good morning erik ronstadt on behalf of travelers if i may reserve five minutes for a bottle in two thousand and nine pacific coast national bank failed in the f d i c took over as receiver in two thousand and twelve the f see began pursuing claims of the bank's claims against various of the offices and directors claiming they should be held responsible for certain of the bank's bad loans about seven and a half million dollars worth of bad lo now the district court said this provision is ambiguous and therefore construed it against travelers because there are two alternative readings there is the f b i sees reading the f d i c says this is an repay loan carve out really only applies to contractual debt collection auctions that's what it's about travelers says no what it applies to and covers a situation in which an officer and director is being sued are very case here for a bad loan alternative reading is simply not possible it's not reasonable it's not so we're left only with travelers reading therefore the district court erred in concluding that the language isn't big us therefore this court should reverse if we look at the language we look at the carve out on page eighty six of the record excerpt we see the critical term is loss loss means the amount which the insureds become legally obligated to pay the insurance are either the bank or the directors and officers that's a defined term that only includes them so loss is the key term and then we have the carve out last does not include any  repaid under subsection see any underpaid unrecoverable or outstanding loan to any affiliated person or borrower that's the key affiliated person or borrower borrower is defined to exclude officers and directors a borrower is never an insured a borrower never makes a claim for a loss under this policy it's a d and opata say this language must contemplate a lawsuit in tort against the affiliated persons the directors and officers for a loan to a borrower otherwise that language becomes meaningless the or borrower phrase it does no work for example suppose the bank makes a loan to mr jones it turns out the officer supervising the loan acted grossly negligent way should not have made the loan to mr jones is now being sued for having negligently made this loan mr jones the borrower will never be an insured will never be making a claim under this policy mr jones is not a director or an officer the only one who will be making a claim for  loss is the affiliated person defined to include the officer and director this language must contemplate the a lawsuit against the affiliated person the officer and director for the loan against the b or otherwise that language or borrower an unrecoverable loan to a borrower does no work and makes no sense under california law we must construe a contract to give meaning to all of the terms it is because it might be read only to apply to debt collection actions against borrowers think about it this way insurance coverage is not for a under directors and officers policies is not for things like if the director an officer doesn't pay the taxes that the bank goes that's specifically excluded under subsection b loss can include a lawsuit against the officer and director for failing to pay the taxes thing here it doesn't cover the bank's bad loan portfolio it can't include you have a bad loan also now the receiver comes in and says i'm going to sue the officer and director because for example the officer and director didn't pay the taxes and there's a problem when there's liability in those penalties and things no that's excluded same thing for bad loans these core business things that the banks officers and directors are supposed to be doing they are excluded or a dividend the officer and director negligently authorized the dividend when for example the bank was insolvent couldn't there be a difference between the loan and the amount of the loan though i mean maybe someone could sue to take over a lo be the new bank holding the loan compared to damages in the amount of a loan jittering i think it's important to understand the answer to your question i think is the carve out applies to damages kinds of damages not two types of claims the exclusions at that like the insured vs and shared exclusion the back of the policy that covers types of claims this covers kinds of damages and the fact that the word amount is not there is is pretty obvious it seems to me just like it's not there in front of taxes and say the amount of taxes and subsection b it doesn't say the amount of dividends in subsection deep well that's only programmatic all reasons if you look at the definition of loss loss means the amount which the insured becomes legally obligated to pay damages are always in an amount the reason why there is no word amount in b c indeed but there is a word amount for example any amounts that constitute an adequate consideration is that grammatically those subsections that say amount would not make any sense without the word amount you need the word amount in there to make a grammatical phrase you don't need the word to repeat the word amount in front of dividends or in front of underpaid loan or in front of taxes because it's already included in the concept of d's in those become legally obligated to pay including damages the term damages is also defined the term damages includes compensatory damages obviously this has to do not just with contract liabilities but also tort claims which always you have damages think of for example the illustration of the car loan or the car park automobile policy suppose automobile policy that the insured house covers both property that covers i'm sorry covers personal injury damages but not property damages to the vehicle the insurgent by property coverage that would be excluded whe you can't come along and say oh i the insured i'm being sued in tort therefore everything is included that's not how it works tort liability always is with respect to damages of a certain kin the hypothetical damages for personal injury is covered but not for property damage same thing here damages are covered except for those that are specifically carved out with this carve out the underpaid loan carve out collection action against a borrower it has to apply and must contemplate and does contemplate uncover a situation in which the director officer who is an affiliated person by definition is being sued in tort for damages for a loan to borrow or borrow again is defined specifically to exclude directors and officers as affiliated persons so again the language because this carves out certain types of damages doesn't apply to claims plus the damages that language the interpretation the f d i c posits is not reasonable it's not plausible so the district court erred in saying there were two ways you could look at this therefore it's ambiguous therefore it should be construed against the insurer now we have a separate provision the insured vs insured exclusion that operates differently exclusions exclusions apply with respect to types of claims it's not an exclusion based on particular types of damages like the car bottles it's an exclusion based upon types of claims and the type of claim involved is any claim by or on behalf of the ba in any capacity that's what the insured vs insured exclusion says now under the supreme court's decision in zero melvin e when the f d i c as receiver takes over for a failed bank it steps into the shoes of the bank and there's this four concluded in biltmore construing and identical insured vs insured exclusion if you have somebody else asserting the claims of the company the insurer they are bound by all the limitations of the policy the f d i c says well we're different we're different because when we pursue these causes of action we're acting for the benefit of a lot of different kinds of people this court in the biltmore case  rejected that distinction as legitimate this court says on behalf of and for the benefit of you cannot conflate on behalf of means you're stepping into the shoes of the insurers which is exactly what the f doing here for the benefit of it doesn't matter it could be for the benefit of anybody whether it's for the benefit of the f b i see the shareholders etc it doesn't matter now the district court also thought that this insured vs insured exclusion which we say applies here was also ambiguous and the district court said well that's because there are some other cases that have held that it's ambiguous or respectfully there are lots of other cases which have held that it's not ambiguous so which are we supposed to give deference to ice in that every court hasn't in the an obligation to review the language to determine for itself whether you think it's ambiguous or not and i submit following the supreme court's decision in almost any and following insured the directors and officers that there may be a little bit of confusion here the way that fire is worded firey of basically says it kind of sets a ceiling or sets a floor about or as long as state law good morning and may please the court michel like if any on behalf of the f b i theater receiver for pacific coast national bank california thought the very high bar for limitations on coverage insurance policies for limitation on coverage to be enforce language used must be clear and unmistakable if there is any reasonable alternative reading the language it should be construed in favor of coverage neither of the provisions the traveler cites meets this high bar numerous decisions provision and i think that the fact that i'm required to speculate is some indication that the language isn't totally clear about what it was intending by this provision but i think that i think that as travellers stated this provision talks about different types of damages judgment settlements that would be excluded and i can definitely envision a case in which a borrower might bring and i think it's important to note that travelers have sort of focused on the director and officer liability coverage in this policy but the last provision applies to the policy as a whole which includes multiple insuring agreements one of those is for bankers professional liability professional services liability and that includes coverage for lending acts which are sort of misrepresentations in the lending process by employees of the pank and so i could definitely see a claim by our borrower for lending acts for instance in which part of the damage is a part of the judgment might require the bank to reduce the balance on the loan forgive part of the loan versus in the loan agreement something of that nature and then the bank would try to assert a claim for that lost to the who took out a loan i would sue the bank right and so the bank would incur a loss of that loan because it was required to but when the person sue i'm confused about what the person would be suing for they might be some for lending out some sort of mr presentation in the lending process something like that there could be you know various consumer protections you know that that nature you know it's i'm speculating here but the policy there are other ensuring agreements to cover those sorts of acts and so i could conceive of a situation in which a borrower might be seeking you know rescission of the loan agreement or something like that because that's something that a bank employee did and so the bank wouldn't be able to recover the amount of the loan in that situation because that would actually be seeking reimbursement of the loan for example if i went to the bank and they said look we're going to be your great rate and if you take a loan with us you also get access to these other programs we offer and so so i say great and then they were they don't tell me is that these other programs are huge fees i might say i want to cancel everything i want to get out of this i'm going to sue you for fraud that would be the example your great perhaps something like that i think that that's something along those lines and so i think it's just important to recognize that the you know is about how that would fall under this provision at all i mean how would that person be suing for oh no no that would be the bank would be the one submitting the claim for the loss because the bank would be required to pay out in a settlement a judgment to damages something like that the amount of a loan and it would be wanting to reimburse itself for the loan it made and so it would be it would be submitted it would be incurring the loss itself so i think it's important note a couple of things the d s i know that are not the only insurance under this policy the bank is also an insured so the bank can incur losses also the d n o coverage the management practices act coverage isn't the only coverage offered by this policy this last provision applies to the policy as a whole so i think it's important that this carve out could be directed at other things and that's the point i'm trying to make and so although it might be the case that the carve out we it's hard to think of a situation which the card that would apply to a dno action involving a borrower guess that wouldn't happen but it could apply to other parts of policy other losses that the banks might incur and and i think it's important to note that just the fact that this is possible that it's unclear what travelers meant travelers is obligated to phrase limitations on coverage in a way that a lay person could understand this is a community bank whose primary business was lending it is buying dno coverage to protect its directors and officers in the event of claims like the months that the f d i c is asserted it doesn't seem that a lay person would read this loan off carve out its completely eviscerating coverage for anything related to lending and that's what the f t c sitting here it's not seeking repayment of loans it's not seeking reimbursement for a loan for the bank made it seeking damages for misconduct of the directors and officers although that is going how right how would they have set it if what they wanted to do was that prevent there from being a liability for bad loans how would th clearly i think that there are a few examples in the policy itself there are a couple provisions that talk about limitations on coverage that are based on or arising from loans that language isn't in this carve out but it used to when it was trying to have a more all encompassing exclusion and also i think the southwest decision that should be respond to your opponent's argument that the last provision already says the amount so if you read that into see it it really could be read it already said the amount of loan well i don't think that the damages that the f b i seeking are the amount of loans we've estimated we've estimated are damages by referring to charge us but we are not seeking damages for loans we're seeking damages for mismanagement of the bank but in the amount of the loans right well we've calculated that by referring to the charge on some allowance but nothing about the damages that we would receive it's going borrowers obligation on those loans repay those loans the borrowers are still on the hook to repay those loans i mean there's nothing about an award here that would affect that obligation and it really does seem and so i think the point that you know  being forced to insure the banks whole loan portfolio it's just a red herring that's not what we're getting there have haven't there been there haven't been foreclosures for the loans in question these loans i understand because the bank closed and now has those assets i'm not sure what it's doing with that we have no role in that but the acquiring institution i mean there's nothing to prevent them from trying to collect on these loans they were not foreclosed one i think as far as i know they were no for closures on these loans while the bank was a lie i'm not i'm not entirely sure for all of them but i know that at many of these loans were just transferred to the acquiring institution so and i think it's important that you know this whether you know it includes the amount of loans or just the loan from so i think it does make a difference because if you're saying that you can insert into here that these are any damages judgments etc that are in the amount of loans that that could mean you know that it's just sort of the number and but you know that seems overly broad and it would be hard for a lay person to understand exactly what that means and  and here i don't think that it's just a matter of grammar i mean they included a mountain other provisions of the carve out where it's not obvious that was required as travelers said all of these things are in the amount of something of course they are their numbers but i think it does make a difference when you're talking about a loss does not include any on repaid loan and whether that would necessarily include damages for misconduct things that aren't reimbursing loans aren't themselves that are just calculated by referring to loans that seems to be a different thing and it seems that a bank directors and officers in this position would not necessarily understand what they were agreeing to if they read this language travellers did have exclusions they could have added to this policy that did refer to the f d i c in fact they tried to add one here but the bank refused to accept that revision to the policy and instead of just purchase runoff coverage that equivalent to the bank it's not regarded as the same entity as the bank that the debtor in possession and built more is regarded with the same entity as the debtor and it doesn't make sense to say that the f t i see is acting on behalf of the bank as that phrase is commonly understood common meaning of the phrase on behalf of the thought someone is acting in the interest of another we're not acting in the bank's interest the bank no longer house an interest it no longer exists it's not coming back it has no stake in the outcome of this litigation act only on behalf of the receivership and so i think it's not true to say that the f b i see stands only in the shoes of the bank when bringing these claims and also succeeds to the rights of shareholders and the positives and so now see holds the exclusive right to bring claims of these type of these types when the bank was a live the bank didn't have the exclusive right to bring these claims and that's why you have exceptions like the shareholder derivative action exception to the exclusion and so now the f d a i see it has acquired the rights of the shareholders and so it stands partially in their shoes from bringing these claims and that's been a common source of finding ambiguity and these exclusions by various  courts again a traveller's is trying to add language to the exclusion that isn't there it's equating claims brought by or on behalf of the bank with claims of the bank but that's not what the exclusion s and i think it's very important to recognize that this case is very different from biltmore of the reasons why the ninth circuit this court decided that  on behalf of phrase applied and not situation was because the claims were actually initiated were brought by the debtor and debtor in possession so really it fit in the plain language of the phrase by or on behalf of it is essentially by same entity as the bank we succeed to the rights of multiple parties there's no statute like that would be in the bankruptcy code quavering us with the pre closure bank and so it just it just is not a similar situation to biltmore also built more was based in part a significant part of the decision there was this concern with moral hazard that motivated the court because it thought you know the debtor in possession and it's intimate links to the debtor it raises this potential for collusion or you know that the debtor might still have an interest in the outcome that's just not the case here because the bank is defunct it has no interest in the reading this from the point of view of the lay person as we're required to do under california law at the very least it's unclear what travelers meant to do and and it should not be applied to bar level i mean we've settled most of these frankly so there aren't all that many i don't think there are any pending travelers cases laughed at this point but i've not many of them do reach the courts  this crisis there were some that from the prior crisis that did go up but they were mostly focused on the regulatory exclusion because it's more common to include the regulatory exclusion in those policies are you not relying on  know now we're not and that that one was a different a different exclusion different wording and and so it doesn't it's not very relevant for here thank i think it's important to emphasize that the hypothetical that opposing counsel came up with to sort of try to say that the language would still have some meaning into their interpretation does not involve an unrelated loan at all this case does and if you look at record excerpts page twenty seven it's very clear that the types of damages the f d i c is seeking is the amount of the on repaid an unrecoverable loans these are loans that are never going to be collected from the borrowers because the borrowers can't repay them they've either gone out of business or they file for bankruptcy or whatever they are unrecoverable uncollectable loans and the f b i s he concedes and it's pleading on page twenty seven that the amount of damage s is the charge offs that were taken because these loans cannot be repaid so again they can come up with no hypothetical involving an unrepaired loan that this gives this provision this carve out any meaning under their construction or the debtors still owe this money the debtors still owe this money but the point is that it is unrecoverable it's unpaid which is why the f d i c is trying to get travelers to pay it they can't collect it from the borrowers they have an obligation to try to liquidate all the assets including collecting all the loans they can't so now they want travelers as the insurer to pay for these we paid an unrecoverable loans this language could not be any clear it's always possible to say you could add more and more and more and more language see these insurance policies to be even more and more detailed the problem is then you get insurance policies that are three thousand pages long we want to try to make the language about some other receiver what about some other entity what about some other party the point is to exclude an type of damages if the damages anyone is seeking it doesn't matter whom against the officer and director is for on repay loans which these damages clearly are in their pleading they list all of these unpaid loans in the amount of the unpaid loan that is their damages that is what they're claiming it doesn't matter that they're asserting a tort claim against the officers and directors because this section must contemplate a tort action against the officers and directors for the underpaid loans otherwise it is meaningless i see that my time is up yes thank you thank you