No coverage under D&O policy for class action suit based on bank’s alleged usurious interest charges

by Chris Graham and Joseph Kelly

Fidelity Bank v. Chartis Specialty Insurance Company, Case No. 1:12-CV-4259-RWS (N.D. Ga. August 7, 2013)

A class action suit was filed by customers of Fidelity Bank alleging Fidelity charged overdraft fees that were usurious interest charges in violation of Georgia law. Fidelity tendered the defense and indemnity of the suit to Chartis, its D&O insurer. Chartis agreed to defend Fidelity in the suit but wouldn’t indemnify the bank for any judgment or settlement. Fidelity settled the class action suit and then sued Chartis claiming it had a duty to indemnify Fidelity. Chartis then moved for summary judgment, which the District Court granted for two reasons.

First, the court held that the amounts sought in the class action were uninsurable, stating:

“To require [Chartis] to pay restitution for amounts [Fidelity] collected pursuant to illegal practices would result in a windfall to [Fidelity]. If this Court were to require [Chartis] to indemnify [Fidelity] under these facts, it would amount to a ruling that [Fidelity] is free to collect fees and make profits from its customers through illegal conduct, and [Chartis] is on the hook when the customers sue while [Fidelity] keeps the ill-gotten gains.”

Second, the court held that the professional services exclusion applied. That exclusion provides that Chartis is not “liable to make any payment for 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[.]” “Professional Services” are defined as “those services, including online banking services, of the Company as set forth in an endorsement to this policy by the Insurer, which services are permitted by law or regulation, to be rendered by an Insured pursuant to a written agreement with the customer or client as long as such service is rendered for a fee, commission or other compensation (“Compensation”), or (ii) without Compensation as long as such non-compensated services are rendered in conjunction with services rendered for Compensation.”

The Court stated that “it is clear that [the professional services exclusion] speaks to exactly this type of claim” and “excludes from indemnification (but not defense) disputes involving fees and commissions or, in other words, amounts that Plaintiff was accused of wrongfully or excessively charging its customers.”

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