Opinion ID: 4517629
Heading Depth: 2
Heading Rank: 2

Heading: Defining a “Third Party Client”

Text: The Policies only cover claims “made by a third party client” of IberiaBank. The district court held that the government is not a “client” of IberiaBank. The district court concluded that IberiaBank’s clients were the mortgagees who borrowed money from IberiaBank, not the government. On appeal, IberiaBank argues that (1) the district court’s reliance on the Black’s Law Dictionary definition of “client” was incomplete; (2) both borrowers and the government can be IberiaBank’s “clients”; (3) payment of consideration is not necessary for the government to become a “client”; and (4) Louisiana’s “reasonable expectations” doctrine should apply to bring IberiaBank’s claim within the scope of the Policies. The Insurers respond that (1) the Black’s Law Dictionary definition of “client” provides sufficient guidance regarding the plain and ordinary meaning of the term; (2) IberiaBank cannot claim that HUD is its “client” for purposes of the Insuring Clause and that its borrowers are its “client” for purposes of determining to whom it provides “Professional Services”; (3) the Insuring Clause, by incorporating the definition of “Professional Services,” explicitly requires that the insured services be provided to a client who pays consideration to IberiaBank under written contract; and (4) the “reasonable expectations” doctrine is inapplicable because the policy is unambiguous. 9 Case: 19-30190 Document: 00515350430 Page: 10 Date Filed: 03/18/2020 No. 19-30190 Black’s Law Dictionary defines “client” as “[a] person or entity that employs a professional for advice or help in that professional’s line of work.” Client, BLACK’S LAW DICTIONARY (11th ed. 2014). IberiaBank urges us to consider the definition of “employ[s],” which includes “[t]o make use of” or “[t]o use as an agent or substitute in transacting business.” Employ, BLACK’S LAW DICTIONARY (11th ed. 2014). But IberiaBank’s layered definition disregards a key restriction on the term “client” that appears on the face of the Policies. The definition of “Professional Services” makes clear that, to be insurable, services rendered by IberiaBank must be rendered to a “policyholder or client for consideration” and “pursuant to a written contract.” HUD cannot be a “client” under the Policy because the certifications rendered to HUD were not provided “for consideration.” HUD did not pay IberiaBank to provide the certifications. IberiaBank next argues that HUD is the “client” who asserted a covered claim against IberiaBank, and that the borrowers are the “clients” to whom IberiaBank rendered its services (for consideration). According to IberiaBank, the former “client” meets the definition in the Insuring Clause and the latter “clients” meet the definition in the defined term “Professional Services” because the borrowers pay fees to IberiaBank. IberiaBank’s interpretation contravenes a tenet of Louisiana contract interpretation principles: “Each provision in a contract must be interpreted in light of the other provisions so that each is given the meaning suggested by the contract as a whole.” La. Civ. Code art. 2050; see also La. Ins. Guar. Ass’n v. Interstate Fire & Cas. Co., 630 So. 2d 759, 763 (La. 1994) (“[O]ne policy provision is not to be construed separately at the expense of disregarding other policy provisions.”). IberiaBank incorrectly compartmentalizes the Insuring Clause. The Insuring Clause incorporates the definition of “Professional Services”; the two are not separate. Thus, under the terms of the Policies, the “client for consideration” is the same client toward whom IberiaBank’s 10 Case: 19-30190 Document: 00515350430 Page: 11 Date Filed: 03/18/2020 No. 19-30190 “Wrongful Acts in rendering or failing to render” its services were directed. IberiaBank did not, however, engage in “Wrongful Acts” 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. In Elliott v. Continental Casualty Co., the Louisiana Supreme Court used similar reasoning to deny professional liability insurance. 949 So. 2d 1247 (La. 2007). There, an attorney, Elliott, sought malpractice insurance coverage for a claim brought by another attorney to whom he referred a case. Id. at 1248–49. Another attorney, Bandaries, sought damages because Elliott failed to inform him that Elliott had allowed a client’s cause of action to prescribe by failing to timely file the claim before referring the client to Bandaries. Id. The insurance policy defined a “Claim” as “a demand received by the Insured for money or services arising out of an act or omission, including personal injury, in the rendering of or failure to render legal services.” Id. at 1251 (emphasis omitted). The Louisiana Supreme Court granted the insurer’s motion for summary judgment and denied coverage. Id. at 1255. Although Elliott’s underlying act involved a “failure to render legal services,” the policy was not triggered by Elliott’s omission when transferring the case to Bandaries. Id. (“Elliott did not fail to render legal services for Bandaries, but rather, Bandaries alleged that Elliott failed to render legal services for [the client]. Bandaries’ assertion, that Elliott ‘malpracticed’ by allowing [the client’s] cause of action to prescribe, is merely descriptive of the type of information that Elliott allegedly withheld from Bandaries.”). The rationale in Elliott applies here. Just as Elliott could not procure coverage for a claim brought by Bandaries on the basis of legal services rendered to the client, IberiaBank cannot procure coverage for a claim brought by the government on the basis of professional services rendered to IberiaBank’s borrowers. 11 Case: 19-30190 Document: 00515350430 Page: 12 Date Filed: 03/18/2020 No. 19-30190 IberiaBank also cannot rely on Louisiana’s “reasonable expectations” doctrine because the terms of the policy are unambiguous. Under Louisiana’s “reasonable expectations” doctrine, “[a]mbiguity will . . . be resolved by ascertaining how a reasonable insurance policy purchaser would construe the clause at the time the insurance contract was entered.” La. Ins. Guar. Ass’n, 630 So. 2d at 764. That doctrine does not apply when “the policy wording at issue is clear and unambiguously expresses the parties’ intent,” as it does here. 7 Id. IberiaBank’s reliance on First Horizon National Corp. v. Houston Casualty Co. is misplaced. See No. 15-cv-2235, 2016 WL 1749802, at  (W.D. Tenn. April 21, 2016). There, a bank sought professional liability coverage for a DOJ settlement that arose from its participation in the DE Program. Id. at . The district court in that case denied the insurer’s motion to dismiss, partly because it was “undisputed that the DOJ/HUD settlement is the type of loss covered by the insurance policies at issue.” Id. at . Of course, here, the entire dispute centers on whether the DOJ Settlement should be covered by these particular Policies. Therefore, First Horizon is inapt. This court is entitled to “draw on its judicial experience and common sense” when interpreting contracts at the motion to dismiss stage. Iqbal, 556 U.S. at 679. Other courts have recognized in the context of medical-related FCA claims that it makes little sense for a professional liability insurer to be “on the hook” when a party “receive[s] sums of money for services it never provided.” Zurich Am. Ins. Co. v. O’Hara Reg’l Ctr. for Rehab., 529 F.3d 916, 923 (10th Cir. 2008). Similarly, here, IberiaBank’s disgorgement of mortgage fees arising from loans it might not have offered absent FHA default insurance The fact that a policy term is undefined does not render the policy ambiguous. Canal 7 Breaches Litig., 495 F.3d at 209; Sher v. Lafayette Ins. Co., 988 So. 2d 186, 193 (La. 4/8/08). 12 Case: 19-30190 Document: 00515350430 Page: 13 Date Filed: 03/18/2020 No. 19-30190 is an expense beyond the scope of the professional liability insurance Policies at issue. 8 For these reasons, the government is not IberiaBank’s “client” and did not become IberiaBank’s “client” as a result of the DE Program. Therefore, IberiaBank’s DOJ Settlement claim is not covered by the Policies and the district court properly granted the Insurers’ motions to dismiss. We need not consider Travelers’ alternative argument that its payment obligation is not triggered until IberiaBank exhausts its Chubb policy limits.