Bankers’ Professional Liability Policy Excludes Overdraft Fee Litigation From Coverage

The United States District Court for the Southern District of Indiana, applying Mississippi law, has held that a bankers’ professional liability insurance policy did not cover a class action suit against a bank alleging that it wrongfully maximized overdraft fees charged to its customers.  Bancorpsouth, Inc. v. Federal Ins. Co., 2017 WL 373300 (S.D. Ind. Jan. 26, 2017).  The court also dismissed the bad faith claim made against the insurer because of the absence of coverage in the first instance.

The insured was sued by a class of customers alleging that it reordered debits and engaged in other practices in order to wrongfully maximize overdraft fees.  The bank’s professional liability insurer denied coverage for the suit based on an exclusion that barred coverage for “any Claim based upon, arising from, or in consequence of any fees or charges.”  The bank eventually settled the class claims and sued its insurer.

In response to the insurer’s motion to dismiss, the bank argued that the exclusion did not apply because the underlying suit was focused on the bank’s policies and procedures that caused the various injuries and that overdraft fees were just a type of damage that resulted from those policies and procedures.  The insured also argued that the exclusion was ambiguous.  The court held that the exclusion barred coverage and dismissed the claims.  The court explained that the exclusion’s broad language did not make it ambiguous.  The court distinguished the facts from another case where plaintiffs had alleged more expansive damages, including inaccurate account balances, related to a bank’s overdraft fee scheme.  In the present case, the court determined, the charging of the fees caused the plaintiffs’ damages and the relief they received “came in the form of a return of those fees.”  Therefore, “there is no other way for us to construe [the exclusion] than to encompass the claims at issue here.”  The court also dismissed the bank’s bad faith claim because state law required a plaintiff to establish coverage of the underlying claim as a predicate to a bad faith claim.