fees.”

The bank also argued that the fee exclusion was ambiguous, inasmuch as it didn’t say whether the “fees” were “payable to or by” the bank.  Rejecting that argument, the Court explained that the fee exclusion by its plain wording, broadly applied to a “Claim … arising from … any fees or charges,” whether paid by or to the bank.

The Court also rejected the bank’s argument that reading the fee exclusion as including overdraft fees paid by customers to the bank would make the “coverage for ‘Defense Costs,’ defined in the policy to include attorneys’ fees, illusory.” The Court explained that the ‘exclusion has no effect on [the bank’s] recovery of any attorneys’ fees on account of claims that are based on something other than fees or charges, such as a claim based on the quality of services provided by [the bank].”

The Court also stressed that an insurer’s “decision” to include a fee exclusion in a professional liability policy “serves a necessary purpose of avoiding ‘moral hazard.’” Without the exclusion, the insured “could freely create other customer fee schemes knowing that they would be readily reimbursed by” its insurer.

Comments: Here’s a summary of other recent cases addressing coverage for overdraft class actions and issues similar to those in BancorpSouth:

Fidelity Bank v. Chartis Specialty Ins. Co., Civil Action No. 1:12-CV-4259-RWS (N.D. Ga. 2013)(here), applying Georgia law, addressed a “fee-dispute” exclusion, applicable to “Loss in connection with any Claim made against any Insured . . . alleging, arising out of, based upon or 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.” Given the “fee-dispute” exclusion’s Defense-Costs exception, the insurer funded the bank’s defense of the overdraft class action. But it refused to pay the settlement. The District Court granted the insurer a summary judgment, holding that the settlement was uninsurable because the payments amounted to restitution and in any event fell within the fee-dispute exclusion.

  U.S. Bank National Association v. Indian Harbor Insurance Company, Case No. 12-CV-3175 (PAM/JSM) (D. Minn. Dec. 16, 2014)(here), applying Delaware law, addressed exceptions to primary and excess policies’ “Loss” definitions, for “[m]atters which are uninsurable under the law pursuant to which this Policy is construed” or “principal, interest, or other monies either paid, accrued, or due as the result of any loan, lease or extension of credit by [the bank]”; and an exclusion for “any payment for Loss in connection with any Claim made against [the bank] . . . brought about or contributed in fact by any . . . profit or remuneration gained by [the bank] to which [it] is not legally entitled . . . as determined by a final adjudication in the underlying action.” The bank settled the underlying overdraft class action for $55 million, and sought coverage for $30 million of that amount plus defense expenses, excess of a $25 million deductible. The District Court granted the bank a summary judgment, rejecting the insurers’ argument that the settlement was uninsurable as restitution. Without deciding whether restitution was insurable, the Court—citing the “final adjudication” wording in the policies’ ill-gotten gains exclusion—explained that 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.” See Kevin LaCroix’s December 22, 2014 D&O Diary blog post (here) for a detailed discussion of this aspect of this somewhat controversial decision. When procuring the policies, US Bank’s broker and risk manager had no need to worry about a Defense Costs exception to a fee exclusion; there was no exclusion.

  First Community Bancshares v. St. Paul Mercury Ins. Co., 593 F. App’x 286, 288 (5th Cir. 2014)(here) involved a fee-dispute exclusion for a claim “based upon, arising out of or attributable to any dispute involving fees or charges,” with no Defense Costs exception, but with duty-to-defend wording. The Fifth Circuit, applying Texas law, affirmed a summary judgment for the bank and against the insurer holding that the insurer had a duty to defend. “Construing the [underlying class action] petitions liberally … at least some of the allegations … are not excluded by the fee-dispute exclusion.” Some of the allegations—“regarding [the bank] providing misleading information on its account practices and customers’ account balances–… do not have a causal connection to a disagreement that necessarily includes fees ….” As the Seventh Circuit in BancorpSouth stated: “Crucial to the … [First Community] holding … was [the Fifth Circuit’s] finding that the primary harm was not the assessment and collection of fees, but rather ‘that “customers could not ascertain their account balances and could not accurately plan spending, withdrawals, and deposits.’” In contrast, the BancorpSouth underlying class-action complaint showed that “excessive overdraft fees were the central and only harm”; so there was no duty to defend or pay the settlement. Although the insurer in First Community was required to defend notwithstanding a fee-dispute exclusion with no Defense-Costs exception, it was only because plaintiff’s complaint fortuitously included some allegations falling outside of that exclusion and the bank benefited from pro-policyholder rules for determining an insurer’s obligations under a duty-to-defend policy. The bank in BancorpSouth had no such luck.

  PNC Financial Services. Group, Inc. v. Houston Casualty Co., 647 F. App’x 112, 120 (3d Cir. 2016) (not precedential) (here) involved policies insuring “Loss,” meaning “Claim Expenses” and “Damages”—defined as “a judgment, award, surcharge, or settlement … and any award of pre- and post- judgment interest, attorneys’ fees and costs,” but with an exception for “fees, commissions or charges for Professional Services paid or payable to an Insured” (the “Professional Services Charge Exception”). “Claim Expenses” (defense costs) for a fee suit, thus, weren’t subject to the Loss definition’s Professional Services Charge Exception or to any fee exclusion; so the insurer here would have been required to pay Claim Expenses exceeding a $25 million self-insured retention. The Third Circuit, applying Pennsylvania law, held that the $102 million paid by the bank to settle the underlying overdraft charge class actions (including $30 million for class counsel fees) fell within the Professional Services Charge Exception; defense expenses presumably fell within the $25 million self-insured retention. As the Seventh Circuit in BancorpSouth explained, the insurer in the PNC case had no duty to indemnify the insured where “the class was defined as those who incurred an overdraft fee” and “settlement payments were based on the number of overdraft fees incurred.” As in BancorpSouth: “The essence of [the bank customer’s] Complaint [in PNC was] clearly [the bank’s] maximization of overdraft fees. Since there’s no other was to construe the … Complaint, [the insurer in PNC] had no duty to defend the overdraft fee claims because they are excluded from coverage.” So too in BancorpSouth.

  The plaintiffs’ bar has targeted banks and others with class actions alleging they improperly charged fees to consumers. Many suits involved multiples of millions in alleged harm and resulted in multi-million dollar settlements. Defense costs also ran into multiples of millions. In 2010, new Federal rules provided consumers a chance to avoid overdraft fees on certain debit card transactions and ATM withdrawals. But, as a simple Google search will show, that didn’t end the overdraft fee class actions. Earlier this year the Consumer Protection Financial Bureau adopted a rule barring banks, credit-card companies, and financial service firms from requiring consumers to agree to arbitration clauses and class-action waivers. But the Trump administration just struck that rule. So presumably we’ll see fewer consumer class actions involving improper fee charges.

Bottom line: But if you’re a broker or risk manager, why not make sure the policy you’re buying at least has Defense Costs coverage for these types of cases.

  The post Guest Post: Fee Exclusion Precludes Coverage with No Allowance for Defense Costs appeared first on The D&O Diary.

Guest Post: Fee Exclusion Precludes Coverage with No Allowance for Defense Costs published first on

[simonconsultancypage]

Guest Post: Fee Exclusion Precludes Coverage with No Allowance for Defense Costs

Chris Graham

Shelly Hall

In prior posts (most recently here) I have reviewed cases in which courts considered the question of insurance coverage for a bank’s obligation to repay allegedly improper overdraft fees.  The following guest post discusses a recent overdraft fee coverage case from the Seventh Circuit. BancorpSouth v. Federal Insurance Co. (the opinion can be found here). In this guest post, Chris Graham, a founding partner of Jones Lemon Graham LLP, and Shelly Hall, an attorney at the firm and business law adjunct professor, provide an overview of the Seventh Circuit case and also provides a chronology of other overdraft fee coverage cases.  A prior version of this article previously appeared on the law firm’s website (here). I would like to thank Chris and Shelly for their willingness to allow me to publish their article as a guest post. I welcome guest post submissions from responsible authors on topics of interest to this blog’s readers. Please contact me directly if you would like to submit an article. Here is Chris and Shelly’s guest post.

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Summary: Today’s post focuses on a recent Seventh Circuit decision, BancorpSouth v. Federal Insurance Co., No. 17-1425 (7th Cir. Oct. 12, 2017) (here), affirming dismissal, for failure to state a legally viable claim, of a bank’s complaint against an insurer for alleged breach of a duty to defend and pay for a $24 million settlement of a consumer class action alleging improper overdraft fees, and related “bad faith.” It involved a duty-to-defend policy and a broad “fee” exclusion and, although other policies provide otherwise, this one had no exception for Defense Expenses. At the end of this post, we discuss other cases involving similar issues, but with different policy wording and, in some cases, different results. If you’re a broker or a risk manager, this case and those discussed at the end show why you should insist on a Defense Costs exception to a fee exclusion.

The coverage suit: In BancorpSouth, a bank sued an insurer for breaching a contract by failing to defend a class action and pay for a related $24 million settlement and for bad faith. Citing the policy’s exclusion “for Loss on account of any Claim … arising from … any fees or charges,” the Southern District of Indiana, applying Mississippi law, dismissed the bank’s complaint for failure to state a legally viable claim. Given the allegations in the complaint, the Court concluded that the insurer had no duty to defend. Because the duty to defend is broader than the duty to indemnify, moreover, the insurer had no obligation for the settlement; nor was there bad faith. The Seventh Circuit affirmed.

Policy wording: Subject to the policy’s terms, the insurer agreed to “pay, on behalf of an Insured, Loss on account of any Claim first made against such Insured during the Policy Period…for a Wrongful Act committed by an Insured or any person for whose acts the Insured is legally liable while performing Professional Services, including failure to perform Professional Services.”  The duty-to-defend policy included a “fee” exclusion providing that the insurer “shall not be liable for Loss on account of any Claim…based upon, arising from, or in consequence of any fees or charges.”  “Loss” included “Defenses Costs” and settlement costs. But the fee exclusion had no Defense Costs exception.

Class Action Complaint.  The bank customer’s “opening allegation stated: ‘This is a civil action seeking monetary damages, restitution and declaratory relief from [the bank] arising from its unfair and unconscionable assessment and collection of excessive overdraft fees.’” The complaint alleged that the bank “maximized the amount of overdraft fees it could charge customers through a variety of means, policies, and procedures” including by “reorder[ing] debts from highest to lowest, instead of chronologically,” “fail[ing] to provide accurate balance information, and purposefully delay[ing] posting transactions,” “fail[ing] to notify customers of overdrafts, despite having the capability to ascertain at the point of sale whether there were sufficient funds in a customer’s account,” and “fail[ing] to make their customers aware that they can opt out of [the bank’s] overdraft policy upon request.” The customer asserted counts for breach of contract, unconscionability, conversion, unjust enrichment, and violation of the Arkansas Deceptive Trade Practices Act. He also sought to represent a class of “[a]ll customers in the United States who … incurred an overdraft fee as a result of the bank’s practice of resequencing debit card transactions from highest to lowest.”  As relief, the customer, for himself and the class, sought a declaration that the bank’s “overdraft fee policies and practices” were “wrongful, unfair, and unconscionable,” “[r]estitution of overdraft fees,”‘[d]isgorgement of ill-gotten gains,” ‘[a]ctual damages,” ‘[p]unitive and exemplary damages,” “[p]re-judgment interest,” “costs and disbursements,” and “other relief” as “just and proper.”

Duty to defend: As is typical and as was the case under Mississippi law, whether the insurer had a duty to defend “depend[ed] upon the comparison of the language contained in the policy with the allegations contained in the underlying action.” In this instance, it was about “compar[ing] … [the fee exclusion], which excludes from coverage any claim ‘based upon, arising from, or in consequence of any fees or charges,’ with the allegations in the [customer’s] Complaint.”

That the complaint included allegations that didn’t mention overdraft fees didn’t matter. “[T]hese individual allegations cannot be read in a vacuum, and instead, must be read in the context of the entire complaint.” “Read in its entirety, the only harm alleged by the [customer’s] complaint is [the bank’s] maximization of excessive overdraft fees on its customers.” As the Court explained further:

The very first paragraph of the … Complaint specifically states that the crux of the lawsuit centers on [the bank’s] “unfair and unconscionable assessment and collection of excessive overdraft fees.” Moreover, the complaint defines the class of plaintiffs as customers who “incurred an overdraft fee.” Finally, every claim for relief asserted is specifically premised on the imposition of overdraft fees.

The bank argued that the insurer had a duty to defend inasmuch as, per the complaint, “policies and procedures caused the customers’ alleged injuries, and [excluded] overdraft fees were one type of damages suffered as a result.”  Rejecting that argument, the Court explained: “To be sure, language focusing on ‘overdraft policies and procedures’ appears in a number of places, but it is always connected with the wrongful collection or imposition of overdraft fees.”

The bank also argued that the fee exclusion was ambiguous, inasmuch as it didn’t say whether the “fees” were “payable to or by” the bank.  Rejecting that argument, the Court explained that the fee exclusion by its plain wording, broadly applied to a “Claim … arising from … any fees or charges,” whether paid by or to the bank.

The Court also rejected the bank’s argument that reading the fee exclusion as including overdraft fees paid by customers to the bank would make the “coverage for ‘Defense Costs,’ defined in the policy to include attorneys’ fees, illusory.” The Court explained that the ‘exclusion has no effect on [the bank’s] recovery of any attorneys’ fees on account of claims that are based on something other than fees or charges, such as a claim based on the quality of services provided by [the bank].”

The Court also stressed that an insurer’s “decision” to include a fee exclusion in a professional liability policy “serves a necessary purpose of avoiding ‘moral hazard.’” Without the exclusion, the insured “could freely create other customer fee schemes knowing that they would be readily reimbursed by” its insurer.

Comments: Here’s a summary of other recent cases addressing coverage for overdraft class actions and issues similar to those in BancorpSouth:

Fidelity Bank v. Chartis Specialty Ins. Co., Civil Action No. 1:12-CV-4259-RWS (N.D. Ga. 2013)(here), applying Georgia law, addressed a “fee-dispute” exclusion, applicable to “Loss in connection with any Claim made against any Insured . . . alleging, arising out of, based upon or 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.” Given the “fee-dispute” exclusion’s Defense-Costs exception, the insurer funded the bank’s defense of the overdraft class action. But it refused to pay the settlement. The District Court granted the insurer a summary judgment, holding that the settlement was uninsurable because the payments amounted to restitution and in any event fell within the fee-dispute exclusion.

  U.S. Bank National Association v. Indian Harbor Insurance Company, Case No. 12-CV-3175 (PAM/JSM) (D. Minn. Dec. 16, 2014)(here), applying Delaware law, addressed exceptions to primary and excess policies’ “Loss” definitions, for “[m]atters which are uninsurable under the law pursuant to which this Policy is construed” or “principal, interest, or other monies either paid, accrued, or due as the result of any loan, lease or extension of credit by [the bank]”; and an exclusion for “any payment for Loss in connection with any Claim made against [the bank] . . . brought about or contributed in fact by any . . . profit or remuneration gained by [the bank] to which [it] is not legally entitled . . . as determined by a final adjudication in the underlying action.” The bank settled the underlying overdraft class action for $55 million, and sought coverage for $30 million of that amount plus defense expenses, excess of a $25 million deductible. The District Court granted the bank a summary judgment, rejecting the insurers’ argument that the settlement was uninsurable as restitution. Without deciding whether restitution was insurable, the Court—citing the “final adjudication” wording in the policies’ ill-gotten gains exclusion—explained that 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.” See Kevin LaCroix’s December 22, 2014 D&O Diary blog post (here) for a detailed discussion of this aspect of this somewhat controversial decision. When procuring the policies, US Bank’s broker and risk manager had no need to worry about a Defense Costs exception to a fee exclusion; there was no exclusion.

  First Community Bancshares v. St. Paul Mercury Ins. Co., 593 F. App’x 286, 288 (5th Cir. 2014)(here) involved a fee-dispute exclusion for a claim “based upon, arising out of or attributable to any dispute involving fees or charges,” with no Defense Costs exception, but with duty-to-defend wording. The Fifth Circuit, applying Texas law, affirmed a summary judgment for the bank and against the insurer holding that the insurer had a duty to defend. “Construing the [underlying class action] petitions liberally … at least some of the allegations … are not excluded by the fee-dispute exclusion.” Some of the allegations—“regarding [the bank] providing misleading information on its account practices and customers’ account balances–… do not have a causal connection to a disagreement that necessarily includes fees ….” As the Seventh Circuit in BancorpSouth stated: “Crucial to the … [First Community] holding … was [the Fifth Circuit’s] finding that the primary harm was not the assessment and collection of fees, but rather ‘that “customers could not ascertain their account balances and could not accurately plan spending, withdrawals, and deposits.’” In contrast, the BancorpSouth underlying class-action complaint showed that “excessive overdraft fees were the central and only harm”; so there was no duty to defend or pay the settlement. Although the insurer in First Community was required to defend notwithstanding a fee-dispute exclusion with no Defense-Costs exception, it was only because plaintiff’s complaint fortuitously included some allegations falling outside of that exclusion and the bank benefited from pro-policyholder rules for determining an insurer’s obligations under a duty-to-defend policy. The bank in BancorpSouth had no such luck.

  PNC Financial Services. Group, Inc. v. Houston Casualty Co., 647 F. App’x 112, 120 (3d Cir. 2016) (not precedential) (here) involved policies insuring “Loss,” meaning “Claim Expenses” and “Damages”—defined as “a judgment, award, surcharge, or settlement … and any award of pre- and post- judgment interest, attorneys’ fees and costs,” but with an exception for “fees, commissions or charges for Professional Services paid or payable to an Insured” (the “Professional Services Charge Exception”). “Claim Expenses” (defense costs) for a fee suit, thus, weren’t subject to the Loss definition’s Professional Services Charge Exception or to any fee exclusion; so the insurer here would have been required to pay Claim Expenses exceeding a $25 million self-insured retention. The Third Circuit, applying Pennsylvania law, held that the $102 million paid by the bank to settle the underlying overdraft charge class actions (including $30 million for class counsel fees) fell within the Professional Services Charge Exception; defense expenses presumably fell within the $25 million self-insured retention. As the Seventh Circuit in BancorpSouth explained, the insurer in the PNC case had no duty to indemnify the insured where “the class was defined as those who incurred an overdraft fee” and “settlement payments were based on the number of overdraft fees incurred.” As in BancorpSouth: “The essence of [the bank customer’s] Complaint [in PNC was] clearly [the bank’s] maximization of overdraft fees. Since there’s no other was to construe the … Complaint, [the insurer in PNC] had no duty to defend the overdraft fee claims because they are excluded from coverage.” So too in BancorpSouth.

  The plaintiffs’ bar has targeted banks and others with class actions alleging they improperly charged fees to consumers. Many suits involved multiples of millions in alleged harm and resulted in multi-million dollar settlements. Defense costs also ran into multiples of millions. In 2010, new Federal rules provided consumers a chance to avoid overdraft fees on certain debit card transactions and ATM withdrawals. But, as a simple Google search will show, that didn’t end the overdraft fee class actions. Earlier this year the Consumer Protection Financial Bureau adopted a rule barring banks, credit-card companies, and financial service firms from requiring consumers to agree to arbitration clauses and class-action waivers. But the Trump administration just struck that rule. So presumably we’ll see fewer consumer class actions involving improper fee charges.

Bottom line: But if you’re a broker or risk manager, why not make sure the policy you’re buying at least has Defense Costs coverage for these types of cases.

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