Federal Insurance Company seeks injunctive relief against Peoples National Bank, arguing that the defendants are not entitled to coverage for an underlying lawsuit originating more than a decade before its policy began.
Federal Insurance Company filed the complaint Aug. 24 in the U.S. District Court for the Southern District of Illinois against Market Street Bancshares Inc., Peoples National Bank, also known as Peoples National Bank of McLeansboro, Terry Newman and Robert Newman.
According to the complaint, Federal Insurance Company claims this lawsuit is the second insurance coverage complaint arising out of Peoples National Bank’s “tender of a single underlying lawsuit filed against PNB in 2003 for coverage under the claims-made bankers professional liability coverage section of a 2014-17 multiline liability policy Federal issued to Market Street.” The plaintiff allegedly issued two FI Forefront Portfolio for Community Bank Policies to Market Street as the parent organization with $4 million and $5 million claim limits.
In the first lawsuit, the suit states that the federal court granted Federal’s motion for summary judgment, “declaring that Federal had no duty to defend or indemnify PNB under the policy because the underlying lawsuit did not constitute a ‘claim’ first made during the policy period, which began in 2014.”
That ruling was affirmed by the Seventh Circuit Appellate Court.
“Notwithstanding this Court’s and the Seventh Circuit’s decisions, which are dispositive of the parties’ coverage dispute, Peoples have - once again - tendered the same underlying lawsuit to Federal for coverage under the 2014-17 policy, as well as a substantively identical 2017-20 renewal policy Federal issued to Market Street,” the suit states.
Federal claims it denied the request, but Peoples National Bank has allegedly refused to withdraw its tender for coverage.
“Federal therefore brings this action asking this court to declare - once again - that it has no duty to defend or indemnify PNB in connection with the underlying lawsuit,” the suit states.
According to the underlying lawsuit filed by the Newmans, they allegedly entered into a five-year commercial lease agreement to open a Taco John’s franchise in Anna, Ill., with financing from Peoples National Bank in 1998.
Then in 2001, the Newmans sold New Group Inc., which was formed to operate the franchises, to Amigos Food Service LLC. The Newmans entered into a debt-retirement agreement with Peoples National Bank.
The following year, Amigos defaulted on its obligations and the sale transaction collapsed, the suit states.
On Nov. 22, 2002, the lessors sued the Newmans to recover the unpaid rent.
“On February 14, 2003, more than eleven years before the inception of the 2014-17 policy, the Newmans filed a third-party complaint against PNB in the underlying lawsuit for breach of contract, asserting that PNB was responsible for curing the default on the rent at the Anna location with the proceeds from the Letter of Credit,” the suit states.
The Newmans later amended their complaint to include conversion and breach of fiduciary duty allegations. The court entered summary judgment against Peoples National Bank and conducted a bench trial on damages only in February 2016 for the Newmans’ claims.
The court awarded the Newmans $16,357,618 in compensatory and punitive damages in July 2016, which was vacated by the appellate court in February 2019. After the case was remanded, the Newmans filed a motion seeking to amend the third-party complaint. The trial court had not yet ruled on the motion when Federal’s lawsuit was filed.
Federal argues that coverage is denied because the underlying lawsuit constituted a claim from 2003 when the Newmans filed their complaint against Peoples National Bank.
Federal argues that while no relief is sought against the Newmans, they are “third-party claimants against PNB in the underlying lawsuit … and are therefore necessary parties to this declaratory judgment action under Illinois law.”
The plaintiff seeks a judgment declaring that the defendants are not entitled to coverage under the policies for the proposed complaint, plus all other relief deemed proper.
Federal is represented by Christopher Wadley of Walker Wilcox Matousek LLP in Chicago.
U.S. District Court for the Southern District of Illinois case number 3:20-cv-818