St. Paul Fire & Marine Insurance v. American Bank

St. Paul Fire and Marine Insurance Co. (St. Paul) appeals the district court’s judgment in favor of its insured, American Bank, (American) in a coverage dispute. Because there is no coverage under the terms of the policy, and because the district court clearly erred in finding that St. Paul is estopped from denying coverage, we reverse.

THE UNDERLYING LITIGATION

In the underlying action, Northern Line Layers (NLL), a customer, sued American Bank and two of its officers for fraud, bad faith, and negligent misrepresentation arising out of the Bank’s seizure of funds in NLL’s account to satisfy an outstanding debt to the Bank; the Bank counterclaimed for the amount of that debt. The Bank gave notice of the suit both to Wausau Insurance Co., carrier of its directors and officers (D & 0) liability policy, and to St. Paul Fire and Marine Insurance Co., carrier of its comprehensive general liability (CGL) policy. The Bank ultimately tendered the defense to St. Paul, which undertook it under a reservation of rights to contest coverage. 1 NLL won a jury verdict and judgment was entered against the Bank for $500,000 in compensatory damages and $100,000 in punitive damages. The court…