Federal Deposit Insurance Corp. v. American Casualty Co. of Reading

Justice ERICKSON

concurring in part and dissenting in part:

The court of appeals in FDIC v. Bowen, 824 P.2d 41 (Colo.App.1991), reversed an order of the district court authorizing the garnishment by the Federal Deposit Insurance Corporation (FDIC) of the policy limits of a directors’ and officers’ liability insurance policy (D & 0 Policy) issued by American Casualty Company of Reading, Pennsylvania (ACC) to the Buena Vista Bank and Trust Company (Buena Vista Bank), a state-chartered financial institution.

The court of appeals held that a regulatory exclusion contained in the D & 0 Policy (Regulatory Exclusion) unambiguously prevents the FDIC from pursuing a garnishment claim against the D & 0 Policy and that the Regulatory Exclusion is not void as against public policy. Id. at 43.1 Accordingly, the court of appeals remanded *1296the case to the district court with directions to dismiss the writ of garnishment and to modify the dismissal of ACC’s declaratory judgment action to reflect that the dismissal was without prejudice.

We granted certiorari to decide two issues: (1) whether the court of appeals erred in determining that the Regulatory Exclusion unambiguously excludes coverage for claims asserted by the FDIC; and (2) whether federal or state public policy precludes enforcement of the Regulatory Exclusion when the claim against the D & 0 Policy is asserted by the FDIC, acting in its capacity as receiver, rather than by a shareholder of a failed state-chartered bank.

The majority concludes that while the regulatory exclusion is unambiguous, judicial enforcement of the regulatory exclusion contravenes the public policy of Colorado as reflected in the Colorado Banking Code of 1957. Maj. op. at 1287. In deciding the public policy question on state policy grounds, the majority virtually ignores the decisions of the federal courts that have addressed the federal public policy issue and have held that federal public policy does not preclude enforcement of regulatory exclusions contained in directors’ and officers’ liability insurance policies.2 The majority states only that “Congress has expressed no intent to influence the development of case law relating to the validity of a regulatory exclusion under [the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIR-REA) ].” Maj. op. at 1292.

Because I believe the General Assembly has not expressed a greater public policy *1297determination regarding the liquidation of state-chartered banks by the FDIC than has Congress regarding the liquidation of financial institutions containing federally insured deposits by the FDIC, I am unpersuaded by the majority’s holding that state public policy is violated in a situation where federal public policy clearly is not. Moreover, I do not believe that we should read a public policy regarding regulatory exclusions into the Colorado Banking Code when the General Assembly has not affirmatively addressed the issue or disclosed such a policy.3 Therefore, while I agree with the majority that the D & 0 Policy is unambiguous, I respectfully dissent from section III of the majority opinion.

I

The Regulatory Exclusion contained in the D & 0 Policy that ACC issued to the Buena Vista Bank would be void and unenforceable if the exclusion violates state public policy by attempting to dilute, condition, or limit, statutorily mandated coverage. Terranova v. State Farm Mut. Auto. Ins. Co., 800 P.2d 58, 60 (Colo.1990); see also FDIC v. American Casualty Co., 975 F.2d 677, 682 (10th Cir.1992) (finding that state statutes could articulate a public policy voiding regulatory exclusions). Additionally, parties cannot by private contract abrogate statutory requirements or conditions affecting the public policy of the state. University of Denver v. Industrial Comm’n, 138 Colo. 505, 509, 335 P.2d 292, 294 (1959). However, a contract, freely entered into by the parties, does not violate public policy unless there are definite statements in the law reflecting that policy. Muschany v. United States, 324 U.S. 49, 66, 65 S.Ct. 442, 451, 89 L.Ed. 744 (1945); St. Paul Mercury Ins. Co. v. Duke University, 849 F.2d 133, 135 (4th Cir.1988); see also Superior Oil Co. v. Western Slope Gas Co., 549 F.Supp. 463, 468 (D.Colo.1982) aff'd, 758 F.2d 500 (10th Cir.1985) (holding that a court is not warranted in voiding a contract as contrary to public policy until it is fully convinced that a public policy is clearly revealed in the laws of the jurisdiction). The majority apparently finds a “definite statement” of public policy in the Colorado Banking Code. However, in my view, there is no clear revelation of public policy or statutory inhibition in the laws of Colorado.

II

Congress enacted FIRREA in 1989. As the majority explains, the Senate report of FIRREA states:

The FSLIC and FDIC have frequently challenged clauses in [director’s and officer’s liability insurance contracts], contending that the clauses are unenforcea*1298ble. [18 U.S.C. § 1821(e)(12) ] remains neutral regarding such litigation and regarding the FDIC’s ability under other provisions of State or Federal law, current or future, to pursue claims on such contracts or bonds. For example, if the law of a particular State declares limitations on the enforceability of director’s or officer’s liability contracts to be void as against public policy, the FDIC could pursue a claim on such a contract under that State’s law.

S.Rep. No. 19, 101st Cong., 1st Sess. 315 (1989) U.S.Code Cong. & Admin.News 1989, p. 86 (emphasis added). I do not read this statement in the same way as the majority. In my view, the Senate statement requires that an individual state affirmatively declare specific limitations on the enforceability of directors’ and officers’ liability insurance policies to be void as against public policy and adopt the public policy into that state’s laws.

Both the majority and the FDIC assert that the General Assembly has established a public policy allowing the invalidation of regulatory exclusions based only on Section 11-5-105, 4B C.R.S. (1992 Supp.), of the Colorado Banking Code.4 Section 11-5-105 was rewritten and adopted in 1989. Several subsections were amended in 1990 and 1991. Despite the opportunity to express a public policy in either of the two amendments to section 11-5-105 following the enactment of FIRREA, the General Assembly has never affirmatively expressed such a public policy in the Colorado Banking Code. Absent clear legislative direction, I find no public policy prohibiting regulatory endorsements in directors’ and officers’ liability insurance policies sold to state-chartered banks. Had the General Assembly intended to restrict the use of limiting endorsements like regulatory exclusions, it could have accepted the Congressional invitation and affirmatively adopted such a public policy into the Colorado Banking Code.

Ill

The FDIC advances two arguments in support of its state public policy claim. First, the FDIC asserts that the rights granted to it under section 11-5-105(4) are rooted in the need of the FDIC to control all aspects of post-bank failures and that enforcement of the Regulatory Exclusion impliedly violates a mandate of the Colorado Banking Code. Second, the FDIC asserts that the Regulatory Exclusion is unenforceable because it conflicts with Colorado law by impermissibly discriminating against the FDIC. Discrimination occurs because an insured versus insured endorsement included in the D & O Policy allows coverage for shareholder derivative claims which are brought directly by shareholders, whereas the Regulatory Exclusion precludes coverage for the same claims when asserted by the FDIC.5 I do not agree that either of the FDIC’s arguments illustrate a violation of state public policy and would affirm the judgment of the court of appeals.

A

The majority holds that the Regulatory Exclusion in the D & O Policy contravenes *1299the statutory grant of power from the General Assembly to the FDIC to marshall and collect the Buena Vista Bank’s assets. See § ll-5-105(3)-(4), 4B C.R.S. (1992), (providing that the FDIC as receiver shall succeed by operation of law to possession of all the assets, business, and property and shall have all the powers and privileges provided by the laws of Colorado with respect to the liquidation of a bank).

However, the majority does not point to legislative history, any statute enacted by the General Assembly, or any decision rendered by this court, or by the court of appeals that establishes or suggests a public policy that regulatory exclusions included in directors’ and officers’ liability insurance policies are unenforceable when purchased by state-chartered banks. In fact, there is no statutory requirement that state-chartered banks are required to carry directors’ and officers’ liability insurance, or that they are required to carry only directors’ and officers’ liability insurance without regulatory exclusions. However, the result of the majority’s opinion in this case is that if a state-chartered bank wishes to purchase directors’ and officers’ liability insurance, the bank is now required to purchase that insurance without a regulatory exclusion.

In my view, the majority has misinterpreted the Colorado Banking Code. The Colorado Banking Code provides that “[sjtate bank directors ... shall have the same rights as directors ... of corporations for profit as set forth in section 7-3-101.5 [of the Colorado Corporations Code].” § 11-3-121, 4B C.R.S. (1987) (emphasis added). Section 7-3-101.5, 3B C.R.S. (1992), establishes the right of directors to indemnification from the corporation for profit (or bank) for claims brought against the director in his capacity as a director. Among the rights of the corporation for profit (or bank) which are included in section 7-3-101.5, is the right to:

purchase and maintain insurance on behalf of a person who is or was a director ... of the corporation [or bank] ... against any liability asserted against or incurred by him in such capacity or arising out of his status as such, whether or not the corporation [or bank] would have the power to indemnify him against such liability under the provisions of this section.

7-3-101.5(9), 3B C.R.S. (1992 Supp.). Moreover, there is no provision in the Colorado Corporations Code prohibiting corporations for profit from purchasing liability insurance containing regulatory exclusions. State-chartered banks, by the express language of the Colorado Banking Code, therefore may not be prohibited from also purchasing liability insurance containing regulatory exclusions. Directors of state-chartered banks “shall have the same rights” as directors of corporations for profit. Therefore, in my view, there is no provision in the Colorado Banking Code, including the statutory grant of power to the FDIC, which diminishes or restricts the right of state-chartered banks to purchase directors’ and officers’ liability insurance containing exclusions from coverage in myriad of circumstances.

The majority uses the powers granted to the FDIC by the Colorado Banking Code to foreclose the ability of state-chartered banks to preclude liability insurance coverage for the benefit of directors against claims asserted by regulators. This conclusion does not account for the statutory provision that the ability to insure or not insure against such claims lies not in the Colorado Banking Code, but rather, in the Colorado Corporations Code. Certainly, the majority may not judicially amend the Colorado Corporations Code to prohibit corporations for profit from purchasing directors’ and officers’ liability insurance containing regulatory exclusions. However, the clear implication of the majority opinion is that corporations for profit may not purchase directors’ and officers’ liability insurance containing regulatory exclusions because the rights relating to the indemnification and insurance of directors of state-chartered banks and directors of *1300corporations for profit are the same. The majority opinion restricts and prevents state-chartered banks and corporations for profit from purchasing directors’ and officers’ liability insurance containing regulatory exclusions, a right derived from the Colorado Corporations Code, and not the Colorado Banking Code.

I do not share the majority’s view that this court may judicially legislate that state-chartered banks may not purchase directors’ and officers’ liability insurance containing regulatory exclusions, or that based on Colorado public policy, the regulatory exclusions are unenforceable. Nothing in either the Colorado Banking Code or the Colorado Corporations Code requires or supports such a conclusion. Schlessinger v. Schlessinger, 796 P.2d 1385, 1389 (Colo.1990); see also FDIC v. American Casualty Co., No. 90-CV-0265-J, slip op. at 17 (D.Wyo. July 3, 1991) (stating that a court cannot judicially impose a limitation on a non-required insurance policy any more than it can require a bank to purchase insurance in the first place). In my view, it is within the clear province of the General Assembly to determine whether prohibiting regulatory exclusions in directors’ and officers’ liability insurance contracts issued to state-chartered banks is necessary for the protection of the public good.

B

The FDIC’s second state public policy claim is based on its assertion that section 11-5-105 furnishes the FDIC the right to bring a shareholder derivative action against the directors and officers of a state-chartered bank.6 Therefore, the FDIC claims, and the majority accepts without analysis, that because the Regulatory Exclusion conflicts with a statutory right, it must be void as against public policy.7 While the FDIC claims that it could bring a shareholder derivative action, the fact remains that the FDIC has not asserted a shareholder derivative claim in this case. Throughout the prosecution of its claims against the former directors of the Buena Vista Bank and the garnishment of the D & 0 Policy, the FDIC has never claimed that it was acting in its capacity as a shareholder, or that it was derivatively suing the directors of the bank.8

Neither the district court, nor the court of appeals addressed the question of the legality of state-statutorily based shareholder derivative actions brought directly *1301by the FDIC because the FDIC did not raise, or argue, the question before either court. The FDIC did not claim to be acting on behalf of shareholders in its petition for a writ of certiorari, nor did we accept the shareholder derivative action issue for review. The issue of whether the FDIC, acting as a receiver of a failed state-chartered bank, may pursue claims against directors or officers of a failed state-chartered bank on behalf of shareholders by way of a shareholder derivative action is not before this court and should not be addressed. Because the issue was not properly presented for appellate review, we should not determine the question of whether a regulatory exclusion’s bar to coverage for derivative claims asserted by the FDIC violates the public policy of Colorado. See People v. Kruse, 839 P.2d 1, 3 (Colo.1992) (holding that claims not raised in the district court or court of appeals are not properly before the Supreme Court for review on certiorari); Vigoda v. Denver Urban Renewal Auth., 646 P.2d 900, 907 (Colo.1982) (holding that issue raised only in answer brief cannot be fairly within the issues raised by petition for certiorari); Sherman Agency v. Carey, 195 Colo. 277, 280, 577 P.2d 759, 761 (1978) (holding that Supreme Court would not consider issue not mentioned in petition for certiorari even though matter was argued before it); Berge v. Berge, 189 Colo. 103, 104, 536 P.2d 1135, 1136 (1975) (holding that Supreme Court need not consider issue not raised in petition for certiorari).

IY

The majority concludes that the FDIC is statutorily charged with marshalling, collecting and distributing the assets of the failed Buena Vista Bank. Maj. op. at 1293. However, the Buena Yista Bank chose to purchase, pursuant to a statutory grant of power, a directors’ and officers’ liability insurance policy containing a regulatory exclusion. Because I view the regulatory exclusion to bar coverage under the D & O Policy for all claims asserted against the policy by the FDIC, the D & O Policy is not therefore, an asset which the FDIC can marshall or seize by a writ of garnishment. See FDIC v. Zaborac, 773 F.Supp. 137, 145 (C.D.Ill.1991); Continental Casualty Co. v. Allen, 710 F.Supp. 1088, 1099-1100 (N.D.Tex.1989).9

The parties to the contract (ACC and the Buena Vista Bank) were able to bargain for precisely the amount and type of coverage they wished to agree on. Zaborac, 773 F.Supp. at 145 (finding that the FDIC did not have any right to collect under a directors’ and officers’ policy because a failed bank did not contractually negotiate for coverage protecting the FDIC and that the probable reason the failed bank did not request coverage without a regulatory exclusion was because the costs were higher or coverage without an exclusion was unavailable); Allen, 710 F.Supp. at 1100 (stating that the FDIC steps into the shoes of the failed bank and is subject to whatever contracts the failed bank previously entered into, including directors’ and officers’ policies with regulatory exclusions).10

Although the FDIC should not recover the proceeds of the D & O Policy issued to the Buena Vista Bank after it obtained a judgment against two of the former directors, the FDIC may always pursue any claim it has against the directors. See 11-

*13025-107, 4B C.R.S. (1987). However, recovery of any judgment obtained from such a claim would be limited to the assets of the individual directors.

Absent an express statutory requirement or legislative pronouncement by the General Assembly to the contrary, we should not now hold that directors’ and officers’ liability insurance policies issued to state-chartered banks containing regulatory exclusions are the type of contracts which are prohibited by the public policy of Colorado. Accordingly, I dissent from section III of the majority opinion and would affirm the court of appeals decision.

I am authorized to say that Chief Justice ROVIRA and Justice LOHR join in this concurrence and dissent.

. The D & 0 Policy contains endorsements excluding coverage in certain instances. The primary endorsement relevant to this case is a regulatory exclusion that is commonly included in directors’ and officers’ policies sold to banks. The Regulatory Exclusion provides:

It is understood and agreed that the Insurer shall not be liable to make any payment for *1296Loss in connection with any claim made against the Directors or Officers based upon or attributable to:
any action or proceeding brought by or on behalf of the [FDIC] ... (hereinafter referred to as "Agencies”), including any type of legal action which such Agencies have the legal right to bring as receiver, conservator, liquidator or otherwise: whether such action or proceeding is brought in the name of such Agencies or by or on behalf of such Agencies in the name of any other entity or solely in the name of any Third Party.

. An overwhelming majority of federal courts have held that federal public policy does not preclude enforcement of regulatory exclusions. See, e.g., FDIC v. American Casualty Co., 915 F.2d 677 (10th Cir.1992) (holding that a regulatory exclusion did not violate federal public policy); St. Paul Fire and Marine Ins. Co. v. FDIC, 968 F.2d 695 (8th Cir.1992) (stating that FIRREA undermines the FDIC’s public policy argument based on specific Congressional deletions of a provision allowing the FDIC to require directors’ and officers’ liability insurance policies to remain in effect even if the insurance policy contained a provision terminating or limiting the FDIC’s rights as receiver); American Casualty Co. v. Kirchner, No. 91-C-0797-C, 1922 WL 300843 (W.D.Wis. May 22, 1992) (stating that however strenuously and often the FDIC argues that enforcement of a regulatory exclusion violates public policy, the argument does not square with the decisions of Congress not to require banks to carry liability insurance, not to prohibit regulatory exclusions, and not to interfere with court decisions that enforced the exclusions); FDIC v. Continental Casualty Co., 796 F.Supp. 1344 (D.Or.1991) (finding that neither the statutory nor regulatory scheme governing the FDIC establishes an explicit, well-defined, and dominant public policy regarding regulatory exclusions); FDIC v. Zaborac, 773 F.Supp. 137 (C.D.Ill.1991) (holding that a regulatory exclusion does not undermine any Congressional purpose or annul FDIC powers and stating that whether regulatory exclusions will ultimately benefit or burden the federal banking system is a policy question to be decided by Congress or by an agency under its rule-making power); FDIC v. American Casualty Co., No. 90-CV-0265-J (D.Wyo. July 3, 1991) (holding that a regulatory exclusion does not affect the rights assumed by the FDIC because the FDIC still assumes all rights of the shareholders of the bank; the FDIC may maintain an action against directors' or officers, and if successful may obtain a judgment to which the shareholders may be entitled; these rights are not thwarted by the endorsements; rather, the endorsements are limitations on the assets of the institution and not on the rights or privileges of persons bringing suit against directors or officers); Gary v. American Casualty Co., 753 F.Supp. 1547 (W.D.Okla.1990) (finding that when directors' and officers’ liability insurance is not required by statute, and there is no mandated form of coverage, directors' and officers’ liability insurance policies providing only limited coverage are not contrary to public policy). See also FSLIC v. Shelton, 789 F.Supp. 1355 (M.D.La. 1992); Powell v. American Casualty Co., 772 F.Supp. 1188 (W.D.Okla.1991); American Casualty Co. v. Baker, 758 F.Supp. 1340 (C.D.Cal. 1991); Continental Casualty Co. v. Allen, 710 F.Supp. 1088 (N.D.Tex.1989).

. No other state has found similar regulatory exclusions to be violative of their state banking codes. Only Maryland has addressed the issue of regulatory exclusions in directors’ and officers’ liability insurance policies on state public policy grounds. See Find v. American Casualty Co., 323 Md. 358, 593 A.2d 1069 (1991). In Find, the Court of Appeals of Maryland held that a regulatory exclusion contained in a directors’ and officers’ liability policy did not violate the public policy of Maryland by impairing the Maryland Deposit Insurance Fund’s (MDIF) ability to perform its statutorily authorized responsibilities. The court said:

Stripped to its essentials, MDIF’s argument is that the taxpayers of Maryland will have to pay any deficit in the insurance fund ... and that it is socially desirable to reduce that deficit to the maximum extent possible.... The problem presented here is the clash of that appealing result with the established policy of freedom of contract.... Every statute that places a duty on a public official or public agency to collect funds for the commonwealth embodies a public policy that the funds should be collected to the maximum extend possible. That desirable goal does not mean that the Comptroller, for example, on that basis alone, can invalidate a tenancy by the entireties provision in a deed under which an individual, delinquent taxpayer economically holds an interest in realty. Similarly, if the regulatory exclusion is unenforceable because it prevents the State from collecting money, then the $3 million limit of D & O coverage in the [ACC] policy is likewise invalid, and [ACC] would stand with the promise to pay unlimited sums for which the directors and officers are liable.

Id. 593 A.2d at 1079-80. I agree with the well-reasoned conclusions of Find.

. Section 11-5-105 is entitled "Federal deposit insurance corporation or successor as liquidator.”

. The FDIC states that by operation of law, under both federal and state statutes, it succeeds to all the rights of shareholders, including the right to bring shareholder derivative actions. Compare 12 U.S.C. § 1821 (1988) (FDIC as receiver of failed banks succeeds to all rights, titles, powers, and privileges of the insured depository institution, and of any stockholder, member, account holder, depositor, officer, or director of such bank.) with § 11 — 5—105(3)—(4), 4B C.R.S. (1992) (FDIC as receiver shall succeed by operation of law to possession of all the assets, business, and property of every kind and nature, and "shall have all the powers and privileges provided by the laws of Colorado with respect to the liquidation of a bank, its depositors, and other creditors.”). (Emphasis added.)

The FDIC contends that section 11-5-105 gives it all the powers of stockholders because section 11-5-105(5), which provides the priority of distribution of the liquidated assets of the bank, qualifies stockholders as an “other creditor" of the bank. I express no opinion on the validity of an FDIC shareholder derivative claim based upon the FDIC's interpretation of section 11-5-105. See infra section IIIB.

. Shareholder derivative suits are subject to a variety of procedural hurdles and defenses which are not ordinarily applicable in direct actions brought by the FDIC. See C.R.C.P. 23.1. Insofar as the FDIC asserts that it derives the power to maintain shareholder derivative claims against the directors of a failed state-chartered. bank from the federal statute, FIR-REA, the FDIC’s public policy arguments relating to shareholder derivative actions rest on the federal public policy of FIRREA, not the state public policy of Colorado’s banking law. Consequently its argument fails for the reasons stated in the cases cited in supra note 2.

. Although there is no specific statutory grant of power to the FDIC to assert shareholder derivative claims against directors of a failed bank, the majority concludes that it "strains logic" to prohibit the FDIC from garnishing the same insurance proceeds that a shareholder could recover after successfully obtaining a judgment in a shareholder derivative action. Maj. op. at 1294. I do not believe that prohibiting the FDIC from garnishing the D & 0 Policy in this case strains logic because the FDIC is given a broad grant of statutory power to pursue claims against directors and officers outside of the numerous procedural requirements of C.R.C.P. 23.1. Rather, in light of the procedural hurdles the FDIC must overcome were it to bring a shareholder derivative action, it does strain logic to believe that the FDIC would ever bring a shareholder derivative action against the directors or officers of a failed state-chartered bank.

.The record of this action (including the FDIC’s complaint against the directors, its writ of garnishment against the policy, its verified traverse to ACC’s answer to the writ of garnishment, its arguments to the trial court, its answer brief in the court of appeals, its petition for writ of certiorari, and its opening brief in this court) contains no reference to a claim that the FDIC was acting in its capacity as a shareholder of a failed state-chartered bank and was therefore proceeding derivatively against the directors or the D & 0 Policy. Whether the FDIC could have pursued a shareholder derivative action is not an issue in this case.

. In Zaborac, the court found that although the FDIC assumed all of the rights under an insurance policy, because the policy prohibited recovery by the FDIC, the policy did not give the FDIC any rights to recovery of the proceeds. Zaborac, 773 F.Supp. at 145. In Allen, the'court stated that to marshall and collect an asset, the failed bank must possess the asset and the bank did not own as an asset a directors' and officers' Policy without a regulatory exclusion. Allen, 710 F.Supp. at 1099-1100.

. The Buena Vista Bank paid a premium of $2,491.00 in exchange for ACC’s agreement to provide a one million dollar aggregate limit of liability coverage for the benefit of the directors and officers of the bank while excluding coverage in certain instances, including claims brought by or on behalf of the FDIC.