You are on page 1of 18

CASE 0:12-cv-03175-PAM-JSM Document 1 Filed 12/21/12 Page 1 of 18

UNITED STATES DISTRICT COURT DISTRICT OF MINNESOTA

U.S. BANCORP, a Delaware corporation, and U.S. BANK NATIONAL ASSOCIATION, a national banking association, Plaintiff, vs.

Court File No.: ___________

COMPLAINT INDIAN HARBOR INSURANCE COMPANY, a North Dakota corporation, and ACE AMERICAN INSURANCE COMPANY, a Pennsylvania corporation, Defendants. JURY TRIAL DEMANDED

Plaintiffs U.S. BANCORP and U.S. BANK NATIONAL ASSOCIATION (collectively, “U.S. Bank”), and for its complaint against Defendants INDIAN HARBOR INSURANCE COMPANY (“XL”) and ACE AMERICAN INSURANCE COMPANY (“ACE”) states and alleges as follows: NATURE OF THE ACTION 1. This is an insurance coverage action in which U.S. Bank

seeks a declaration of its rights under a Bankers Professional Liability Policy sold by XL and an Excess Policy sold by ACE. Plaintiffs also seek damages from XL and ACE for breach of contract resulting from Defendants’ failure to honor their obligations under the insurance contracts.

CASE 0:12-cv-03175-PAM-JSM Document 1 Filed 12/21/12 Page 2 of 18

2.

Since 2007, U.S. Bank has faced a number of class action

suits across the country in connection with the assessment of overdraft fees from its customers (collectively, the “Underlying Actions”). These suits eventually were consolidated into a single forum in the United District Court for the Southern District of Florida as part of multi-district litigation, In re: Checking Account Overdraft Litigation, No. 09-MD-02036. 3. Plaintiffs are named insureds under insurance policies

purchased from XL and ACE that provide defense and indemnity coverage for the Underlying Actions. 4. U.S. Bank provided timely notice under the applicable

insurance policies to XL and ACE concerning the bank’s insurance claim relating to the Underlying Actions. 5. Further, U.S. Bank kept the Defendants informed of the

progress and development of the Underlying Actions and about the prospect of settlement and the eventual final settlement and resolution of the Underlying Actions. 6. U.S. Bank ultimately settled the Underlying Actions for $55

million and expended other amounts in excess of the settlement amount, including but not limited to, attorneys’ fees and defense costs. 7. These amounts paid to defend against and settle the

Underlying Actions are covered under the insurance policies at issue.

–2–

CASE 0:12-cv-03175-PAM-JSM Document 1 Filed 12/21/12 Page 3 of 18

8.

XL and ACE have refused and failed to cover the amounts

that U.S. Bank paid to defend against and settle the Underlying Actions, as XL and ACE are obligated to do under the insurance policies at issue. 9. U.S. Bank seeks a declaration that XL and ACE must pay

amounts to be determined at trial based on their contractual obligations associated with the defense and settlement of the Underlying Actions. THE PARTIES 10. Plaintiff U.S. Bancorp is a Delaware corporation that maintains

its principal place of business at 800 Nicollet Mall, Minneapolis, Minnesota 55402-7014. 11. Plaintiff U.S. Bank National Association is a federally

chartered bank with its principal place of business in Minneapolis, Minnesota, and is a wholly-owned subsidiary of U.S. Bancorp, which also has its principal place of business in Minneapolis, Minnesota. 12. Upon information and belief, Defendant XL is a member of the

XL Insurance Group and is a North Dakota corporation with its principal place of business at Seaview House, 70 Seaview Avenue, Stamford, Connecticut 06902. 13. Upon information and belief, Defendant ACE is a member of

the ACE Group and is a Pennsylvania corporation with its principal place of business at 436 Walnut Street, Philadelphia, PA 19106.

–3–

CASE 0:12-cv-03175-PAM-JSM Document 1 Filed 12/21/12 Page 4 of 18

CHOICE OF LAW 14. The XL insurance policies, to which the ACE insurance

policies follow form, contain a choice of law provision designating that the policies are governed by the laws of the State of Delaware. JURISDICTION AND VENUE 15. This Court has jurisdiction over this matter pursuant to 28

U.S.C. § 1332 based on diversity of citizenship of the parties. The amount in controversy exceeds $75,000. 16. Venue is proper in this Court pursuant to 28 U.S.C. § 1391. GENERAL ALLEGATIONS The Primary Insurance Coverage Sold by XL 17. XL sold Bankers Liability Policy Number ELU 099392-07D to

U.S. Bank that covers the policy period from August 1, 2007 through August 1, 2008 (the “2007-08 Primary Policy”). The 2007-08 Primary Policy has a $20 million limit of liability, subject to a $25 million deductible. A true and correct copy of the 2007-08 Primary Policy is attached hereto as Exhibit A. 18. XL sold Bankers Liability Policy Number ELU 106015-08D to

U.S. Bank that covers the policy period from August 1, 2008 through August 1, 2009 (the “2008-09 Primary Policy”). The 2008-09 Primary Policy has a $20 million limit of liability, subject to a $25 million deductible. A true and correct copy of the 2008-09 Primary Policy is attached hereto as Exhibit B. The 2007-

–4–

CASE 0:12-cv-03175-PAM-JSM Document 1 Filed 12/21/12 Page 5 of 18

08 Primary Policy and the 2008-09 Primary Policy collectively are referred to herein as the “Primary Policies.” 19. The Primary Policies provide coverage for “Loss which the

Insureds shall become legally obligated to pay as a result of any Claim first made against the Insureds during the Policy Period arising out of any Wrongful Act committed by the Insureds or any person or entity whose acts or omissions the Insureds are or alleged to be legally liable during or prior to the Policy Period while performing Professional Services including failure to perform Professional Services.” 20. The Primary Policies define “Claim” as “(a) a Demand, (b) a

civil proceeding commenced by the service of a complaint or similar pleading, (c) a criminal proceeding commenced by a return of an indictment, or (d) a formal civil, criminal, administrative, investigative, regulatory or arbitration proceeding commenced by the filing of a notice of charges, formal investigative order, demand for arbitration or similar document.” 21. “Loss,” in turn, is defined in the Primary Policies as “the total

amount which any Insured becomes legally obligated to pay on account of each Claim and for all Claims in each Policy Period and the Optional Extension Period, if exercised, made against the Insureds for Wrongful Acts for which coverage applies, including, but not limited to, damages, judgments, settlements, costs, pre-judgment and post-judgment interest and Defense Costs.”

–5–

CASE 0:12-cv-03175-PAM-JSM Document 1 Filed 12/21/12 Page 6 of 18

22.

The definition of “Loss” in the Primary Policies goes on to

state that “Loss does not include . . . [m]atters which are uninsurable under the law pursuant to which this Policy is construed.” 23. The Primary Policies provide that they “shall be governed by

the laws of the State of Delaware.” 24. At all relevant times, the matters at issue in the Underlying

Actions and all loss arising therefrom were insurable under Delaware law. 25. The Primary Policies define “Professional Services” to mean

“those services allowed under the laws governing services by the Insured and performed, required to be performed, or failed to be performed by the Insureds (or on behalf of the Insureds by any person or entity), for the benefit of, or on behalf of a customer or prospective customer of the Insureds (a) for a fee, commission or other consideration, including but not limited to interest margin, or (b) where a fee, commission or other monetary consideration would normally be received by the Insureds but for business or other reasons is waived by the Insureds….” 26. The term “Wrongful Act” is defined in the Primary Policies as

“any error, misstatement, misleading statement, act, omission, neglect or breach of duty committed, attempted or allegedly committed or attempted by the Insureds, or any person for whose actions the Insureds are legally responsible, which arises solely from the Insureds performing Professional Services including failure to perform Professional Services.”
–6–

CASE 0:12-cv-03175-PAM-JSM Document 1 Filed 12/21/12 Page 7 of 18

27.

The Primary Policies contain an exclusion for claims “brought

about or contributed in fact by any: (i) intentionally dishonest, fraudulent or criminal act or omission or any violation of any statute, rule or law; or (ii) profit or remuneration gained by any Insured or to which such Insured is not legally entitled”; but the exclusion only applies where such circumstances are “determined by a final adjudication in the underlying action” (the “Criminal Acts Exclusion”). 28. As discussed below, U.S. Bank did not engage in any

dishonest, fraudulent or criminal conduct; nor did U.S. Bank receive any profit or remuneration to which it was not legally entitled. Accordingly, the Criminal Acts Exclusion would not apply to the Underlying Actions. 29. The Primary Policies further provide that “[n]o insured may

incur any Defense Costs or admit liability for, make any settlement offer with respect to, or settle any Claim without the Insurer’s consent, such consent not to be unreasonably withheld.” 30. By wording the Policies as described in Paragraphs 27 and

29, the parties agreed that where an underlying action is settled with the consent of XL (and/or ACE) prior to an adverse “final adjudication” against U.S. Bank, the Criminal Acts Exclusion does not apply to the settlement (or the defense costs) since the requirement of a “final adjudication” is not met. 31. The inclusion of the “final adjudication in the underlying action”

clause as a limitation on the Criminal Acts Exclusion was treated by the parties
–7–

CASE 0:12-cv-03175-PAM-JSM Document 1 Filed 12/21/12 Page 8 of 18

as an enhancement to the Primary Policies when they were underwritten and sold to U.S. Bank. 32. U.S. Bank reasonably expected that insurance claims would

be covered under the Primary Polices even if they arguably fell within the Criminal Acts Exclusion, so long as there was no final adjudication against U.S. Bank in the underlying action. 33. The Primary Policies cover U.S. Bank’s defense costs relating

to the Underlying Actions. 34. The Primary Policies cover the sums associated with U.S.

Bank’s settlement of the Underlying Actions, in excess of the $25 million deductible and up to the applicable $20 million policy limit. 35. The Primary Policies do not contain any provision excluding or

excepting coverage for the amounts paid by U.S. Bank in defending and settling the Underlying Actions. 36. U.S. Bank has paid in full all premiums due under the Primary

Policies and has otherwise complied with all applicable conditions precedent, terms, requirements, and obligations under the Primary Policies, except those that have been excused. 37. U.S. Bank is responsible for payments in connection with the

Underlying Actions that are in excess of the deductible under the Primary Policies.

–8–

CASE 0:12-cv-03175-PAM-JSM Document 1 Filed 12/21/12 Page 9 of 18

38.

No defenses to coverage apply under the Primary Policies, or

XL has waived all defenses to coverage under the Primary Policies, or such defenses are the subject of estoppel. The Excess Insurance Coverage Sold by ACE 39. ACE sold Excess Policy Number DOX G21660085 005 to U.S.

Bank that covers the period from August 1, 2007 through August 1, 2008 (the “2007-08 Excess Policy”). The 2007-08 Excess Policy has a limit of liability of $15 million above the 2007-08 Primary Policy. A true and correct copy of the 2007-08 Excess Policy is attached hereto as Exhibit C. 40. ACE sold Excess Policy Number DOX G21660085 006 to U.S.

Bank that covers the period from August 1, 2008 through August 1, 2009 (the “2008-09 Excess Policy”). The 2008-09 Excess Policy has a limit of liability of $15 million above the 2008-09 Primary Policy. A true and correct copy of the 2008-09 Excess Policy is attached hereto as Exhibit D. The 2007-08 Excess Policy and the 2008-09 Excess Policy collectively are referred to herein as the “Excess Policies.” The Primary Policies and the Excess Policies collectively are referred to herein as the “Policies.” 41. The Excess Policies follow form to the Primary Policies and

cover the defense costs and settlement amounts that are in excess of the deductible and limits set forth in the Primary Policies. 42. The Excess Policies provide that ACE “agrees to provide

insurance coverage in accordance with the terms, definitions, conditions,
–9–

CASE 0:12-cv-03175-PAM-JSM Document 1 Filed 12/21/12 Page 10 of 18

exclusions and limitations” of the Primary Policies and that “liability for any covered loss shall attach to [ACE] only after the insurers of the [Primary Policy] shall have paid… the full amount of the Underlying Limit and the Insureds shall have paid the full amount of the uninsured retention, if any, applicable to the [Primary] Policy. [ACE] shall then be liable to pay only covered Loss in excess of such Underlying Limit up to its Aggregate Limit of Liability” of $15 million. The Underlying Actions 43. In November 2007, the first action regarding the overdraft fees

was filed against U.S. Bank. It was styled Bensimon v. U.S. Bancorp and was filed in the Central District of California. 44. Subsequent actions, including Waters et al. v. U.S. Bancorp,

Speers v. U.S. Bank, N.A. and Brown et al. v. US Bank National Association, were filed against Plaintiffs in various jurisdictions around the country. 45. Eventually, all of the Underlying Actions were consolidated in

multi-district litigation in the U.S. District Court for the Southern District of Florida. 46. The Underlying Actions generally were based on the

allegation that U.S. Bank (and scores of other banks) ordered the debit sequence of customers’ transactions in a way that improperly increased the amount of overdraft fees. 47. Contrary to the allegations in the Underlying Actions, the

method used by U.S. Bank to sequence the debits on customer accounts was: (a) consistent with the terms of the bank’s contractual agreements with its customers;
–10–

CASE 0:12-cv-03175-PAM-JSM Document 1 Filed 12/21/12 Page 11 of 18

(b)

evident to customers from their banking records, including but not limited to their monthly statements; and approved by regulatory authorities.

(c) 48.

At all relevant times, U.S. Bank was entitled to the overdraft

fees that it collected. 49. U.S. Bank provided XL and ACE with timely notice of the

Underlying Actions and sought coverage under the Policies. 50. Plaintiffs in the Underlying Actions sought damages against

U.S. Bank in excess of $525 million. 51. Counsel for plaintiffs in the Underlying Actions engaged in

settlement discussions with U.S. Bank and U.S. Bank notified XL and ACE in 2012 of its desire to settle the Underlying Actions for an amount in excess of the limits of the Primary Policies. 52. XL provided consent to U.S. Bank to settle the Underlying

Actions at or above the full limit of the Primary Policies (i.e., $45 million, including the $25 million deductible). 53. ACE provided consent to U.S. Bank to settle the Underlying

Actions for an amount up to $60 million. 54. U.S. Bank thereafter agreed to settle all of the Underlying

Actions for $55 million. 55. It was reasonable for U.S. Bank to agree to settle all of the

Underlying Actions for $55 million.

–11–

CASE 0:12-cv-03175-PAM-JSM Document 1 Filed 12/21/12 Page 12 of 18

56.

There was no adjudication in the Underlying Actions that U.S.

Bank engaged in any dishonest, fraudulent or criminal conduct or that U.S. Bank received any profit or remuneration to which it was not legally entitled. 57. Plaintiffs have conducted themselves in good faith at all

relevant times and notified Defendants of the underlying settlement negotiations. 58. Defendants have refused to pay the amounts owed to U.S.

Bank under the Policies for the insurance claim relating to the Underlying Actions. XL’s Refusal To Pay U.S. Bank’s Covered Loss 59. In response to U.S. Bank’s insurance claim, XL has taken the

position that any damages arising from the Underlying Actions do not constitute “Loss” under the Primary Policies and XL has failed and refused to pay U.S. Bank’s claim under the Primary Policies. 60. The amounts that U.S. Bank paid in settlement and defense of

the Underlying Action fall within the definition of Loss under the Primary Policies and are covered under those policies. 61. XL’s failure and refusal to provide coverage under the Primary

Policies is wrongful and constitutes a breach of contract. 62. At present, U.S. Bank is responsible for sums in excess of $58

million based on the defense and settlement of the Underlying Actions, which sums substantially exceed the $25 million deductible in the Primary Policies.

–12–

CASE 0:12-cv-03175-PAM-JSM Document 1 Filed 12/21/12 Page 13 of 18

ACE’s Refusal To Pay U.S. Bank’s Covered Loss 63. In response to U.S. Bank’s insurance claim, ACE generally

has adopted the same position as XL, and ACE has failed and refused to pay U.S. Bank’s claim under the Excess Policies. 64. The amounts that U.S. Bank paid in settlement and defense of

the Underlying Action fall within the definition of Loss under the Policies and are covered under the Excess Policies. 65. ACE’s failure and refusal to provide coverage under the

Excess Policies is wrongful and constitutes a breach of contract. 66. At present, U.S. Bank is responsible for sums in excess of $58

million based on the defense and settlement of the Underlying Actions, which sums substantially exceed the $25 million deductible and the $20 million limit under the Primary Policies. FIRST CAUSE OF ACTION (Breach of Contract for the Primary Policies) 67. U.S. Bank repeats and realleges paragraphs 1 through 66 of

the Complaint as if fully set forth herein. 68. XL is obligated under the Primary Policies to reimburse the

defense costs and settlements associated with the Underlying Actions. 69. In breach of its obligations under the Primary Policies, XL has

failed and refused to reimburse such costs.

–13–

CASE 0:12-cv-03175-PAM-JSM Document 1 Filed 12/21/12 Page 14 of 18

70.

As a result of XL’s breach, U.S. Bank is responsible for

substantial costs in connection with the defense and settlement of the Underlying Actions. 71. By reason of the foregoing, XL is liable to U.S. Bank for

damages, the exact amount to be proven at trial, including, but not limited to: defense costs and settlements associated with the Underlying Actions; consequential damages; pre- and post-judgment interest; and attorneys’ fees, costs, and disbursements that U.S. Bank has incurred to date and may incur in the future in connection with prosecuting this action to recover insurance. SECOND CAUSE OF ACTION (Breach of Contract for the Excess Policies) 72. U.S. Bank repeats and realleges paragraphs 1 through 71 of

the Complaint as if fully set forth herein. 73. ACE is obligated under the Excess Policies to reimburse

defense costs and settlements associated with the Underlying Actions in excess of those covered by the Primary Policies. 74. In breach of its obligations under the Excess Policies, ACE

has failed and refused to reimburse such costs. 75. As a result of ACE’s breach, U.S. Bank has incurred

substantial costs in connection with the defense and settlement of the Underlying Actions.

–14–

CASE 0:12-cv-03175-PAM-JSM Document 1 Filed 12/21/12 Page 15 of 18

76.

By reason of the foregoing, ACE is liable to U.S. Bank for

damages, the exact amount to be proven at trial, including, but not limited to: defense costs and settlements associated with the Underlying Actions; consequential damages; pre- and post-judgment interest; and attorneys’ fees, costs, and disbursements that U.S. Bank has incurred to date and may incur in the future in connection with prosecuting this action to recover insurance. THIRD CAUSE OF ACTION (Declaratory Judgment Regarding the Policies) 77. U.S. Bank repeats and realleges paragraphs 1 through 76 of

the Complaint as if fully set forth herein. 78. U.S. Bank seeks a declaratory judgment for the purpose of

determining a question of actual controversy between the parties regarding coverage under the Policies. 79. U.S. Bank contends that XL has a contractual obligation to

reimburse U.S. Bank for the defense costs incurred and to indemnify U.S. Bank for the settlements entered in connection with the Underlying Actions, and has demanded payment of the same from XL. 80. U.S. Bank contends that ACE has a contractual obligation to

reimburse U.S. Bank for the defense costs incurred and to indemnify U.S. Bank for the settlements entered in connection with the Underlying Actions in excess of underlying insurance, and has demanded payment of the same from ACE.

–15–

CASE 0:12-cv-03175-PAM-JSM Document 1 Filed 12/21/12 Page 16 of 18

81.

XL and ACE deny that they have obligations under the

Policies to indemnify U.S. Bank for the costs incurred in connection with the Underlying Actions. 82. By reason of the foregoing, an actual and justiciable

controversy exists between U.S. Bank and XL and ACE regarding the obligation to reimburse U.S. Bank for the defense costs incurred and the settlements entered in connection with the Underlying Actions. 83. As a result, U.S. Bank seeks a judicial determination by this

Court that XL and ACE are obligated to reimburse such defense and settlement costs. WHEREFORE, U.S. Bank prays for judgment as follows:
1. With respect to the First Cause of Action (Breach of Contract for the Primary Policies), that this Court: (a)

enter a judgment for breach of contract against XL, awarding compensatory damages in an amount established by the evidence, including all defense costs and settlements associated with the Underlying Actions; consequential damages; and attorneys’ fees, costs, and disbursements that U.S. Bank has incurred to date and may incur in the future in connection with prosecuting this action to recover insurance.

With respect to the Second Cause of Action (Breach of Contract for the Excess Policies), that this Court:
2. (a)

enter a judgment for breach of contract against ACE, awarding compensatory damages in an amount established by the evidence, including all defense costs and settlements associated with the Underlying Actions; consequential damages; and attorneys’ fees, costs, and disbursements that U.S. Bank has incurred to date and
–16–

CASE 0:12-cv-03175-PAM-JSM Document 1 Filed 12/21/12 Page 17 of 18

may incur in the future in connection with prosecuting this action to recover insurance. With respect to the Third Cause of Action (Declaratory Judgment Regarding the Policies), that this Court:
3. (a)

enter a declaratory judgment that XL and ACE must reimburse all defense costs incurred and settlement amounts paid in connection with the Underlying Actions subject to any deductibles, policy limits and underlying insurance obligations; and enter a declaratory judgment that XL and ACE must pay all other damages caused by, or resulting from, XL’s breach of the Primary Policies and ACE’s breach of the Excess Policies, including consequential damages.

(b)

4.

With respect to all Causes of Action, that this Court:
(a)

award U.S. Bank all reasonable attorneys’ fees, costs, and expenses incurred in prosecuting this action; award U.S. Bank pre-judgment and post-judgment interest, as provided by law; and provide such other relief as the Court may deem just and proper. LARSON • KING, LLP

(b)

(c)

DATED: December 21, 2012

By: s/ John M. Bjorkman John M. Bjorkman (209831) Patrick J. Boley (275529) 2800 Wells Fargo Place 30 East Seventh Street Saint Paul, Minnesota 55101 Tel.: 651-312-6500 Fax: 651-312-6618 jbjorkman@larsonking.com pboley@larsonking.com

–17–

CASE 0:12-cv-03175-PAM-JSM Document 1 Filed 12/21/12 Page 18 of 18

OF COUNSEL: ANDERSON KILL & OLICK, P.C. William G. Passannante Marshall Gilinsky, Esq. 1251 Avenue of the Americas New York, NY 10020 Tel.: (212) 278-1000 Fax: (212) 278-1733 wpassannante@andersonkill.com mgilinsky@andersonkill.com Counsel for Plaintiffs U.S. Bancorp, and U.S. Bank National Association

–18–