The opinion of the court was delivered by: LAMBERTH
This matter comes before the court on the plaintiff's application and motion for judgment of condemnation on writ of attachment and the garnishee's motion to quash and/or deny the writ of attachment on judgment.
Rule 69 of the Federal Rules of Civil Procedure authorizes proceedings in aid of judgment and execution "in accordance with the practice and procedure of the state in which the district court is held." D.C. Code § 16-556 and Superior Court Civil Rule 69-I(e) permit a "Judgment of Condemnation" enforcing a garnishment writ when supported by an "application" for judgment of condemnation. The default judgment in the present case is a proper subject for garnishment proceedings and insurance policy proceeds as an asset of defendant debtor Paul Interdonato may be reached with this writ of attachment. See Waters v. American Auto. Ins., 124 U.S. App. D.C. 197, 363 F.2d 684 (D.C. Cir. 1966).
There is no claim that this case presents any disputed issues of material fact. For the reasons set forth below, 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 judgment on the writ.
The Virginia Surety Company ("VSC") issued a Directors and Officers Liability Including Company Reimbursement Policy No. 71106 ("D & O Policy") to James Madison Limited ("JML") for the policy period March 15, 1985 to March, 15, 1988. The policy was a "claims made" policy, providing coverage only for claims or potential claims sufficiently noticed within the policy period.
The D & O Policy was not a true claims made policy since it provided coverage for claims after the policy period arising out of "occurrences" sufficiently noticed during the policy period.
Section VII.A of the policy, titled Notice of Claims, provides:
A. If during the policy period or the extended discovery period:
1. The Company or the Directors or Officers shall receive written notice from any party that it is the intention of such party to hold the Directors and Officers or any of them, responsible for a Wrongful Act; or
2. The Company or the Directors or Officers shall become aware of any occurrence which may subsequently give rise to a claim being made against the Directors and Officers, or any of them, for a Wrongful Act; and shall in either case during such period give written notice as soon as practicable to the Underwriters of the receipt of such written or oral notice under Clause 1 or of such occurrence under Clause 2, then any claim which subsequently is made against the Directors or Officers arising out of such Wrongful Act shall, for the purpose of this policy be treated as a claim made during the policy year in which such notice was given, or if given during the extended discovery period, as a claim made during the last policy year.
After the issuance of the D & O Policy, several transactions occurred that had important implications for the insurance coverage provided pursuant to the D & O Policy. On October 22, 1986, JML acquired United National Bank of Washington ("UNB") from United National Bank Bancshares. On or about July 17, 1987, auditors identified problems with the handling of installment loans referred to UNB by APA Leasing, Inc. ("APA"). APA is located in Northeast Washington D.C. and arranges for the sale of automobiles to customers, acting as middlemen between other automobile dealers and individual customers. On July 20, 1987, by Endorsement No. 10, the directors and officers of United National Bank of Washington ("UNB") were added to the D & O Policy for wrongful acts committed or alleged to have been committed after October 22, 1986. The policy provides $ 5,000,000 in coverage for its insureds.
On August 6, 1987, Norman F. Hecht, Sr., JML's Executive Vice-President, sent notice to VSC of "potential loss resulting from dishonest or fraudulent acts of an employee committed alone or in collusion with others." The letter also mentioned the possibility of officer and director liability. On August 19, 1987, Grace Leppin, a Senior Claims Attorney, responded by requesting additional information and writing that the "directors and officers liability policy could not be involved at present since no directors or officers of the bank have been sued." By letter dated October 13, 1987, Samuel L. Foggie, Sr., Chairman and CEO of UNB, provided Grace Leppin with a more detailed description of transactions relating to APA Leasing, Inc., a UNB customer, that may have resulted in wrongdoing. This letter described the investigation by JML's internal auditors into possible wrongdoing. On December 10, 1987, VSC's counsel replied to UNB's notice by summarizing the "occurrences" described by UNB, noting the need for certain additional information, and deferring discussion of potential coverage relating to officers and directors until such time as a lawsuit might be filed. Subsequently, several letters were exchanged relating to possible coverage under the D & O Policy for the various complications that arose out of the APA situation.
Over the next four years, UNB's financial condition seriously deteriorated and UNB was ultimately merged into another of JML's subsidiaries, Madison National Bank, on March 29, 1991. As a result of the merger, Madison National Bank acquired all of UNB's assets. On May 10, 1991, the Office of the Comptroller of the Currency ("OCC") determined that Madison National Bank was insolvent, closed it, and appointed the Federal Deposit Insurance Corporation ("FDIC") as its receiver. On April 13, 1994, the FDIC notified UNB representatives of its intention to file an action against former UNB directors for losses originating out the APA Leasing loans. By letter dated May 3, 1994, lawyers for the former UNB directors notified VSC of this development. On December 29, 1995, the FDIC filed a complaint in this case against Mr. Interdonato, a former director of UNB. On December 4, 1996, this court made Findings of Fact and Conclusions of Law and entered Judgment by Default in favor of plaintiff FDIC against defendant Interdonato.
The present dispute concerns whether garnishee VSC is liable to plaintiff FDIC for the judgment the FDIC obtained against the defendant, Mr. Interdonato. The FDIC argues that VSC has wrongfully denied coverage under the D & O Policy and seeks to collect on its judgment against Interdonato by garnishing the D & O Policy. In response, garnishee VSC argues that it is not liable under the insurance policy for the following reasons: (1) UNB and its directors failed to sufficiently notify VSC within the policy period as required by the D & O Policy; (2) the asserted coverage relates to wrongful acts committed prior to October 22, 1986, that are not covered by the D & O Policy; (3) the release of VSC by UNB and its directors from "any and all claims in any way involving" the Spady and Cunningham lawsuits bars coverage for the FDIC's judgment against Interdonato, (4) the exclusion in the D & O Policy application form, Part C, Paragraph 3, for knowledge of a fact, circumstance or situation that ultimately might result in a claim bars coverage; (5) the prior acts exclusion bars coverage; and (6) VSC should not be bound by the default judgment entered against Interdonato. The FDIC denies the validity of the arguments presented by VSC in asserting the lack of coverage under the D & O Policy. It argues that (1) UNB provided sufficient notice to VSC within the policy period; (2) VSC is estopped and has waived any argument regarding lack of notice; (3) the July 25, 1989 Release does not foreclose Mr. Interdonato's rights to coverage; (4) the exclusion in the application form for known claims as well as the prior acts exclusion do not bar coverage; and (5) VSC may not collaterally attack the default judgment.
As an initial matter, the court must consider the parties' contentions regarding the proper interpretation of the D & O Policy. VSC contends that it is improper to consider parole evidence because the D & O Policy is unambiguous. In particular, VSC urges the court not to consider the testimony of the FDIC's experts, Allan Windt and Grant Hubbard, concerning the meaning of this insurance policy. From the record, it appears that the FDIC does not contend that the D & O Policy is ambiguous nor does it explain a sufficient basis for the consideration of parole evidence.
The parole evidence rule operates to bar the introduction of extrinsic evidence to vary the clear intent of an unambiguous insurance contract. See District-Realty Title Ins. Corp. v. Ensmann, 247 U.S. App. D.C. 228, 767 F.2d 1018, 1022 (D.C. Cir. 1985) (citations omitted); Kessler v. Lincoln National Life Ins. Co., 620 F. Supp. 282, 284 (D.D.C. 1985) (citing King v. Industrial Bank of Washington, 474 A.2d 151, 155 (D.C. App. 1984)). Instead, the court should determine the intent of the parties from the language used in the insurance policy. See Travelers Indem. Co. v. Booker, Civ. A. No. 84-0981, 1986 WL 15611, *2 (D.D.C. May 16, 1986). Courts should not seek out ambiguities when interpreting an insurance policy and the mere fact that the parties disagree about the meaning of the policy's language does not render the language ambiguous. See id. Since this court finds the D & O Policy unambiguous, the court declines to consider parole evidence in interpreting this D & O Policy.
Despite the court's conclusion that the text of the D & O Policy is unambiguous, the parties dispute how the court should apply its plain language, in particular the notice provisions. The notice provision of the policy has two prongs relating to notice. See D& O Policy Clause VII, Notice of Claims. The first prong covers situations in which the directors and officers receive written or oral notice that any party intends to hold the insured liable for a wrongful act. See id. The second prong, which is primarily relevant here, addresses situations in which:
the Company or the Directors or Officers shall become aware of any occurrence that may subsequently give rise to a claim against any of them for a Wrongful Act shall in either case give notice . . . of the receipt of such notice under Clause 1 or of such occurrence under Clause 2 . . . .
VSC maintains that this court should apply the unambiguous language of the D & O Policy by focusing on the words "Wrongful Act" instead of the word "occurrence." VSC points to the Eleventh Circuit's decision in RTC v. Artley, 24 F.3d 1363 (11th Cir. 1994) for support. In Artley, the Eleventh Circuit had to interpret the notice provisions of a bank's directors and officers liability insurance policy that was similar to the D & O Policy's notice provisions.
The Eleventh Circuit concluded that notice of an "event or circumstance" under the policy also required notice of the related "wrongful act." Id. at 1367. Courts in the Fifth Circuit have also interpreted policy language similar to the D & O Policy to require notice of particular "wrongful acts" giving rise to a subsequent claim. See FDIC v. Booth, 82 F.3d 670 (5th Cir. 1996); RTC v. Ayo, 31 F.3d 285, 290-91 (5th Cir. 1994) (analyzing whether the insured provided sufficient "notice of a specified wrongful act that might give rise to a claim"); FDIC v. Mijalis, 15 F.3d 1314, 1329 (5th Cir. 1994) (analyzing notice by determining whether the insureds objectively gave written notice of "specified wrongful acts"); McCullough v. Fidelity & Deposit Co., 2 F.3d 110, 112 (5th Cir. 1993) (finding that the policy language only made sense if it was read to require notice of "specified wrongful acts"); FDIC v. Caplan, 838 F. Supp. 1125, 1129 (W.D. La. 1993) ("notice of actual or potential claims was a condition precedent to the insurer's obligations under the contract").
Courts focusing on a policy's "wrongful act" language have done so on two principal bases. First, courts have analyzed the language in insurance policies, finding that the policies' notice language incorporated by reference notice of particular "wrongful acts." See Booth, 82 F.3d at 678 (interpreting the policy's language that required the insured's knowledge or awareness of any negligent act or breach of duty and "written notice thereof" as clearly implying specificity in the notice); Artley, 24 F.3d at 1367 (finding that the policy's use of the words "such wrongful act" related the terms "wrongful act" and "event or circumstance," and indicated that they had the same meaning); McCollough, 2 F.3d at 112 (interpreting policy's use of the words "specified wrongful act"). Second, these courts have discussed the significant policy considerations underlying a "claims made" policy as compared to an "occurrence" policy. See McCollough, 2 F.3d at 112; Artley, 24 F.3d at 1368 ("Such a view, we believe would destroy the notification requirements at the heart of a claims made policy . . . ."). These decisions have found that "claims made" policies require notice to the insurer to trigger coverage whereas "occurrence" policies do not. See McCollough, 2 F.3d at 112; Artley, 24 F.3d at 1368. These courts have ...