shall briefly address the issue. The court does not find VSC's interpretation of the D & O Policy's Clause VIII.E correct. Read in its entirety, it is clear that the reference in this section to the directors and officers agreeing to allow UNB to act on their behalf relates to the activities discussed in the clause, not any and all activities performed by UNB. The releasing of claims is not one of the activities described and hence VSC should not be permitted to deny Mr. Interdonato's claim on the basis of UNB's release.
D. Prior Acts Exclusion
VSC also claims that the D & O Policy bars coverage for a claim against a director arising out of or in any way involving any wrongful act committed or alleged to have committed prior to October 22, 1986 or any wrongful act occurring on or subsequent to October 22, 1986 that is in any way related to any wrongful act committed or alleged to have been committed prior to October 22, 1986. It argues that because Ms. Spady's wrongful acts were committed prior to this date, Mr. Interdonato's related claims are barred. VSC cites several cases in which courts have found that the actions of one insured barred coverage for a claim against any insured. The FDIC responds that because the D & O Policy contained a severability clause, it constituted a contract with each individual insured and the prior acts exclusion only relates to the prior acts of Mr. Interdonato.
The court agrees with the FDIC that the language of the cases cited by VSC is distinguishable from the present one. This contract does not contain the "any insured" language involved in the policies in those cases, which contrasted policies containing the words "any insured" with policies containing more generic words such as "the insured." See e.g. Michael Carbone, Inc. v. General Accident Ins. Co., 937 F. Supp. 413, 420 (E.D. Pa. 1996); Chacon v. American Family Mutual Ins. Co., 788 P.2d 748 (Colo. 1990). In this case, the D & O Policy does not contain any reference to indicate to whom the prior acts exclusion applies. In the absence of a phrase expanding the clause's scope, as in the cases cited by VSC, the court finds that the prior acts exclusion, read in conjunction with the severability clause, should only apply to the prior acts of Mr. Interdonato.
VSC also argues that Mr. Interdonato's prior acts bar coverage under the D & O Policy. However, it is clear that the wrongful acts alleged in this action and found by this court to have been committed by Mr. Interdonato, relate to post October 22, 1986 conduct only. Neither the complaint nor this court's December 4, 1996 Findings of Fact, Conclusions of Law, and Order indicate that this action involves prior wrongful acts.
The strongest support for VSC's position comes from the December 4, 1996 Findings of Fact, Conclusions of Law, and Order in which this court indicated that by the time JML's acquired UNB, Mr. Interdonato, as a director and member of the audit committee, should have taken appropriate action with regard to the audit report. However, the subsequent sentences indicate that the activities alleged and found by this court refer to those wrongful acts committed by Mr. Interdonato during the period from October 22, 1986 through July 1987. VSC has failed to convince the court that (1) Mr. Interdonato was alleged or found to have committed wrongful acts prior to October 22, 1986 or (2) the wrongful acts that are the subject of this action "in any way" involve any possible prior impermissible conduct by Mr. Interdonato.
E. The Application Exclusion
It also appears that VSC contends that the Application Exclusion precludes coverage under the D & O Policy. VSC argues that because the APA loan problems were known by UNB representatives at the time they signed the policy application, Part C, Paragraph 3 of the application bars coverage. VSC contends that if any insured knew facts that were within the scope of the Application Exclusion, then all insureds' claims should be barred. Referring to its previous arguments, VSC asserts that the Severability Clause does not affect the scope and effect of the application exclusion. The FDIC replies that the Severability Clause applies to the application and prevents the imputation of any knowledge of the other directors to Mr. Interdonato. It also argues that in any event the APA loan problems were not known by UNB representatives at the time the D & O Policy application was completed.
As already discussed the court rejects VSC's interpretation of the D & O Policy's Severability Clause and accepts the contention that it creates a policy with each insured. The court notes that this interpretation is especially strong in this instance because the Severability Clause specifically applies to the "particulars and statements contained in the written proposal and the Exclusion set forth [therein]." See D & O Policy, Section VIII.
Hence, the court shall address Mr. Interdonato's knowledge of the APA loan improprieties. The court finds that the relevant date for determining knowledge should be at the time the application was signed by UNB, namely May 21, 1987, or at the latest the effective date of the policy, July 20, 1987. Mr. Interdonato has testified in his declaration that he had no knowledge of the APA loan problems until after the July 20, 1987 effective date.
Moreover, the court does not find VSC's argument persuasive with regard to the knowledge of UNB and its representatives. VSC cannot act to eliminate coverage by asking the insureds to "resign" it after the policy's effective date. Hence, the court does not deem the "re-signing" of the application on August 12, 1987 as determinative. VSC has failed to establish any facts to show that the APA loan problems were known before the signing of the application on May 21, 1987. Thus, the court concludes that the Application Exclusion is inapplicable to bar coverage.
F. Default Judgment
Little needs to be said concerning VSC's last contention. It argues that it should not be bound by the default judgment entered in favor of the FDIC against Mr. Interdonato. It asserts that the dispute was not fairly litigated. VSC made a decision to not defend this lawsuit and it must accept the consequences of that decision. Moreover, the claims against Mr. Interdonato were fairly litigated. Those proceedings are not rendered unfair simply because VSC failed to contest any of the issues.
For the reasons set forth herein, the court grants the plaintiff's application and motion for judgment of condemnation on writ of attachment and denies the garnishee's motion to quash and/or deny the writ of attachment on judgment. Separate orders shall issue this date.
Royce C. Lamberth
United States District Judge
This matter has come before me on post-judgment garnishment proceedings instituted by the Federal Deposit Insurance Corporation as Receiver of Madison National Bank ("FDIC") pursuant to F.R. Civ. P. 69 and D.C. Code §§ 16-541 et seq., seeking to collect its judgment against the defendant, Paul F. Interdonato by garnishing the Directors and Officers Liability and Company Reimbursement Policy No. 71106 issued by the garnishee Virginia Surety Company, Inc. ("VSC") insuring James Madison Limited, its subsidiaries and their respective directors and officers.
The Court has considered the FDIC's Application and Motion of the Federal Deposit Insurance Corporation as Receiver of Madison National Bank for a Judgment of Condemnation on Writ of Attachment against Garnishee Virginia Surety Company, Inc. ("Application for Judgment of Condemnation") and VSC's Answer and Motion to Quash and/or Deny Writ of Attachment ("Motion to Quash"), and their respective memoranda of authorities, VSC's interrogatory answers, and the declarations and exhibits filed in connection with these motions, and
It is hereby ORDERED, ADJUDGED AND DECREED, for the reasons set forth in an accompanying Memorandum Opinion,
1. That the FDIC's Application for Judgment of Condemnation is hereby granted, and VSC's Motion to Quash is hereby denied.
2. The Court finds that there is no issue of fact to be tried, that the FDIC is entitled to judgment as a matter of law, and that there is no just reason for delay in the entry of judgment.
3. Pursuant to F.R. Civ. P. 69 and D.C. Code § 16-556, the Clerk of this Court is directed to enter judgment in favor of the FDIC against VSC in the amount of $ 2,844,421.70, plus post-judgment interest from December 4, 1996 through the date of the judgment pursuant to 28 U.S.C. § 1961.
This 26th day of Nov., 1997.
Royce C. Lamberth
Judge, United States District Court