HUNTINGTON NATIONAL BANK v AIG SPECIALTY INSURANCE CO., et al.,
- Summarized by J. Debbeler , Bricker Graydon LLP
- 11 months 1 week ago
- Case Type:
- Business
- Case Status:
- Reversed
- Citation:
- 23-3039; File Name: 24a0049n.06 (6th Circuit, Feb 01,2024) Not Published
- Tag(s):
-
- Ruling:
- The claim of Huntington National Bank (HNB) against its insurer for the denial of insurance coverage for HNB's settlement of a fraudulent transfer proceeding brought by the bankruptcy trustee of a debtor company was viable since: (1) HNB's claim for insurance coverage is insurable under Ohio law, and (2) HNB's claim should not be excluded for coverage as a claim for "unrepaid, unrecoverable, or outstanding credit". The Sixth Circuit reversed the district court which had come to the opposite conclusion on both issues.
- Procedural context:
- The Sixth Circuit determined that Ohio law requires that insurance policies be construed against the insurer if there is more than one interpretation of an insurance provision. Exclusions must be clear and unambiguous to be enforceable.
AIG had the burden to show that the law exclusion applied. Ohio law does not explicitly resolve the question of whether a claim for settlement of a fraudulent transfer action is insurable, according to the Sixth Circuit. What is uninsurable under Ohio law is quite narrow. Punitive damages are uninsurable as are intentional torts. Attorneys fees based on punitive dames are insurable. The Sixth Circuit founds HNB's conduct was not akin to punitive damages or intentional torts. The issue was HNB's good faith.
On the credit exclusion issue, the Sixth Circuit found HNB lent money to the companies involved in the ponzi scheme but the issues was the meaning of the words in the credit exclusion. HNB argued the credit exclusion did not apply and instead it paid the trustees based on wrongful acts, not unpaid credit.
Any ambiguity was construed against AIG. The Sixth Circuit found the credit exclusion ambiguous.
The Sixth Circuit did not need to reach the district court's conclusion on the "larger settlement" issue.
- Facts:
- HNB had two insurance policies through AIG and related entities for a total of $25 million dollars with a $10 million retention. The policies excluded coverage for "lending losses" such as an extension of credit and the relevant exclusion excluded coverage for "unrepaid, unrecoverable, or outstanding credit" ("credit exclusion"). The policies also excluded coverage for damages "uninsurable under the law" ("law exclusion").
HNB was the bank for two companies. They turned out to be ponzi schemes and the schemes continued for some time. HNB received payment of its loan for $9 million plus and many millions of dollars were deposited into HNB's accounts. The companies were eventually raided by the FBI, they filed bankruptcy, and the principal committed suicide.
The trustees of the companies sued HNB for perpetuating the fraud and requested HNB return up to $73 million in transfers.
The litigation was lengthy and went to the Sixth Circuit previously in Meoli v. HNB, 848 F.3d 716 (6th Cir. 2017). The court in Meoli divided the transfers into 3 parts: (i) direct loan payments; (ii) indirect loan payments; and (iii) excess deposits. the Meoli court remanded the case to the bankruptcy court. HNB eventually settled for $32 million, and di not admit liability.
HNB sent coverage demands to AIG which denied coverage in 2017 and 2019 relying on the policy exlcusions. HNB sought $15 million. HMB sued AIG and the district court granted summary judgment to AIG on the two issues set forth above and one other issue regarding the "larger settlement" rule.
- Judge(s):
- Moore, Gibbons and Stranch
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