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U.S. Bank National Association v. Indian Harbor Insurance Company

United States District Court, D. Minnesota

October 15, 2014

U.S. Bank National Association and U.S. Bancorp, Plaintiffs,
v.
Indian Harbor Insurance Company and ACE American Insurance Company, Defendants.

MEMORANDUM AND ORDER

PAUL A. MAGNUSON, District Judge.

This matter is before the Court on Indian Harbor's and ACE American's Motions for Certification Under 28 U.S.C. § 1292(b) and ACE American's Motions for Certification to the Delaware Supreme Court. For the reasons that follow, the Court denies the Motions.

BACKGROUND

This is an insurance case, in which U.S. Bank National Association and U.S. Bancorp (collectively "U.S. Bank") are suing Indian Harbor Insurance Company and ACE American Insurance Company (collectively the "Insurers") for coverage of both $30 million out of a $55 million class-settlement payment and related defense costs in an overdraft fee dispute. The facts of the underlying class actions and current coverage lawsuit are chronicled in the Court's previous Order on the Insurers' Motions for Judgment on the Pleadings (see Mem. & Order (Docket No. 105) 1-3), and will not be repeated here.

In their Motions for Judgment on the Pleadings, the Insurers argued that the settlement was not a covered loss based on two provisions in the insurance policies: the Uninsurable Provision, which omitted from coverage matters that are uninsurable under Delaware law, and the Extension-of-Credit Provision, which omitted from coverage payments as a result of an extension of credit. (Id. at 3.) Interpreting the policies under Delaware law, the Court denied judgment on the pleadings on both bases. (Id. at 3-11.)

The Court first rejected the Insurers' argument that the Uninsurable Provision barred coverage because the settlement constituted legally uninsurable restitution. (Id. at 5-9.) In doing so, the Court reasoned that "neither Delaware statute nor case law precludes insurance coverage for settlements constituting restitution" and found unconvincing the parties' speculation on how a Delaware court would rule on the insurability of restitution. (Id. at 5-6.) The Court then emphasized another provision in the policies, the Ill-Gotten Gains Provision, which excluded from coverage money that U.S. Bank is not legally entitled to and must return (also known as restitution) "as determined by a final adjudication in the underlying action." (Id. at 3.) Giving proper effect to that provision, the Court acknowledged the principle that restitution is uninsurable, construed the policies so that principle "would only control if a final adjudication-not a settlement-resolved that U.S. Bank was not legally entitled to the overdraft fees and must return them, " and distinguished the myriad cases the Insurers cited as either involving policies that did not require a final adjudication or failing to analyze the impact of that requirement. (Id. at 6-9.)

The Court also rejected the Insurers' argument that the Extension-of-Credit Provision barred coverage because the settlement concerned overdraft protection that extended credit to customers. (Id. at 9-10.) The Court viewed the Insurers' interpretation of the provision as "overbroad and untenable" for it would "bar coverage of any professional-liability claim relating to U.S. Bank's lending operations." (Id. at 10.) The Court further decided that the Insurers' application of the provision "erroneously assumes that the settlement was based on an extension of credit." (Id.)

Discontent with the Order, the Insurers proceeded to secure its immediate reversal. They initially sough reconsideration of the Order, which the Court denied. (Order (Docket No. 108).) They now move for certification of the Order in two ways. Both Insurers ask the Court to certify the Order for interlocutory appeal under 28 U.S.C. § 1292(b). And ACE American asks the Court to certify the Order for legal resolution to the Delaware Supreme Court.

Before the Court examines the Insurers' Motions, however, it recognizes from the parties' apparent confusion that some clarification of the Court's reasoning on the Uninsurable Provision is necessary. In the Order, the Court declined to conclude whether a Delaware court would adopt the principle that restitution is uninsurable yet effectively agreed with the basic principle, read the Uninsurable Provision and the Ill-Gotten Gains Provision to trigger that principle only if a final adjudication in the underlying action determined a payment to be restitution, and held that a settlement allegedly constituting restitution is not a final adjudication definitively ordering restitution. Or put differently: Assuming Delaware law prohibits insurance coverage for the refund of ill-gotten gains, the policies here-consistent with that assumption-offer coverage unless the gains alleged to have been ill-gotten were proved to have been ill-gotten.[1] With that clarification in mind, the Court turns to assess the Order's worthiness for certification.

DISCUSSION

Though they move for certification, the Insurers do not faithfully and succinctly articulate the legal issues addressed in the Order that warrant certification. But they seem to abandon, at least for these Motions, the Extension-of-Credit Provision. Instead, they focus on the Uninsurable Provision and the Ill-Gotten Gains Provision. As to those provisions, the Order addressed the following legal issue:

Is a settlement that allegedly constitutes restitution a covered loss under an insurance policy that:

(1) omits from coverage matters that are uninsurable under state law that is silent on the insurability of restitution; and
(2) excludes from coverage payments that are determined by a final adjudication in the underlying ...

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