Bad Faith Denial of Coverage

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7^th Circuit Court of Appeals

Case Name: BancorpSouth, Incorporated v. Federal Insurance Company

Case No.: 17-1425     

Officials: WOOD, Chief Judge, and BAUER and SYKES, Circuit Judges

Focus: Bad Faith Denial of Coverage

On May 18, 2010, Shane Swift filed a class action lawsuit on behalf of himself and others similarly situated against BancorpSouth, Incorporated (“Bancorp”) in the Northern District of Florida based upon its assessment and collection of excessive overdraft fees. On February 24, 2016, Bancorp and Swift entered into a settlement agreement wherein Bancorp agreed to pay $24 million to the settlement class. Bancorp had previously notified its insurer, Federal Insurance Company (“Federal”), that it sought coverage for defending the lawsuit, and eventually, to indemnify the settlement costs. Federal denied all coverage, and consequently, Bancorp filed a complaint against Federal alleging breach of contract, as well as bad faith denial of coverage. Federal filed a motion to dismiss the complaint, citing an exclusion of coverage in their policy with Bancorp for any claim “based upon, arising from, or in consequence of any fees or charges.” The district court granted Federal’s motion to dismiss, and Bancorp appealed. We affirm.

We conclude that the district court correctly dismissed Counts One and Two, Count Three alleging bad faith denial of coverage was also correctly dismissed since there were no longer underlying claims. Stubbs v. Miss. Farm Bureau Cas. Ins. Co., 825 So. 2d 8, 13 (Miss. 2002) (“An insured seeking to recover on a claim of bad faith must first establish the existence of coverage on the underlying claim.”).

Affirmed

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Attorney Derek A. Hawkins is the managing partner at Hawkins Law Offices LLC, where he heads up the firm’s startup law practice. He specializes in business formation, corporate governance, intellectual property protection, private equity and venture capital funding and mergers & acquisitions. Check out the website at www.hawkins-lawoffices.com or contact them at 262-737-8825.