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Summarizing by Amir Shachmurove

Zucker v. U.S. Specialty Insurance Co.

Case Type:
Case Status:
15-10987 (11th Circuit, May 16,2017) Published
The 11th Circuit affirmed the district court's ruling that the fraudulent transfer claims in a bankruptcy complaint fell within the prior acts exclusion in the insurance policy. Held that Parent Bank's insolvency "arose out of" the officers' wrongful acts that occurred pre-Nov 10, 2008 and fell within the scope of the prior acts exclusion. Held that the prior acts exclusion was not so broad as to swallow up the insuring provisions - which under Florida law would result in the court ignoring the exclusion - because the policy provided coverage for claims that arose after its effective date.
Procedural context:
Appeal from the district court's ruling that the prior acts exclusion of the D&O policy barred coverage for the fraudulent transfer claims and, as a result, U.S. Specialty did not breach its insurance contract.
BankUnited (Parent Bank) was a holding company located in Florida. Its wholly-owned subsidiary, BankUnited FSB (Subsidiary Bank) was a federally-chartered savings bank. After both Parent Bank and Subsidiary Bank declined into financial hardship, Parent Bank shopped for new directors and officers (D&O) insurance. U.S. Specialty offered Parent Bank two policies: (a) one with a prior acts exclusion which barred coverage for losses attributable to conduct of the officers before Nov. 10, 2008 and (b) one without that exclusion. Parent Bank elected to purchase through U.S. Specialty an insurance policy that included the prior acts exclusion. Parent Bank subsequently filed for Chapter 11 relief. An unsecured creditors committee was quickly formed. The committee moved for, and was granted, derivative standing to investigate, assert, and prosecute any and all claims that Parent Bank might have against its current and former officers and directors. The committee later filed an adversary complaint against several former executives of Parent Bank. The Plan Administrator was then substituted in as plaintiff in the bankruptcy action. The plan administrator amended the complaint alleged, among other things, that the officers breached their fiduciary duty in 2009 by approving the transfer to Subsidiary Bank two tax refunds belonging to Parent Bank totaling $46 million. The fraudulent transfer claims eventually settled for $15 million, to be paid either by U.S. Specialty or by the executives individually. After the plan administrator settled his fraudulent transfer claims against the officers, he filed this lawsuit in the district court against U.S. Specialty based on its denial of coverage as to those claims. The district court held that the prior acts exclusion barred coverage for the fraudulent transfer claims and, as a result, U.S. Specialty did not breach its insurance contract.
Carnes, Fay, and Parker

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