A federal judge in Puerto Rico has ruled that an “insured vs. insured” exclusion in the D&O insurance policy of the failed Westernbank does not bar coverage for government regulators’ charges that its former directors’ reckless loan practices led to its collapse.

• Holding Co. et al. v. AIG Insurance Co. et al., No. 11-2271, 2014 WL 3378671 (D.P.R. July 9, 2014). The ruling by U.S. District Judge Gustavo A. Gelpi of the District of Puerto Rico appeared to be a double setback for the insurers that wrote D&O policies for W Holding Co., parent of the now-defunct Westernbank Puerto Rico, one of many banks taken over by the Federal Deposit Insurance Corp. after the 2008 financial crisis.

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In response to AIG’s argument that in the final analysis, the FDIC “stands in the shoes of” the owner, Judge Gelpi wrote, “The FDIC is not suing on behalf of an ‘insured’ or an ‘organization.’ It thus does not run afoul of the exclusion.”

Click here to see full article

Click here to see the D&Os’ motion to clarify the court’s advancement order, the reply in support of the motion to clarify, the response to AIG’s motion for summary judgment relating to the insured v. insured exclusion and the order.

The directors and officers are represented by Andrés Rivero, Jorge A. Mestre, Alan H. Rolnick, Charlie Whorton, and M. Paula Aguila.

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A Puerto Rico federal judge on Wednesday rejected insurers’ attempts to apply an insured v. insured exclusion to the Federal Deposit Insurance Corp.’s claims seeking $176 million from former executives of Westernbank Puerto Rico, while expanding coverage in a policy year the insurers argued was out of reach.

U.S. District Judge Gustavo Gelpi sided against American International Group Inc. and other insurers on summary judgment motions in a coverage battle stemming from the FDIC’s litigation seeking damages from Westernbank’s former directors and officers after the agency took over as the bank’s receiver.

AIG argued that the FDIC had stepped into the shoes of the bank when bringing these claims, and thus, an exclusion for claims from one insured — the bank — against another insured — the directors and officers — applied. But Judge Gelpi said there was a question of fact as to whether the FDIC was representing depositors and account holders after seeing its depositors’ insurance fund depleted by more than $3.3 billion.

“The court does not accept AIG’s argument that the FDIC fails to specify who or what it represents and that such failure merits summary judgment,” Judge Gelpi said.

Click here to see the full article.

Click here to see the D&Os’ motion to clarify the court’s advancement order, the reply in support of the motion to clarify, the response to AIG’s motion for summary judgment relating to the insured v. insured exclusion and the order.

The directors and officers are represented by Andrés Rivero, Jorge A. Mestre, Alan H. Rolnick, Charlie E. Whorton, and M. Paula Aguila.

The post Law360 discusses Rivero Mestre’s latest insurance coverage win in the Westernbank Puerto Rico case appeared first on RIVERO MESTRE LLP | Miami + New York Attorneys | International Law | Commercial Litigation.

Rivero Mestre represents six former directors and officers in FDIC v. Stipes, the FDIC’s lawsuit arising from its takeover of Westernbank Puerto Rico. When the D&Os’ insurer denied coverage based on the Insured v. Insured exclusion, the firm obtained an order requiring the insurer to advance defense costs for attorneys’ fees incurred while litigating over coverage—the first such order in this banking crisis.

Rivero’s oral argument in front of the First Circuit Court of Appeals can heard here. The First Circuit appellee brief can be found here.  The case is sub judice.

The post Andrés Rivero argues in the First Circuit Court of Appeals appeared first on RIVERO MESTRE LLP | Miami + New York Attorneys | International Law | Commercial Litigation.

U.S. District Judge Gustavo A. Gelpí also rejected a group of insurers’ arguments that the FDIC cannot try to force them to provide liability coverage, rejecting the group’s argument that a so-called insured vs. insured policy exclusion barred the FDIC’s claims against them because the regulator is now Westernbank’s receiver.

. . .

The insurers had argued that the FDIC, since it stands in the shoes of Westernbank, should be barred from bringing the suit under a policy exclusion that blocks coverage for claims brought by one insured against another.

But Judge Gelpí wrote Tuesday that the exclusion is intended to protect insurance companies from collusive suits among insured parties and that the FDIC would not reap the benefits enjoyed by those kinds of actors.

“The FDIC’s role as a regulator sufficiently distinguishes it from those whom the parties

intended to prevent from bringing claims under the exclusion,” the order said.

The judge also noted the FDIC had sued on behalf of depositors, account holders and a depleted insurance fund, as opposed to Westernbank shareholder W Holding. (Click here to see full article; click here to see the court order).

Andrés Rivero, Jorge A. Mestre, Alan H. Rolnick, Charlie Whorton, and M. Paula Aguila of Rivero Mestre, represent six directors and officers of Westernbank of Puerto Rico. Over the course of fifty-two years, Westernbank grew from a small, community institution into one of the largest, most profitable, and healthiest banks in the Commonwealth of Puerto Rico. It did so by working hand in hand with the Office of the Commissioner of Financial Institutions of the Commonwealth of Puerto Rico (“OCFI”) and with federal regulators, rising from humble beginnings as a local Mayaguëz bank to become the Commonwealth’s second-largest, with branches throughout the island. Federal regulators and the OCFI conducted annual examinations and awarded Westernbank the highest possible score for twelve consecutive years, from 1993 to 2005. In 2010, while Westernbank, like everyone else, was working hard to ride out a global recession, the OCFI closed its doors, seized it, and appointed the FDIC as receiver. Now, the FDIC demands that Westernbank’s long-serving directors, officers, and their spouses be held personally liable for operating a bank to which federal regulators gave the highest marks until months before a worldwide economic collapse.

The post Rivero Mestre wins first decision in banking crisis on Insured v. Insured issue in D&O insurance dispute appeared first on RIVERO MESTRE LLP | Miami + New York Attorneys | International Law | Commercial Litigation.

On July 3, 2012, the United States District Court for the District of Puerto Rico ordered Chartis to advance the costs of defending the directors and officers in a suit brought by the Federal Deposit Insurance Corporation, which took over the bank in 2010.

Chartis denied coverage and defended against the advancement motion on the basis of an “insured v. insured” exclusion in the relevant policies. Insurance coverage disputes, often involving “insured v. insured” exclusions, are a growing concern for bank directors and officers, and this case might be a bellwether on such issues.

The directors and officers asked Chartis to advance defense costs and cover purported gross negligence claims brought by the FDIC. Chartis denied coverage and refused to advance costs, even though the D&O policies Chartis drafted require advancement of defense costs, forcing the directors and officers to seek a declaratory judgment.

The directors and officers filed a motion with the court requesting advancement of defense costs prior to an ultimate coverage determination. The court granted that motion and ordered Chartis to comply with Puerto Rico law, which required Chartis to advance defense costs. Click here to see the district court order.

Andrés Rivero, Jorge A. Mestre, Alan H. Rolnick, Charlie Whorton and M. Paula Aguila of Rivero Mestre represent six directors and officers of Westernbank of Puerto Rico.

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Executives and directors of the now-defunct Westernbank Puerto Rico asked a federal judge Wednesday to dismiss a $176 million Federal Deposit Insurance Corp. suit accusing the group of gross negligence in its handling of loans prior to the bank’s closure in 2010.

In a motion filed in the U.S. district court in Puerto Rico, the six former Westernbank executives and directors argue that the FDIC is trying to hold them accountable for not adequately anticipating the recent financial crisis — which had a devastating effect on the bank — even though financial luminaries including FDIC senior officials have admitted that nobody could have reasonably foreseen such a meltdown.

“The FDIC has embarked on a quest to scapegoat the bank’s officers and directors, whose lives have been as thoroughly turned upside down by this chain of events as any other investors or creditors,” the motion claimed. (Click here to see full article; click here to see the D&Os motion to dismiss the FDIC complaint).

Andrés Rivero, Jorge A. Mestre, Alan H. Rolnick, Charlie Whorton, and M. Paula Aguila of Rivero Mestre, represent six directors and officers of Westernbank of Puerto Rico. Over the course of fifty-two years, Westernbank grew from a small, community institution into one of the largest, most profitable, and healthiest banks in the Commonwealth of Puerto Rico. It did so by working hand in hand with the Office of the Commissioner of Financial Institutions of the Commonwealth of Puerto Rico (“OCFI”) and with federal regulators, rising from humble beginnings as a local Mayaguëz bank to become the Commonwealth’s second-largest, with branches throughout the island. Federal regulators and the OCFI conducted annual examinations and awarded Westernbank the highest possible score for twelve consecutive years, from 1993 to 2005. In 2010, while Westernbank, like everyone else, was working hard to ride out a global recession, the OCFI closed its doors, seized it, and appointed the FDIC as receiver. Now, the FDIC demands that Westernbank’s long-serving directors, officers, and their spouses be held personally liable for operating a bank to which federal regulators gave the highest marks until months before a worldwide economic collapse.

The post Rivero Mestre’s representation of Westernbank’s directors and officers discussed in Law360 appeared first on RIVERO MESTRE LLP | Miami + New York Attorneys | International Law | Commercial Litigation.

The American Banker reported that

[t]he case of WesternBank’s directors illustrates how much is now up in the air. The Mayaguez, Puerto Rico bank was seized in April, 2010 by the FDIC, which seized its assets and transferred them to Banco Popular. Following the failure, the FDIC notified WesternBank’s management and directors that it was considering a $367 million suit against them.

The directors hired Miami law firm Rivero Mestre to defend them and notified its D&O insurer, AIG subsidiary Chartis, that it wished to tap its $50 million policy to cover legal fees. Chartis told the law firm that it did not intend to pay for the board’s defense or subsequent judgments, according to a complaint filed by the directors.

. . . .

The firm filed its suit in Mayaguez, Puerto Rico, WesternBank’s home town, which Rivero describes as a “favorable” location. The FDIC has not yet intervened in the case, though it has the legal right do so.

WesternBank’s D&O policy does not include regulatory exclusion provisions, meaning that “the battle’s going to be on the insured versus insured issue,” Rivero says.

On the issue of D&O coverage, the interests of the FDIC and the directors are closely aligned. If directors are able to tap insurance coverage, Rivero says, he’ll likely try to hand over the policy proceeds to the FDIC in exchange for the agency’s agreement to drop claims against the personal assets of the bank’s former officials.

Rivero argues that the insurer rejected his client’s claim because it wants to hold the line against future litigation. If Chartis pays out on one claim, he says, the insurer would likely face a flood of similar claims.

“As soon as they pay somebody it’s going to break the dam,” he says. “We have another bank that we have done work for, and they’re insured by Chartis,” Rivero says. “We’re expecting a similar situation there, unless we set a precedent.”

Click here to see full article.

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“Westernbank’s directors and officers . . . on October 6, 2011, filed an action in local Puerto Rico court seeking judicial declaration that the FDIC’s claim is covered under the bank’s D&O policy. . . . According to an October 14, 2011 press release from the directors and officers’ counsel, the complaint seeks a judicial declaration with respect to “the controversial and critical question whether the FDIC-R can be deemed an insured under the Policy so as to excuse [the carrier] from providing coverage.” (Click here to see full article).

Andrés Rivero, Jorge A. Mestre, Alan H. Rolnick, M. Paula Aguila, and Charlie Whorton of Rivero Mestre represent six directors and officers of Westernbank, a Puerto Rican bank in FDIC receivership. The complaint was filed on October 6, 2011, and Chartis has yet to file a response (Click here to see complaint).

The post Rivero Mestre’s representation of Westernbank’s directors and officers discussed in The D&O Diary appeared first on RIVERO MESTRE LLP | Miami + New York Attorneys | International Law | Commercial Litigation.

The post Several directors and officers of Westernbank, represented by Rivero Mestre, file action against Chartis Insurance Co., to determine coverage under Westernbank’s D&O insurance policy. appeared first on RIVERO MESTRE LLP | Miami + New York Attorneys | International Law | Commercial Litigation.