The financial institution will not be able to recover the $11.7 million from the federal government.
A Louisiana bank will not be able to recover the $11.7 million DOJ settlement under its professional liability policies with Travelers Cos. Inc. and Chubb Ltd. units. The reason is that the government was not the bank’s client, according to a ruling by the federal court of appeals last week.
This most recent ruling upheld an earlier decision on the case from a lower court.
IberiaBank Corp, a bank based in Lafayette, Louisiana, came to the DOJ settlement in late 2017. At that time, it confirmed that it had provided the Department of Housing and Urban Development with mortgage certifications and that they did not meet all HUD requirements. This, according to a 5th US Circuit Court of Appeals ruling in New Orleans. The case was called IberiaBank Corp. v. Illinois Union Insurance Co.; Travelers Casualty & Surety Co. of America.
The settlement with the Department of Justice also resolved a number of outstanding claims from a lawsuit by a whistleblower. That suit alleged False Claims Act violations.
The ruling stated that IberiaBank had an Illinois Union primary Banker’s professional liability insurance policy for up to $10 million. Illinois Union is a Chubb unit. The ruling also stated that bank also had Travelers Casualty excess policy for $5 million. That insurer is a unit of Travelers Corp.
The DOJ settlement led to a lawsuit filed against the insurers charging breach of contract.
The insurance companies denied the bank’s claim. As a result, IberiaBank filed a lawsuit in the US District Court in New Orleans under the charge of breach of contract. It argued that the settlement with the Department of Justice “fell squarely” within the coverage of the policies.
The District Court ruled in favor of the insurance companies. This ruling was upheld by an appeals court panel under three judges. The policies offer coverage for professional services performed either by one of the bank’s third-party clients or by a policyholder, said that ruling.
Under the terms of the policy, the “client for consideration” is the same one whom IberiaBank’s “wrongful Acts in rendering or failing to render” its services were intended, decided the court’s ruling. The ruling added: “IberiaBank did not, however, engage in ‘Wrongful Act’ in providing mortgage loans to borrowers; rather IberiaBank engaged in ‘Wrongful Acts’ when it certified certain borrowers’ creditworthiness to HUD when those borrowers did not meet all HUD requirements.” This concluded that the government was not a client of IberiaBank 
because of the HUD program. As a result, the DOJ settlement claim is not eligible for the policies’ coverage.
