Liberty Mutual no longer wants to pay defense costs of former Eurobank directors
SAN JUAN – Liberty Mutual Insurance has pleaded in U.S. District Court to be discharged from its obligation to continue to pay the defense costs of former Eurobank executives sued by the FDIC to recover the defunct bank’s loan losses.
Former Eurobank directors argue that Liberty Mutual is engaging in artifice to avoid honoring its obligation at a time when they face an imminent $55 million trial.
Liberty Mutual said it issued a $10 million policy to cover the bank, which closed in 2010, and its executives for claims during a one-year period that ended in September 2010.
The FDIC, acting in its capacity as receiver for Eurobank, sued former bank directors, seeking damages for losses in 12 commercial real estate and business loans, alleging they were grossly negligent in their approval. The FDIC is seeking to recover about $55 million.
The eight former bank directors and former Chairman Rafael Arrillaga Torréns have sought coverage under the policy for the FDIC’s claim and defense costs. Following a court order, Liberty Mutual agreed to advance defense costs to the former directors in the FDIC case. So far, it has advanced $8.1 million, with about $1.9 million remaining.
“Liberty Mutual respectfully submits that there are competing claims between the Director Defendants themselves, to the extent that the defense costs of Mr. Arrillaga have substantially outpaced those of the other Director Defendants, and are therefore depleting the Policy to their detriment,” the insurance company said.
As a result of the “clear and conflicting positions of the FDIC versus the Director Defendants, and between the Director Defendants themselves, Liberty Mutual has a reasonable fear of competing claims for the few funds remaining under the policy,” the company said.
Liberty Mutual then said it would remit the remaining funds, which it did Tuesday, under the policy for the court to determine where the proceeds should go as it faces conflicting demands that exceed the policy’s remaining limit of liability. The company also asked the court to discharge it from any further obligation in the case.
Arrillaga Torréns said he and the eight former bank directors face an imminent trial—at any time of a $55 million lawsuit brought by the bank’s receiver and that Liberty Mutual Insurance is obligated under a policy agreement and two district court orders to advance and reimburse their reasonable defense costs.
“Rather than honor and perform its obligations, Liberty purports to indefinitely freeze payment of reasonable defense costs—when trial could be set at any time—through the artifice of an interpleader action,” the former bank chairman said in a court document.
He said the court lacks jurisdiction over Liberty’s request because the company did not, and cannot, allege that multiple claimants have different claims because there are no actual claimants that are making, or can make, competing claims against the policy’s remaining proceeds.
The basis for Liberty’s request is that a plaintiff has sued for an amount that exceeds policy limits, and that one defense counsel is billing more than another. “If an interpleader were warranted here, then interpleader would be warranted in every D&O [directors’ and officers’ liability insurance] case that has ever been filed in any case against multiple defendants insured by the same policy,” the document says.