Slottow

This coverage dispute between a bank and an insurance company involves a directors and officers’ liability policy. The appeal raises various issues, the most significant among them being, under which circumstances is it appropriate to award punitive damages against an insurance company for choosing to contest coverage?

Background

Fidelity National Trust is a subsidiary of Fidelity Federal Bank. In the 1980s, FNT served as trustee for investors in loan pools underwritten by Commercial Acceptance Corporation. Ralph S. Slottow, President of FNT (who was also an officer and director of the bank), signed and supervised the trust agreements for the investments. Disgruntled CAC investors sued CAC in state court for fraud, claiming the entire venture had been a Ponzi scheme. The investors alleged Slottow, FNT and the bank were to blame, too, for lax enforcement of the trust agreements; they sued them for breach of contract, negligence and breach of fiduciary duty.

The Superior Court granted summary judgment for Slottow on the contract claim, but denied it on the negligence and breach of fiduciary duty claims. In the shadow of liability for the remaining claims, Slottow and FNT settled…