Unrepaid, Unrecoverable, or Outstanding Credit Exclusion Unrepaid, Unrecoverable, or Outstanding Credit Exclusion UnenforceablePost 4731Huntington National Bank ("Huntington") sued AIG Specialty Insurance Company and National Union Fire Insurance Company of Pittsburgh, Pennsylvania (together, "AIG") alleging breach of contract and bad faith stemming from AIG's denial of insurance coverage for Huntington's settlement of a bankruptcy fraudulent transfer proceeding brought by the trustee of a bankrupt company. In granting summary judgment for AIG, the district court held that:In Huntington National Bank v. AIG Specialty Insurance Co., et al., No. 23-3039, United States Court of Appeals, Sixth Circuit (February 1, 2024) the Sixth Circuit resolved the dispute.FACTSAIG issued to Huntington a bankers professional liability insurance (BPL) policy for that provided coverage up to $15 million, after a $10 million retention. Any liability exceeding the primary policy was covered by an excess policy issued by National Union for the same coverage period, which provided $10 million in excess coverage. The parties do not dispute that these policies apply to Huntington's claim.Following the FBI raid, creditors of Cyberco and Teleservices, both entirely fraudulent companies, discovered that the companies were bankrupt. The trustees of Cyberco and Teleservices filed adversary proceedings against Huntington, claiming that Huntington put its desire to be repaid ahead of its concerns that Watson was committing fraud and, by doing so, perpetuated the Ponzi scheme to its benefit and other lenders' detriment.The bankruptcy proceedings were long and complex, including two trials and multiple opinions. Huntington argued it was not liable for any repayments before April 30, 2004, and that its liability was thus limited to the $12,821,897.07 in loan repayments for which the Sixth Circuit had already found Huntington liable.THE INSURANCE CLAIMThroughout the bankruptcy litigation, Huntington sent AIG several requests for coverage. AIG disclaimed coverage, acknowledging that there was "potential coverage" under the policy because the Wrongful Acts alleged arose from Huntington's performance of banking services to Cyberco, but citing exclusions. AIG refused Huntington's claims.Huntington subsequently sued AIG. AIG also moved for summary judgment, asserting that Huntington's settlement payment was not a "Loss" under the policy and, even if it was, Endorsements 5, 7, and 10 precluded coverage.The district court granted AIG's motion for summary judgment.ANALYSISThe Sixth Circuit reversed the district court's grant of summary judgment for AIG on the insurability of Huntington's claim under Ohio law and the exclusion of Huntington's claim under Endorsement 7.ZALMA OPINIONBankruptcy litigation, banking, and fraud upon a bank by a Ponzi schemer who, when caught by the FBI committed suicide, was sued by creditors of the Ponzi scheme because the bank had its loan repaid and they did not. After lengthy litigation the bank settled the bankruptcy suits only to have its insurer refuse to pay based upon an exclusion that was not sufficiently clear to be enforced. AIG will need to pay its limits to its insured and the excess - that followed form with AIG - will probably find it must pay its limits as well. The Sixth Circuit read the full policy and interpreted it in line with Ohio law as should AIG before it rejected coverage.(c) 2024 Barry Zalma & ClaimSchool, Inc.Please tell your friends and colleagues about this blog and the videos and let them subscribe to the blog and the videos.Subscribe to my substack at https://barryzalma.substack.com/publish/post/107007808Go to the Insurance Claims Library – http://zalma.com/blog/insurance-claims-library.

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