914 F.2d 1271 18 Fed.R.Serv.3d 139: United States Court of Appeals, Ninth Circuit
914 F.2d 1271 18 Fed.R.Serv.3d 139: United States Court of Appeals, Ninth Circuit
914 F.2d 1271 18 Fed.R.Serv.3d 139: United States Court of Appeals, Ninth Circuit
2d 1271
18 Fed.R.Serv.3d 139
This appeal represents a small piece of major ongoing litigation over who
should bear losses sustained in the collapse of still another thrift institution
insured by the Federal Savings and Loan Insurance Corporation ("FSLIC").
Appellant here is Ranbir S. Sahni, a former director of American Diversified
Savings Bank ("ADSB") who is seeking to hold the appellee, Harbor Insurance
Company ("Harbor") liable for amounts he may be found to owe to FSLIC,
ADSB's receiver.
FSLIC is pursuing its claims against Sahni and other directors in related
litigation before the same district judge, and although FSLIC did not appeal the
district court's section 54(b) ruling in favor of Harbor on Sahni's claim, it was a
party in this case at the district court level and joined Sahni in his unsuccessful
cross-motion for summary judgment against Harbor.
The issue on the merits is whether "claims made" insurance policies issued by
Harbor to ADSB covered the claims in question. The two Harbor policies
together were in effect from October 1, 1983, to March 1, 1985. Other
companies had issued policies covering different periods of time. This case was
originally instituted as a declaratory judgment action in state court by one of
those insurance companies, California Union Insurance Company, against
Sahni and FSLIC and, among other ADSB insurers, Harbor. FSLIC removed
the action to federal court pursuant to 12 U.S.C. Sec. 1730(k)(1), which
establishes federal question jurisdiction for a "civil action, suit or proceeding to
which [FSLIC] shall be a party," with provisos not here relevant.
JURISDICTION
4
plaintiff in the declaratory judgment action had dismissed Harbor from the case
because the plaintiff had concluded that Harbor's insurance policies did not
cover the claims in question. Sahni and FSLIC disagreed, however, and after
removal, Sahni filed a "third-party complaint" against Harbor in order to bring it
back into the case. FSLIC joined Sahni's cross motion for summary judgment
against Harbor, the denial of which Sahni now appeals.
5
In response to our request for briefs on jurisdiction, the appellant Sahni now
contends that the Supreme Court's recent decision in Finley v. United States,
490 U.S. 545, 109 S.Ct. 2003, 104 L.Ed.2d 593 (1989), requires us to hold that
the district court lacked jurisdiction over Sahni's claim against Harbor.
The Supreme Court in Finley held that the grant of federal jurisdiction in the
Federal Tort Claims Act ("FTCA") of claims against the United States was not
broad enough to reach a complaint against other defendants. The grant of
jurisdiction in 12 U.S.C. Sec. 1730(k)(1),1 however, is far broader than the
grant of jurisdiction for a claim against the United States under the FTCA. The
FSLIC statute establishes federal jurisdiction over any proceeding to which
FSLIC is a party. Assuming arguendo there may be cases in which FSLIC's
presence as a named party may be insufficient to confer federal court
jurisdiction over a controversy unrelated to FSLIC, FSLIC in this case was not
merely a nominal party to the declaratory judgment action from which this
appeal arises. FSLIC also has a clear stake in Sahni's claim against Harbor,
since Sahni's aim is to make Harbor responsible for satisfying FSLIC's claims
against Sahni. FSLIC's interest is demonstrated by the fact that FSLIC joined
Sahni in his motion for summary judgment.
Unlike the grant of jurisdiction under the FTCA, section 1730(k)(1) is not
limited to claims against the United States. The grant of jurisdiction in section
1730(k)(1) is broad enough to authorize the district court to exercise its
discretion pursuant to the Federal Rules to permit this claim to be considered in
the context of a declaratory judgment action designed to determine issues of
insurance coverage. See Fed.R.Civ.Proc. 14, 20. The court properly found
Harbor's joinder appropriate, over no objection. It did so, agreeing that Sahni's
claims against Harbor were "so closely related to the main claim that for
reasons of justice in order to avoid piecemeal the litigation claims should be
heard together." The conclusion is in harmony with the purpose of section
1730(k)(1) which is intended to permit federal courts to deal with all
proceedings in which FSLIC, when it is acting as an agency of the United
States, is a party. See Federal Savings and Loan Ins. Corp. v. Ticktin, 490 U.S.
82, 109 S.Ct. 1626, 104 L.Ed.2d 73 (1989). The statute is intended to permit
resolution of competing claims in a single federal forum. The narrow
The Policies
9
Each of the Harbor policies were "claims made" policies. In relevant part each
of them provided that Harbor shall pay on behalf of the insured "loss ... arising
from any claim or claims made against the insureds ... during the policy period
by reason of any wrongful act...." The term "loss" is defined as "any amount an
insured is obligated to pay in respect of this legal liability whether actual or
asserted, for a wrongful act...." This amount includes "damages, judgments,
settlements and costs, charges and expenses incurred in the defense of actions,
suits or proceedings and appeals therefrom...." "Wrongful act" is defined as:
The policies provided coverage for claims made during the policy period and
after the policy period ended, so long as the notice of the potential claim was
given to Harbor within the policy period.
12
The "policy period" began October 1, 1983, and ended March 1, 1985. This
dispute arises because FSLIC's lawsuit against Sahni, setting forth the claims he
now asserts are covered by Harbor, was not filed until 1986. The issues in this
dispute which we must resolve thus concern whether communications between
various parties during the policy period amounted to "claims made." We must
also determine whether there should have been further discovery or other
proceedings to permit appellant to show there was sufficient notice within the
policy period of a potential claim within the meaning of the policy provisions.
Background
13
On March 26, 1984, ADSB received from the Federal Home Loan Bank Board
("FHLBB") a letter informing the Bank that it had not been timely in filing its
monthly financial reports; fault had been found with ADSB's accounting
system; and, the FHLBB did not have full confidence in the integrity of
ADSB's records. The letter requested that ADSB take immediate action to
remedy the situation.
14
15
In June of 1984, Sahni was advised by FSLIC and CDSL that ADSB was guilty
of specified statutory and regulatory violations and that FSLIC intended to
initiate formal regulatory enforcement proceedings unless the Board of
Directors of ADSB consented to enter into a supervisory agreement with
FSLIC and CDSL. That same month, on June 20, ADSB entered into a
Supervisory Agreement with FSLIC. Under this Agreement the FSLIC agreed
to forbear instituting formal cease-and-desist proceedings. In exchange, ADSB
agreed to dispose of noncomplying loans, provide an accurate accounting, and
otherwise bring itself into compliance with applicable regulations.
16
17
18
On October 6, 1984, which was still within the period covered by a Harbor
policy, CDSL rescinded its cease-and-desist order, subject to ADSB's
acceptance of three conditions:
19
(1) ADSB was to maintain a net worth of at least five percent of its total assets;
20
(2) ADSB's aggregate investment in its service corporations was not to exceed
sixty percent of ADSB's total assets until further order of the Commissioner;
and
21
22
Finally, on February 14, 1986, after the Harbor policy period had ended, the
FHLBB determined that ADSB was insolvent, appointed the FSLIC as the
conservator, and the FSLIC filed suit against Sahni and others for alleged
breaches of duty committed while directors of ADSB. The lawsuit against
Sahni alleged that he individually breached his fiduciary duty of due care to
ADSB by failing to maintain accurate and adequate records of transactions and
he maintained a conflict of interest with ADSB's subsidiaries and other
companies owned or controlled by him.
23
On April 23, 1986, Sahni's counsel requested coverage by Harbor under the
policies. On April 29, 1986, Harbor denied any coverage obligation based on
the fact that the FSLIC lawsuit was filed after the expiration of the
policies.Were Any Claims Made?
24
Although an actual lawsuit against Sahni was not filed until February 19, 1986,
Sahni argues that letters from the FHLBB detailing ADSB's deficiencies and
requesting immediate action by the directors of ADSB were actually "claims
made" within the meaning of the insurance policies. We disagree.
25
26
a claims-made policy is inherently ambiguous, but rather that the term must be
interpreted as any other contract term. See Producers Dairy Delivery Co. v.
Sentry Ins. Co., 41 Cal.3d 903, 912, 718 P.2d 920, 928, 226 Cal.Rptr. 558, 566
(1986); Hallmark Ins. Co. v. Superior Court, 201 Cal.App.3d 1014, 1019-20,
247 Cal.Rptr. 638, 643-44 (1988); Employers Reinsurance v. Phoenix Ins. Co.,
186 Cal.App.3d 545, 555, 230 Cal.Rptr. 792, 802 (1986).
27
Notwithstanding the unambiguous nature of the policy, Sahni asserts that the
various letters from the FHLBB and CDSL constituted "claims made" under the
policy. None of the communications to Sahni or ADSB during the policy
periods amounted to any assertion of liability on their part for any conduct
under investigation.
28
The CDSL management order of July 6, 1984, and the two letters of April 6
and October 6, 1984 pertaining to CDSL's cease-and-desist orders do not assert
claims because they neither threatened formal proceedings against Sahni as a
consequence of failure to comply nor propose to hold the officers and directors
personally liable for the deficiencies. CDSL's cease-and-desist order did not
state any formal consequences for ADSB's failure to comply with the order.
Similarly, CDSL's order requiring ADSB to submit to a management audit
stated that the audit's purpose was to aid ADSB's compliance with the
necessary regulations, and did not threaten any formal consequences for failure
to comply. Finally, although the FSLIC agreement stated that the Board had
agreed to take certain actions in return for FSLIC's "forbearance" from formal
cease-and-desist proceedings against the institution, no formal action was
threatened against the officers or directors as a consequence of breaching the
agreement.
29
30 our judgment the letter of April 5, 1974 did not constitute a claim. It was a
[i]n
request for information and explanation. If Hoyt was put on notice of any kind it was
only that a claim might be expected to follow if the estate attorney was not satisfied
with the explanation. In our view an inquiry cannot be transformed into a claim or
demand depending in each case on the reasonable expectations of the insured--
whether he should reasonably have been satisfied that the explanation would be
accepted as justification for the questioned conduct or should reasonably have
expected that it would not. Such a rule would firmly write uncertainty of coverage
into every policy.
31
32
There are conflicting district court decisions applying California law, however.
Compare Burns v. International Insurance Co., 709 F.Supp. 187
(N.D.Cal.1989), with Mt. Hawley v. Federal Savings & Loan Insurance Corp.,
695 F.Supp. 469 (C.D.Cal.1987). The district court in Burns held that a FSLIC
investigation and Supervisory Agreement did not, by themselves, give rise to a
claim, but were occurrences "that might subsequently give rise to a claim." Id.
at 189. The rationale of Burns is persuasive. The term "claim" should not be
interpreted so broadly as to include a regulatory agency's request of the insured
to comply with regulations where, as here, the agency did not directly threaten
ADSB with liability, it made no "money demand," Williamson, 64 Cal.App.3d
at 269-70, 134 Cal.Rptr. 427, or "demand or challenge [ ] something as of
right." Id.; Phoenix Ins., 136 Cal.App.3d at 677, 186 Cal.Rptr. 513; see also
MGIC Indem. Corp. v. Home State Sav. Ass'n, 797 F.2d 285, 288 (6th
Cir.1986) (assertion that a "wrongful act" has occurred is "not the same thing as
a claim for payment on account of a wrongful act"; a claim for payment is
required to invoke coverage). Under California law, no "claim" was made. See
Gyler; Williamson & Vollmer Engineering.
Was There a Viable Contention that Harbor had Notice of a Potential Claim?
33
34
Subsection 7(C)II2 of the policies allows in effect coverage for claims made
after the policy period if notice of a potential claim is given to Harbor within
the policy period. Sahni argues that the district court erred in concluding that
Sahni had not established a genuine issue of material fact as to whether Harbor
had received notice. Sahni also argues that the district court erred in refusing
additional discovery under Federal Rule of Civil Procedure 56(f) to depose
Harbor regarding its "actual knowledge" of these potential claims. We reject
these contentions.
35
The first issue Sahni raises is whether Harbor received timely notice of the
regulatory activity which would trigger the policies' "potential claims"
protection. Sahni acknowledges that the insureds had not personally given
Harbor notice. He argues that we should hold Harbor nevertheless had
37
Thus, the district court did not err by finding that Sahni failed to meet his
burden of establishing a genuine issue of material fact as to whether Harbor had
actual notice of "potential claims" against Sahni. See Burns, 709 F.Supp. at 191
(denying coverage because insured parties failed to notify insurer of potential
claims based on the regulatory activity until several months after the policy
term had ended); see also Tzung v. State Farm Fire and Cas. Co., 873 F.2d
1338, 1342 (9th Cir.1989) (summary judgment proper where no coverage as a
matter of law under insurance policy); Hallmark, 201 Cal.App.3d at 1020, 247
Cal.Rptr. 638 (same).
38
There is one remaining contention. Sahni argues that the district court abused
its discretion by refusing to allow him additional time to depose Harbor before
deciding the motion for summary judgment.
39
The district court has discretion to continue a motion for summary judgment if
the opposing party needs to discover essential facts. Fed.R.Civ.P. 56(f); Garrett
v. City and County of San Francisco, 818 F.2d 1515, 1518 (9th Cir.1987). The
district court does not abuse its discretion by denying further discovery if the
movant has failed diligently to pursue discovery in the past, Mackey v. Pioneer
National Bank, 867 F.2d 520 (9th Cir.1989), or if the movant fails to show how
the information sought would preclude summary judgment. Hall v. State of
Hawaii, 791 F.2d 759, 761 (9th Cir.1986).
40
Here, Sahni sought to continue the summary judgment disposition long enough
to depose a Harbor representative on the question of whether Harbor had had
"actual knowledge" of claims made against Sahni. However, no actual "claims"
were made during the policy period as a matter of law. The deposition could
not have produced any new information material to the issue of whether Harbor
had notice of "claims made" during the policy periods.
41
Sahni also asserts that the deposition could have produced information showing
that Harbor had "actual knowledge" of "potential claims" during the policy
period. Again, since all written communications to Harbor had already been
produced, and these did not indicate that Harbor had received any notice of
potential claims, there was no likelihood of material new information being
disclosed at the deposition.
42
Therefore, Sahni failed to assert any basis on which the district court should
have granted his Rule 56(f) request, and the district court did not abuse its
discretion by denying it. See Mackey, 867 F.2d at 524; Hall, 791 F.2d at 761.
43
AFFIRMED.
State court to the United States district court for the district and division
embracing the place where the same is pending by following any procedure for
removal now or hereafter in effect: Provided, That any action, suit, or
proceeding to which the Corporation is a party in its capacity as conservator,
receiver, or other legal custodian of an insured State chartered institution and
which involves only the rights or obligations of investors, creditors,
stockholders, and such institution under State law shall not be deemed to arise
under the laws of the United States. No attachment or execution shall be issued
against the Corporation or its property before final judgment in any action, suit,
or proceeding in any court of any State or of the United States or any territory,
or any other court.
12 U.S.C. Sec. 1730(k)(1).
2