W Holding Company, Inc. v. AIG Insurance Company - Puerto

United States Court of Appeals
For the First Circuit

No. 12-2008

W HOLDING COMPANY, INC.; FRANK STIPES-GARCÍA; JUAN C. FRONTERA-
GARCÍA; HÉCTOR DEL RÍO-TORRES; WILLIAM M. VIDAL-CARVAJAL; CÉSAR
RUIZ; PEDRO R. DOMÍNGUEZ-ZAYAS,

Plaintiffs, Appellees,

LUÍS BARTOLOMÉ RIVERA CUEBAS, as Trustee of the Socio Cultural
Conservation Trust,

Plaintiff,

v.

AIG INSURANCE COMPANY — PUERTO RICO,

Defendant, Appellant.

MARLENE CRUZ-CABALLERO; CONJUGAL PARTNERSHIP FRONTERA-CRUZ;
LILLIAM DÍAZ-CABASSA; CONJUGAL PARTNERSHIP RÍO-DÍAZ; GLADYS
BARLETTA-SEGARRA; CONJUGAL PARTNERSHIP VIDAL-BARLETTA; HANNALORE
SCHMIDT-MICHELS; CONJUGAL PARTNERSHIP RUIZ-SCHMIDT; SONIA
SOTOMAYOR-VICENTY; CONJUGAL PARTNERSHIP DOMÍNGUEZ-SOTOMAYOR; JOSÉ
M. BIAGGI-LANDRÓN; JANE DOE; CONJUGAL PARTNERSHIP BIAGGI-DOE;
MIGUEL A. VÁZQUEZ-SEIJO; SHARON MCDOWELL-NIXON; CINDY M. COSTAS
SANTIAGO; CONJUGAL PARTNERSHIP VÁZQUEZ-MCDOWELL,

Defendants, Appellees.

RICARDO CORTINA-CRUZ; CONJUGAL PARTNERSHIP CORTINA-ALDEBOL;
ELIZABETH ALDEBOL DE CORTINA; JULIA FUENTES DEL COLLADO; MARIO A.
RAMÍREZ-MATOS; CORNELIUS TAMBOER; OLGA MORALES-PÉREZ; CONJUGAL
PARTNERSHIP TAMBOER-MORALES; JANE DOE, as Trustee for the
Domínquez Sotomayor Family Trust; JOHN DOE, as Trustee for the
Domínguez Sotomayor Family Trust; CARLOS GONZÁLEZ ALONSO; XL
SPECIALTY INSURANCE COMPANY; LIBERTY MUTUAL INSURANCE COMPANY;
ACE INSURANCE COMPANY,

Defendants.
 APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO

[Hon. Gustavo A. Gelpí, U.S. District Judge]

Before

Thompson, Baldock,* and Lipez,
Circuit Judges.

Melissa A. Murphy-Petros, with whom James K. Thurston and
Wilson Elser Moskowitz Edelman & Dicker LLP, and Luis N. Saldaña,
Fernando Sabater-Clavell, and Carvajal & Vélez-Rivé, P.S.C. were on
brief, for appellant.
Andrés Rivero, with whom Alan H. Rolnick, Charles E. Whorton,
M. Paula Aguila, and Rivero Mestre LLP were on brief, for
appellees.
Colleen J. Boles, Assistant General Counsel, Lawrence H.
Richmond, Senior Counsel, and Jaclyn C. Taner, Federal Deposit
Insurance Corporation, and John A. Gibbons, Andrew M. Reidy,
Catherine J. Serafin, and Dickstein Shapiro LLP, on brief for
amicus curiae Federal Deposit Insurance Corporation in support of
appellees.

March 31, 2014

*
Of the Tenth Circuit, sitting by designation.
 THOMPSON, Circuit Judge.

PREFACE

In today's case (more procedurally complicated than

substantively complex), a district judge issued an order requiring

Chartis Insurance Company to advance defense costs to former

directors and officers of Westernbank of Puerto Rico, who find

themselves in the cross-hairs of the Federal Deposit Insurance

Corporation ("FDIC," for easy reading).1 Chartis appeals. And

after confirming our jurisdiction, we affirm.

HOW THE CASE GOT HERE

Westernbank's run as one of Puerto Rico's leading banks

came to an end in the late 2000s when local regulators ordered it

closed and appointed a federal regulator — the FDIC — receiver.

Jumping in with gusto, the FDIC investigated what had gone on

there. And it did not like what it found. Certain bank directors

and officers had breached their "fiduciary duty" by jeopardizing

the bank's financial soundness, the FDIC claimed in a letter sent

to (among others) the directors and officers and their insurer,

Chartis. Concluding that these breaches had caused more than $367

million in losses to the bank, the FDIC demanded that the directors

and officers pay that amount.

1
Chartis is now known as AIG Insurance Company. But we will
continue to refer to Chartis throughout this opinion, just like the
parties do in their briefs. Also, anyone interested in knowing the
directors' and officers' names should check out our case caption.

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 Without missing a beat, the directors and officers

notified Chartis of the FDIC's multimillion-dollar claim. And,

naturally, they asked Chartis to confirm coverage under a

directors' and officers' liability-insurance policy issued by

Chartis to Westernbank's owner, W Holding Company, Inc. Known in

the insurance world as a "D&O" policy, this particular policy

declares (in capital letters) that Chartis "must advance defense

costs, excess of the applicable retention, pursuant to the terms

herein prior to the final disposition of a claim." The policy's

advancement provision (emphasis ours) repeats further on that

Chartis "shall advance, excess of any applicable retention amount,

covered Defense Costs." "Defense Costs" include "reasonable and

necessary fees, costs and expenses consented to by the Insurer."

The policy says, too, that Chartis shall pay for certain "Loss[es]

of an Organization arising from a Claim made against an Insured

Person for any Wrongful Act of such Insured Person." "Loss[es]"

include defense costs. "Organization" includes the "Named Entity,"

which is W Holding, plus its "Subsidiar[ies]," which include

Westernbank. And "Insured Person[s]" include directors and

officers.

Chartis denied coverage five months later, relying (most

pertinently) on the policy's "insured versus insured" exclusion.

A standard proviso in D&O policies, this exclusion says that

Chartis

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 shall not be liable to make any payment for
Loss in connection with any Claim made against
an Insured . . . which is brought by, on
behalf of or in the right of, an Organization
or any Insured Person other than an Employee
of an Organization, in any respect and whether
or not collusive.

"Claim," the policy adds, includes "a written demand" for money.

"Insured" means "Insured Person" or "Organization." And, again,

the directors and officers come within the policy's definition of

"Insured Person[s]," while W Holding and Westernbank fall within

the policy's definition of "Organization." Also, the policy

neither mentions the FDIC nor bars coverage for suits by FDIC-type

regulators like some policies do.2

Convinced that the FDIC, "[a]s receiver," had stepped

squarely into Westernbank's "shoes," Chartis also wrote that any

claims that the FDIC had "against the directors and officers of

Westernbank are 'on behalf of' or 'in the right of' Westernbank."

That triggered the insured-versus-insured exclusion, the FDIC

added, which meant no coverage. The directors and officers were

2
The policy does discuss claims brought by "governmental
regulators" in a "Securities Claims Exclusion" — but (broadly
speaking) only in the context of claims arising from "the purchase
or sale, or offer or solicitation of an offer to purchase or
sell[,] any security of the Organization." Contrastingly, Chartis
apparently sells a "Broad Form" (which the judge judicially
noticed) that expressly excludes coverage for claims "brought by or
on behalf of . . . any State or Federal regulatory or
administrative agency . . . in its capacity as receiver,
conservator, liquidator, securities holder or assignee of" the
bank's "depositors or creditors." Again, that exclusion is not
part of this policy.

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not willing to take this lying down, however. Together with W

Holding, they sued Chartis in Puerto Rico superior court, seeking

a declaratory judgment of coverage and saying that "coverage

includes all costs and expenses . . . incurred" in defending

against the FDIC. They also alleged that the FDIC had asserted a

claim against them on behalf of third-party creditors and

depositors. Eventually, the FDIC got involved in this suit, filing

a complaint in intervention. That complaint accused the directors

and officers of violating their fiduciary duties to Westernbank,

causing over $176 million in damages to the bank. The complaint

also stressed that the FDIC had "succeeded to all of the rights and

assets of Westernbank, including its rights and claims against its

former officers and directors, and its rights, interests and claims

in and to the policies against Chartis under" Puerto Rico's direct-

action statute. See 26 L.P.R.A. § 2003 (declaring that "[a]ny

individual sustaining damages and losses" may sue an insurance

company directly without joining the named insured, provided the

suit is pursued in Puerto Rico).

The FDIC then promptly removed the entire case to federal

court. See 12 U.S.C. § 1819(b)(2)(B). It amended its complaint to

bring more directors and officers (as well as their spouses and

conjugal partners) into the case and to add cross claims against

them, too. This pleading sounded a familiar theme: that the FDIC

had sued in its capacity as Westernbank's receiver and that the

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directors and officers had breached their fiduciary duties,

resulting in the bank's loss of over $176 million. But the FDIC

also estimated there that the bank's closing could result in the

federal deposit-insurance fund's losing over $4 billion.

Chartis fired back with a motion to dismiss all claims

brought against it by the directors and officers and by the FDIC.

See Fed. R. Civ. P. 12(b)(6). What matters for our purposes is

that Chartis asserted again that because the FDIC was pursuing the

directors and officers "on behalf of or in the right of"

Westernbank, there is no coverage under the insured-versus-insured

exclusion and so their coverage claim should be jettisoned. The

directors and officers opposed the dismissal motion, arguing (at

the risk of oversimplification) that a clear "majority of courts"

refuse to stretch the insured-versus-insured exclusion "to include

the FDIC."

Believing that there is at least a "remote possibility"

of coverage, the directors and officers also moved the judge to

order Chartis to advance their defense costs.3 "This is not a

preliminary injunction motion," they wrote in support of their

motion. But they were quick to note that (a) they would be

irreparably harmed if their motion failed, because many of them are

3
Helpfully, the parties agree that Puerto Rico's "remote
possibility" standard applies here. And we accept that concession.
See, e.g., Manganella v. Evanston Ins. Co., 702 F.3d 68, 72 (1st
Cir. 2012); Kali Seafood, Inc. v. Howe Corp., 887 F.2d 7, 8 (1st
Cir. 1989).

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"elderly," "unemployed," "retired," and "living on fixed incomes,"

and so cannot shoulder the defense costs; that (b) Chartis's duty

to advance defense costs to them is plain as day; and that (c) the

public's interest in making sure that insurers keep their

commitments and that insureds get what they paid for cannot be

questioned. Undaunted, Chartis opposed the cost-advancement

motion, insisting that the insured-versus-insured exclusion

controls and bars coverage. And no coverage, the argument

continued, means no obligation to advance defense costs — because

costs tied to an excluded claim are not "covered Defense Costs."

The FDIC chimed in, moving without opposition for leave

to file a second amended complaint in intervention, see Fed. R.

Civ. P. 15(a) — a motion the judge granted. As best we can tell,

the big difference between the first and second amended complaints

is the latter's saying that the FDIC, as receiver,

succeeded to all rights, claims, titles,
powers, privileges, and assets of Westernbank
and its stockholders, members, account
holders, depositors, officers, or directors of
Westernbank with respect to the institution
and the assets of the institution, including
the right to bring this action against the
former officers and directors of Westernbank.

As support for its claim, the FDIC cited 12 U.S.C.

§ 1821(d)(2)(A)(i). That provision — one of many in the Financial

Institutions Reform, Recovery, and Enforcement Act of 1989

-8-
("FIRREA," for now on)4 — says that the FDIC "shall, as . . .

receiver, and by operation of law, succeed to . . . all rights,

titles, powers, and privileges of the insured depository

institution, and of any stockholder, member, accountholder,

depositor, officer, or director of such institution with respect to

the institution and the assets of the institution."

Not surprisingly, the directors and officers and Chartis

responded by filing separate motions to dismiss the FDIC's second

amended complaint. See Fed. R. Civ. P. 12(b)(6). Among other

arguments, the directors and officers claimed that they had not

acted in a grossly negligent fashion. Chartis, on the other hand,

raised the same insured-versus-insured argument as before. Also

not surprisingly, the FDIC opposed the dismissal motions. And

responding to Chartis's insured-versus-insured theory, the FDIC

said that "overwhelming case authority" establishes that this

exclusion does "not apply to entities like the FDIC."

Taking up the cost-advancement matter first, the judge

granted the directors and officers' motion in an electronic docket

entry that said:

ORDER GRANTING . . . Motion for Miscellaneous
Relief (advance defense costs). PR law
requires insurers to advance defense costs if
there is even a remote possibility that a
claim ultimately will be covered. This ruling
is without prejudice of Chartis eventually
being entitled to repayment.

4
See Pub. L. No. 101-73, 103 Stat. 183 (1989).

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The judge denied Chartis's motion to reconsider that order, too.

And he then denied all motions to dismiss the FDIC's second amended

complaint. As for Chartis's all-encompassing dismissal motion (the

only one that matters somewhat here, because it touched on the

insured-versus-insured issue), the judge said that the insured-

versus-insured exclusion barred the FDIC from suing on behalf of

Westernbank's members, officers, and directors, plus also

Westernbank's shareholders (consisting only of W Holding, a party

to the case). But because the FDIC also sued on behalf of account

holders, depositors, and the drawn-down FDIC-insurance fund, the

judge concluded that the FDIC's claims fell outside the insured-

versus-insured exclusion.5

The parties' frenetic motion practice continued, however.

Here is one example. The directors and officers later moved for

sanctions against Chartis, citing Rule 44.1 of the Puerto Rico

Rules of Civil Procedure — a rule that authorizes the "payment of

a sum for attorneys' fees" if "any party or its lawyer has acted

obstinately or frivolously." In their view, Chartis's no-remote-

possibility-of-coverage position was nothing short of obstinate or

frivolous. Essentially crying "gotcha," they spotlighted the

position Chartis took in a substantially similar case, Bradford v.

Gibraltar Nat'l Ins. Co., No. CV2010-1145 (Ark. Cir. Ct. 13th Div.

5
At oral argument Chartis's lawyer conceded that the reasons
the judge gave for denying the dismissal motion help explain why he
granted the cost-advancement motion.

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an. 18, 2012). There, Chartis had no problem advancing defense

costs to directors of a defunct company, despite an insured-versus-

insured exclusion. What Chartis did in Bradford, they added,

"amounts to an admission" that the FDIC's claims are "covered" and

that the exclusion does not apply. And they sought attorneys' fees

from Chartis as a penalty for its litigating the cost-advancement

question here. Chartis responded that its insured-versus-insured

argument in the current case constitutes a reasoned position based

on a "novel" issue that is "reasonably debatable." Chartis also

claimed that the exclusion in Bradford looks nothing like the one

at issue here. So, Chartis reasoned, no court could find its

actions sanctionable. But the judge noted that there are cases

(nothing binding) going both ways on whether the insured-versus-

insured exclusion applies to situations like ours. And because

some caselaw points to coverage, the judge found that Chartis's no-

remote-possibility-of-coverage notion represented the height of

obstinacy. Consequently, he granted the directors and officers'

sanctions motion, awarding them the costs that they incurred in

fighting for the advancement.

Which brings us at last to Chartis's appeal of the cost-

advancement order — an appeal that pivots around two basic

questions: Do we have jurisdiction to hear the parties? And, if

so, did the judge bungle the cost-advancement ruling? We answer

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"yes" to the first question and "no" to the second, for the reasons

we now explain.

OUR TAKE ON THE CASE

(1)
Appealability

The directors and officers think we have no authority

over this matter because, they say, the cost-advancement edict is

not an appealable order, given that there is no final judgment

disposing of all claims against all parties. Like Chartis, we

think the opposite is true.

Normally, only final judgments are appealable. See

Morales Feliciano v. Rullán, 303 F.3d 1, 6 (1st Cir. 2002) (citing

28 U.S.C. § 1291). An exception exists, however, for orders

granting injunctions. See 28 U.S.C. § 1292(a)(1).6 And the

judge's cost-advancement order certainly seems to fit the bill.

For sure, the judge did not label his ruling an "injunction" —

perhaps because the directors and officers said that they were not

6
The following excerpt from § 1292(a)(1) should be enough to
give the reader a flavor of that provision:

(a) . . . [T]he courts of appeals shall have jurisdiction
of appeals from:

(1) Interlocutory orders of the district courts
. . ., or of the judges thereof, granting,
continuing, modifying, refusing or dissolving
injunctions, or refusing to dissolve or modify
injunctions except where a direct review may be had
in the Supreme Court[.]

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asking for one.7 But an order's character does not depend on what

the judge calls it — no, its "nature" depends on "its operative

terms and effects," we recently said. See Fryzel v. Mortg. Elec.

Registration Sys., Inc., 719 F.3d 40, 43 (1st Cir. 2013) (Souter,

J.). With this in mind, and knowing what makes an injunction an

injunction, we see that the order here is aimed at a particular

party (Chartis), is enforceable by contempt, and provides some of

the relief (costs) that the directors and officers seek in the

case. Given these characteristics, the edict is an injunction,

see, e.g., id. (citing Bogosian v. Woloohojian Realty Corp., 923

F.2d 898, 901, 903-04 (1st Cir. 1991) (Breyer, J.)) — a mandatory

preliminary injunction, actually, because it "disturb[s], rather

than preserve[s], the status quo" by requiring defense-cost

advancements, see United Steelworkers of Am., AFL-CIO v. Textron,

Inc., 836 F.2d 6, 8 (1st Cir. 1987) (Breyer, J.). And that means

7
Do not forget, though, how their cost-advancement motion
played up the "irreparable and increasing" financial "harm" they
face in defending themselves against the FDIC. Many are
unemployed, elderly, and on fixed incomes, or so they wrote. And
"[i]t is uncertain," they added ominously, "how" they can come up
with the cash to fend off the FDIC "if Chartis is not ordered to
advance the cost of their defense." Also, they alleged that
Chartis had a clear duty to pay (subject to recoupment if the judge
later found no coverage). They alleged, too, that the public had
an interest in ensuring insurers honor their contractual
obligations and that insureds get the benefit of the insurance they
purchased. These are things an injunction seeker would stress, as
we will soon see. See, e.g., Braintree Labs., Inc. v. Citigroup
Global Mkts., Inc., 622 F.3d 36, 40 (1st Cir. 2010).

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the order is immediately appealable regardless of finality. See,

e.g., Fryzel, 719 F.3d at 43; Bogosian, 923 F.2d at 901, 903-04.

So, in other words, we have jurisdiction. To the merits,

then.

(2)
The Merits

Both sides bombard us with arguments. But before

entering the fray, we pause to highlight some important legal

principles.

(a)
Injunction Basics

Whether a mandatory preliminary injunction should issue

typically depends on the exigencies of the situation, taking into

account four familiar factors: the moving party's likelihood of

success on the merits, the possibility of irreparable harm absent

an injunction, the balance of equities, and the impact (if any) of

the injunction on the public interest. See, e.g., Braintree Labs.,

Inc., 622 F.3d at 40-41. These factors are not all weighted

equally, however. See, e.g., Ross Simons of Warwick, Inc. v.

Baccarat, Inc., 102 F.3d 12, 16 (1st Cir. 1996). Truth be told,

"[l]ikelihood of success is the main bearing wall" of this

"framework." Id.; accord Corporate Techs., Inc. v. Harnett, 731

F.3d 6, 10 (1st Cir. 2013). When it comes to the merits, Chartis

stakes everything on persuading us that the directors and officers

are not likely to succeed on their coverage claim and so should not

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get cost advancements. Given this development, we need not concern

ourselves with the other elements of the four-part test. See,

e.g., Corporate Techs., Inc., 731 F.3d at 10-13 (taking a similar

tack in a similar situation); Ross-Simons of Warwick, Inc., 102

F.3d at 16 (ditto).

As for our standard of review, the Federal Reporter is

chock full of cases saying how we scan preliminary-injunction

decisions for "abuse of discretion." See, e.g., Diálogo v.

Santiago-Bauzá, 425 F.3d 1, 3 (1st Cir. 2005); Langlois v. Abington

Housing Auth., 207 F.3d 43, 47 (1st Cir. 2000); Ocean Spray

Cranberries, Inc. v. Pepsico, Inc., 160 F.3d 58, 61 & n.1 (1st Cir.

1998). But the standard depends on the issue under review,

obviously. See, e.g., Diálogo, 425 F.3d at 3; Langlois, 207 F.3d

at 47; Ocean Spray Cranberries, Inc., 160 F.3d at 61 n.1. For

example, within this rubric, we review questions of fact for clear

error, issues of law de novo, and judgment calls with deference.

See, e.g., Diálogo, 425 F.3d at 3; Langlois, 207 F.3d at 47; Ocean

Spray Cranberries, Inc., 160 F.3d at 61 n.1. Of course, as the

appealing party, Chartis bears the burden of showing reversible

error. See, e.g., Ross-Simons of Warwick, Inc., 102 F.3d at 16;

Gately v. Massachusetts, 2 F.3d 1221, 1225 (1st Cir. 1993).

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 (b)
Cost-Advancement Basics

Puerto Rico law holds that an insurance company must

advance defense costs if a complaint against an insured alleges

claims that create even a "remote possibility" of coverage. See

Cuadrado Rodríguez v. Fernández Rodríguez, No. KLCE200601588, 2007

WL 1577940, at *5 (TCA Mar. 30, 2007) (certified translation

provided by the parties).8 Think about that for a second. Not an

"actuality" of coverage. Not even a "probability" of coverage.

No, a mere "possibility" of coverage will do — regardless of how

"remote" it may be. A pretty low standard, indeed. On top of

that, courts must read the complaint's allegations "liberal[ly]"

when doing a remote-possibility check. See Triple-S Mgmt. Corp. v.

Am. Int'l Ins. Co. of P.R., Nos. KLAN0900022, KLCE0900025, 2009 WL

2419937, at *13 (TCA May 19, 2009) (certified translation provided

by the parties); see also Cuadrado Rodríguez, 2007 WL 1577940, at

*6. And the allegations need not be "perfect," either, to trigger

the insurer's duty to advance defense costs. Cuadrado Rodríguez,

2007 WL 1577940, at *6. Also, any doubt about an insurer's

advancement obligation "must be resolved in the insured's favor."

See Pagán Caraballo v. Silva Delgado, 22 P.R. Offic. Trans. 96, 103

(P.R. 1988); see also Cuadrado Rodríguez, 2007 WL 1577940, at *6.

8
Cuadrado Rodríguez is a duty-to-advance case. But the court
looked to duty-to-defend cases, too, in resolving the advancement
issue. See id. (discussing Fernández v. Royal Indem. Co., 87
D.P.R. 859, 863 (1963)).

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Seemingly what animates these rules "is that the purpose of

insurance policies is to provide protection for the insured." See

Triple-S Mgmt. Corp., 2009 WL 2419937, at *12 (emphasis in

original); see also Cuadrado Rodríguez, 2007 WL 1577940, at *5.

(c)
Applying These Basics

Looking at the cost-advancement issue through the prism

of preliminary-injunction principles makes an already insured-

friendly situation under Puerto Rico law friendlier still. At this

stage, you see, the directors and officers need not show a

"certainty" of a "remote possibility" of coverage. On the

contrary, only a "likelihood" of a "remote possibility" of coverage

is required. Cf. generally Narragansett Indian Tribe v. Guilbert,

934 F.2d 4, 6 (1st Cir. 1991) (talking in terms of "probability of

success" (emphasis added)).

Chartis pins its reversal hopes on the strength of the

following six-step argument (which is basically a reprise of its

position in the district court). Step one: The policy only

obliges Chartis to advance the costs of defending against "covered"

claims. Step two: The policy's insured-versus-insured exclusion

blocks coverage for claims "brought . . . on behalf of or in the

right of" Westernbank. Step three: There would be no coverage if

Westernbank had sued its directors and officers like the FDIC has,

because that scenario would activate the insured-verus-insured

exclusion. Step four: Having slipped into Westernbank's shoes as

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its receiver, the FDIC must be suing the directors and officers "on

behalf of or in the right of" Westernbank. Step six: Add this all

up and there is no remote possibility of a covered claim and thus

no duty to advance defense costs.

Chartis's theory has a certain appeal, at least at first

glance. But it is not persuasive, for the simplest of reasons: It

gives lip service — and no more — to the words "remote possibility"

in the pertinent phrase "remote possibility of coverage." And it

ignores that the procedural posture of the case only requires a

mere likelihood of a remote possibility of coverage to jump-start

the cost-advancement duty. Viewed in the proper light, the flaws

in Chartis's thesis stand out in bold relief.

Let's zero in on step four of Chartis's six-step

argument: that the FDIC is only suing on behalf of or in the right

of Westernbank — that it simply donned the bank's wingtips, if you

will. Quoting from the FDIC's second amended complaint, Chartis

writes that the FDIC alleges that it, "as Receiver of Westernbank,"

seeks millions in "damages caused by the gross negligence" of the

bank's former directors and officers. But remember, the FDIC did

more than allege that it had succeeded to Westernbank's rights. It

also alleged that it had succeeded to the rights of Westernbank's

depositors and account holders — rights that included the right to

"bring this action." And it alleged, too, that it was suing to

recover money the FDIC-insurance fund had shelled out after the

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bank had shut down. Eyeing that pleading liberally, see Triple-S

Mgmt. Corp., 2009 WL 2419937, at *13, while knowing also that

pleading perfection is not required, see Cuadrado Rodríguez, 2007

WL 1577940, at *6, we think that these allegations make it likely

possible — even if only remotely so — that the FDIC is suing on

these non-insureds' behalf.

Relatedly, Chartis argues — a unique argument, to say the

least — that what role the FDIC has assumed is set when it makes

its first claim. And, Chartis writes, the FDIC did not say in its

demand letter to the directors and officers that it is pursuing

claims on behalf of or in the interest of Westernbank's depositors

and account holders or the FDIC's run-down insurance fund. But

Chartis cites no cases holding that the FDIC must disclose its

representative capacities and interests in any demand dispatch.

Ultimately, nothing Chartis advances on this front shows there is

no likelihood of even the remotest possibility that the FDIC sued

on behalf of non-insureds. Enough said on that.

Ever persistent, both sides continue battling over the

remote-possibility-of-coverage question, citing a corps of cases to

support their competing positions on the effect an insured-versus-

insured exclusion has in circumstances like the present. None

binds us, however — on that everyone agrees.

Chartis, for example, musters decisions involving the

FDIC and bank directors and officers where, it says, courts did

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apply the insured-versus-insured exclusion.9 The courts'

rationale, Chartis tells us, is that the FDIC stands in the failed

bank's stead, so that any FDIC-asserted claim is a claim on behalf

of the bank, meaning the fought-over exclusion holds sway.

Wait a minute, our directors and officers respond, in

those cases — unlike this one — the FDIC either did not sue any

bank directors or officers or chose not to assert any claims on

behalf of non-insureds. And going on the offensive, they then

march out cases that, they say, hold the insured-versus-insured

exclusion inapplicable when the FDIC (acting as a defunct bank's

receiver) sues as a creditor itself, on behalf of other creditors,

or as a subrogee to the rights of the depositors.10 A big part of

9
See St. Paul Mercury Ins. Co. v. Miller, No. 12-CV-0225,
2013 WL 4482520 (N.D. Ga. Aug. 19, 2013); Hyde v. Fid. & Deposit
Co. of Md., 23 F. Supp. 2d 630 (D. Md. 1998); Mt. Hawley Ins. Co.
v. FSLIC, 695 F. Supp. 469 (C.D. Cal. 1987); Evanston Ins. Co. v.
FDIC, No. 88-CV-407, 1988 U.S. Dist. LEXIS 16263 (C.D. Cal. 1988).
A quick word about St. Paul Mercury Insurance Co. Chartis gave us
that case by way of a post-briefing motion for leave to cite
supplemental authority. The directors and officers countered with
a motion to strike. An order of the court construed the motion to
supplement as a Rule 28(j) letter and the motion to strike as a
response. See Fed. R. App. P. 28(j). Yet even so construed, that
response still asks that we strike Chartis's filing. We deny that
request.
10
See, e.g., Progressive Cas. Ins. Co. v. FDIC, 926 F. Supp.
2d 1337 (N.D. Ga. 2013); Am. Cas. Co. of Reading, Pa. v. FDIC, 791
F. Supp. 276 (W.D. Okla. 1992); FDIC v. Zaborac, 773 F. Supp. 137
(C.D. Ill. 1991), aff'd on other grounds sub nom. FDIC v. Am. Cas.
Co. of Reading, Pa., 998 F.2d 404 (7th Cir. 1993); FDIC v. Am. Cas.
Co. of Reading, Pa., 814 F. Supp. 1021 (D. Wyo. 1991); Am. Cas. Co.
of Reading, Pa. v. Baker, 758 F. Supp. 1340 (C.D. Cal. 1991), aff'd
on other grounds, 22 F.3d 880 (9th Cir. 1994); Fid. & Deposit Co.
of Md. v. Zandstra, 756 F. Supp. 429 (N.D. Cal. 1990); Branning v.

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what drove those decisions, they write, is that the FDIC can do

much more than jump into a failed bank's boots, because the FIRREA

invests the FDIC with great power, giving it not only all the

rights and privileges of the departed bank but also those of its

depositors, creditors, and account holders (among others), too.

Not to be outdone, Chartis snipes at the directors and

officers' cases. Some are too "conclusory" to be helpful, Chartis

proclaims. Others, it adds, involve policies containing insured-

versus-insured exclusions significantly different from the one

here.

What we have is a classic battle of dueling caselaw. But

such a state of affairs hurts Chartis. With no controlling

authority on whether an insured-versus-insured exclusion applies to

the FDIC in a situation like ours; with non-binding cases pointing

in different directions; and with our obligation to resolve any

doubts in the insured's favor, see Pagán Caraballo, 22 P.R. Offic.

Trans. at 103 — Chartis's suggestion that there is zero likelihood

of a remote possibility of coverage falls flat. Keep in mind (and

we cannot stress this enough): likelihood — not certainty — is the

name of the game, and possibility — not actuality or probability —

suffices, no matter how remote that possibility is. And that

CNA Ins. Cos., 721 F. Supp. 1180 (W.D. Wash. 1989); Am. Cas. Co. of
Reading, Pa. v. FSLIC, 704 F. Supp. 898 (E.D. Ark. 1989); Am. Cas.
Co. of Reading, Pa. v. FDIC, 713 F. Supp. 311 (N.D. Iowa 1988);
FDIC v. Nat'l Union Fire Ins. Co. of Pittsburgh, Pa., 630 F. Supp.
1149 (W.D. La. 1986).

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standard is met here. So the judge's cost-advancement edict

stands. But we add — lest anyone be confused — that having lost

the likelihood-of-success skirmish, Chartis may still "win" the

coverage "war at a succeeding trial on the merits." See

Narragansett Indian Tribe, 934 F.2d at 6; see also Univ. of Texas

v. Camenisch, 451 U.S. 390, 394 (1981) (cautioning that one should

not "equate[] 'likelihood of success' with 'success'").

FINAL WORDS

For the reasons cast above, we affirm the challenged

order. Also, we award the directors and officers their costs on

appeal. See Fed. R. App. P. 39(a)(2).

So Ordered.

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