Wintermute v. Kansas Bankers Surety Co.

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________

No. 09-2806
___________

Susan Wintermute, *
*
Appellant, *
* Appeal from the United States
v. * District Court for the
* Western District of Missouri.
The Kansas Bankers Surety Co., *
* [PUBLISHED]
Appellee. *

________________

Submitted: June 17, 2010
Filed: January 6, 2011
________________

Before SMITH and HANSEN, Circuit Judges, and WEBBER,1 District Judge.
________________

HANSEN, Circuit Judge.

Susan Wintermute, a former director of the Sinclair National Bank (SNB),
appeals the district court's grant of summary judgment in favor of The Kansas Bankers
Surety Co. (KBS) in this insurance policy dispute concerning whether a directors and
officers (D&O) liability insurance policy obligated KBS to defend Wintermute in a
criminal action brought against her as a director of SNB. Wintermute also appeals the
district court's denial of her motion to amend the tort claim in her complaint against

1
The Honorable E. Richard Webber, United States District Judge for the Eastern
District of Missouri, sitting by designation.
KBS. We affirm the denial of the motion to amend the complaint, but we reverse and
remand the district court's grant of summary judgment on the insurance contract claim,
as genuine issues of material fact exist concerning whether two policy exclusions
apply.

I.

This dispute returns to us following our previous opinion remanding the case
to the district court, in which we affirmed the district court's dismissal of Wintermute's
tort claim but reversed the district court's grant of summary judgment on the insurance
contract claim. See McAninch v. Wintermute, 491 F.3d 759 (8th Cir. 2007). A
detailed recitation of the underlying facts of the case can be found in our prior
opinion, and we summarize the facts here as they relate to the instant appeal.

KBS provided a D&O liability policy to SNB for the relevant period of time.
Susan Wintermute and her former husband, Damian Sinclair, were indicted on
criminal charges for filing false statements in connection with their purchase of SNB
in 2000 and for various bank fraud charges related to loans SNB subsequently
purchased from two companies in which Wintermute and Sinclair held financial
interests. Sinclair filed a civil action in state court against KBS on June 17, 2003,
which KBS removed to the United States District Court for the Western District of
Missouri on August 4, 2003, alleging that KBS had wrongfully refused to defend
Sinclair against the criminal charges filed against him. Sinclair died prior to the
criminal trial, and his estate was substituted as the plaintiff in this removed civil action
on July 21, 2004. Wintermute joined the case as a plaintiff at the same time.
Wintermute was convicted on August 24, 2004, of the two counts of the criminal
indictment related to the false filings made by Wintermute and Sinclair associated
with their purchase of SNB. Wintermute was acquitted of the four criminal counts
related to fraudulent banking activities engaged in after the bank was purchased and
while Wintermute was acting as a director.

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 Following the criminal trial and Wintermute's conviction on two of the six
counts, Wintermute filed a second amended complaint in this action on October 19,
2004. The second amended complaint included a tort claim for malicious interference
with Wintermute's criminal defense, alleging that KBS withheld exculpatory
documents that her counsel had subpoenaed and that would have assisted in her
defense of the four counts on which she was acquitted. These counts—referred to in
the complaint as the "Covered Counts" under the policy—related to activity
Wintermute allegedly engaged in as a director after the bank was purchased. The
second amended complaint recognized that KBS's D&O coverage did not extend to
the two criminal counts related to the preacquisition activity, as KBS only provided
coverage to Wintermute as a director, a position she did not hold until after the
acquisition of the Bank.

In March 2005, the district court ordered KBS to produce over 500 pages from
its crime bond file related to SNB. The file contained copies of 17 assignments of
loans purportedly signed by Wintermute. Five of the loans predated acquisition of
SNB, and twelve were dated after the change in ownership and while Wintermute
served as a director. According to Wintermute, the 17 documents contained clear
forgeries of her signature. The crime bond file also contained a proof of loss filed by
the Federal Deposit Insurance Corporation (FDIC) as receiver of SNB, naming only
Sinclair as involved in criminal conduct. Wintermute believed the forged documents
would have been crucial to her defense of the preacquisition counts on which she was
convicted.

After receiving the documents, Wintermute filed a motion for leave to serve
additional expedited discovery on March 30, 2005, arguing that the crime bond file
would have exculpated her from criminal liability on all counts. The district court
denied the motion. Wintermute also argued in her pretrial brief, filed on May 16,
2005, that she intended to prove at the trial of this case that she would have been
acquitted on all counts if KBS had not wrongfully and intentionally withheld the

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crime bond file. The district court granted summary judgment to KBS on May 25,
2005, obviating the need for a trial. Wintermute filed a motion for reconsideration,
again arguing that she was prepared to amend her pleadings at trial to conform to the
evidence of the crime bond file and to include a tort claim concerning both the
covered counts and the noncovered counts, but she never actually moved to amend the
complaint. The district court denied the motion for reconsideration the same day.

Wintermute appealed to this court on June 29, 2005, and we affirmed in part
and reversed in part. See McAninch, 491 F.3d at 775. We held that the policy did not
limit its coverage to claims relying solely on a director's status, and we reversed the
summary judgment that had been granted on this basis, remanding the insurance
contract claim. Id. at 770-72. We affirmed the district court's conclusion that
exclusion 3, related to claims brought by regulatory agencies, did not preclude
coverage for criminal charges brought by the United States. Id. at 772. We also
affirmed the dismissal of the malicious interference tort claim and the district court's
denial of Wintermute's motion for reconsideration. Id. at 774-75.

After the case was remanded, Wintermute filed a motion in the district court to
amend her complaint to add an allegation to her malicious interference tort claim that
the withheld crime bond file would have aided in the defense of the noncovered
counts, for which she suffered an injury—conviction. The district court denied the
motion to amend based on the doctrines of res judicata and the law of the case. The
district court again granted summary judgment in favor of KBS, concluding that
Wintermute could not establish that she suffered a "loss" for purposes of coverage.
It held in the alternative that two exclusions precluded coverage in any event.
Wintermute appeals the denial of her motion to amend and the grant of summary
judgment.

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 II.

We normally review the district court's denial of leave to amend a complaint for
abuse of discretion. To the extent the district court's denial was based on the legal
doctrines of res judicata and the law of the case, we review the application of those
doctrines de novo. See Zutz v. Nelson, 601 F.3d 842, 850 (8th Cir. 2010). We review
the grant of summary judgment on the insurance claim de novo, applying the same
standard applied by the district court and utilizing state law to determine the insurance
coverage issues. See Country Life Ins. Co. v. Marks, 592 F.3d 896, 899 (8th Cir.
2010).

A. Motion to Amend Tort Claim

In the first appeal of this case, we "reverse[d] the district court's grant of
summary judgment to KBS as to Wintermute's demand for coverage," but "[w]e
affirm[ed] in all other respects," McAninch, 491 F.3d at 775, including the dismissal
of the tort claim. Following remand, the district court rejected Wintermute's motion
to amend the dismissed tort claim based on the doctrines of res judicata and the law
of the case.

"Under res judicata, a judgment on the merits in an earlier lawsuit bars a second
suit involving the same parties based on the same cause of action." Prof'l Mgmt.
Assocs., Inc. v. KPMG LLP, 345 F.3d 1030, 1032 (8th Cir. 2003). The requirements
for application of res judicata are: 1) a final judgment on the merits, 2) based on
proper jurisdiction, 3) between the same parties, and 4) based on the same claims or
causes of action. Yankton Sioux Tribe v. U.S. Dep't of Health & Human Servs., 533
F.3d 634, 639 (8th Cir. 2008). The first requirement is met because res judicata
applies to all final claims, even if other claims within a case remain alive. See Lair
v. Oglesby, 14 F.3d 15, 17 n.2 (8th Cir. 1993) ("[R]es judicata can apply to prevent
reassertion of dismissed claims, even though there remain live claims in the same

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litigation"); Restatement (Second) of Judgments § 13, comment e (1982) (judgment
may be final as to part of an action or claim, with action continuing as to rest). There
is no dispute that the district court reached the merits of the tort claim and this court
affirmed the merits of that disposition, making the dismissal of the tort claim final.
Neither do the parties dispute jurisdiction or that the prior judgment involved the same
parties. As for the last requirement that the prior judgment involve the same causes
of action, a prior judgment binds a party "'not only as to every matter which was
offered and received to sustain or defeat the claim or demand, but as to any other
admissible matter which might have been offered for that purpose.'" Yankton Sioux
Tribe, 533 F.3d at 640 (quoting Comm'r v. Sunnen, 333 U.S. 591, 597 (1948)).
Wintermute received the crime bond file on March 16, 2005, over two months before
the district court granted summary judgment to KBS on the tort claim. Wintermute
did not formally attempt to amend her malicious interference claim to allege that KBS
interfered with her defense of the noncovered counts until over two years later, after
our opinion in the appeal of that judgment.2 The district court's judgment therefore
covers a tort claim related to the noncovered counts, as those could have been
included in the original claim but were not.

Because the doctrine of res judicata would have foreclosed the claims
Wintermute sought to add to her complaint, any amendment would have been futile.3
The district court therefore did not abuse its discretion in denying Wintermute leave

2
Wintermute asserted in her motion for reconsideration in the district court that
she was prepared to amend her complaint to include the noncovered criminal counts
in her malicious interference claim, but she did not at that time request to amend it.
Thus, the claims were informally before the district court in the motion it denied and
we affirmed.
3
The law of the case doctrine would also foreclose Wintermute's attempt to
restate her previously dismissed tort claim. See Lair, 14 F.3d at 16-17 (affirming
district court's dismissal of amended complaint based on law of the case where the
dismissal of the original claim was affirmed in a previous appeal).

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to amend her complaint. See Popoalii v. Corr. Med. Servs., 512 F.3d 488, 497 (8th
Cir. 2008) (motion to amend complaint properly denied if amendment would be
futile).

B. Contract Claim

The parties agree that interpretation of the insurance policy in this diversity case
is governed by Arkansas substantive law. See Murray v. Greenwich Ins. Co., 533
F.3d 644, 648 (8th Cir. 2008). Under Arkansas law, the meaning of an insurance
policy is a legal issue for the court. See McGrew v. Farm Bureau Mut. Ins. Co. of
Ark., Inc., 268 S.W.3d 890, 896 (Ark. 2007). In construing insurance contracts,
Arkansas courts "read the whole document together and determine whether all parts
are in harmony. If possible [Arkansas law] give[s] effect to the overall meaning of the
contract. It is error to give effect to one clause over another on the same subject if the
two clauses are reconcilable." Travelers Indem. Co. v. Olive's Sporting Goods, Inc.,
764 S.W.2d 596, 599 (Ark. 1989). "A basic [tenet] of contract law is that each word
in the agreement should be interpreted to have a meaning, rather than to be redundant
and superfluous." Jones v. Sun Carriers, Inc., 856 F.2d 1091, 1095 (8th Cir. 1988)
(applying Arkansas law).

The district court granted summary judgment to KBS on the insurance contract
claim based on its determination that Wintermute had not had a "claim for Loss" made
against her as a director, and therefore coverage had not triggered. The coverage
provision of the policy at issue provides: "The Underwriter [KBS] . . . agrees: (A) to
indemnify each and every person who was, [or] now is . . . a Director . . . for personal
Loss which the Director . . . is legally obligated to pay by reason of any Wrongful Act
solely in their capacities of Director . . . which is first Discovered during the Policy
Period." (Add. tab 1 at 13.) The term "Loss" is defined in the policy. "'Loss' . . . (A)
shall mean any amount which the Directors . . . are legally obligated to pay . . . for a
claim . . . made against the Directors . . . for Wrongful Acts and shall include but not

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be limited to damages, judgments, . . . and defense of legal claims . . . ." (Id. at 14.)
Using that definition in the coverage provision, the policy provides coverage for any
amount a director is legally obligated to pay for a claim made against the director for
a wrongful act.

KBS argues that there is no coverage because a condition precedent to coverage
is a "claim for Loss," and a criminal charge is not a claim for an amount Wintermute
is legally obligated to pay. The district court also focused its discussion of the
coverage issue on a "claim for Loss." It reasoned that a "claim," which was not
defined in the policy, is a demand for money or something owed. Because a criminal
indictment, absent a count for restitution, is not a demand for money, the district court
determined that Wintermute did not have a claim for Loss made against her to trigger
KBS's obligation to defend or indemnify her under the policy.4

The problem with the district court's and KBS's reasoning is that the plain
language of the policy provides coverage for Loss a director is obligated to pay for a
claim made against a director for a wrongful act. The coverage language does not
preface coverage on a claim for Loss, only a claim for a wrongful act. The parties do
not dispute that the criminal actions alleged in Wintermute's criminal case are claims
against Wintermute for a wrongful act, nor do they dispute that the attorney's fees she
expended in defending herself are an amount she is legally obligated to pay stemming

4
In so concluding, the district relied, in part, on a statement made by this court
in its first opinion that "the criminal prosecution of Wintermute did not involve a
claim for 'Loss.'" (Add. tab 3 at 15.) The district court also found persuasive a district
court decision cited in that opinion, St. Paul Fire & Marine Ins. Co. v. Genova, 172
F. Supp. 2d 1001, 1005 (N.D. Ill. 2001), which concluded that a criminal indictment
seeking forfeiture was not a claim under a D&O Policy. As noted by the district court,
however, the prior panel vacated its original opinion and replaced it with an opinion
that did not include the quoted language above. The substituted opinion likewise
excluded the vacated opinion's citation to the Genova case. The district court should
not have relied on those statements from the first, vacated panel opinion.

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from that claim for a wrongful act. Therefore, for coverage purposes, the covered
counts of the criminal indictment are claims for a wrongful act against Wintermute,
and KBS must indemnify Wintermute for any Loss she is obligated to pay by reason
of the criminal indictment. See Polychron v. Crum & Forster Ins. Cos., 916 F.2d 461,
463 (8th Cir. 1990) (construing a materially indistinguishable D&O policy under
Arkansas law and holding that "the grand jury's investigation and the questioning by
the Assistant United States Attorney amounted, as a practical matter, to an allegation
of wrongdoing" against the insured bank officer).

Having found coverage, we must turn to the exclusion provisions to see if any
one of them precludes coverage for the legal expenses incurred with respect to the
acquitted counts. The policy includes a prefatory statement to the exclusion
provisions that provides: "[KBS] shall not be liable to make any payment or provide
any defense in connection with any claim for Loss made against the Bank or Directors
. . . ." (Add. tab 1 at 15.) It then goes on to list several types of excluded claims.
Wintermute argues that none of the exclusions can apply because there is not a "claim
for Loss" made against her, only criminal misconduct charges of which she was
acquitted. Wintermute's argument is the inverse of KBS's previous argument on the
coverage issue—where KBS argued that there is no coverage absent a "claim for
Loss," Wintermute argues that none of the exclusions apply because there must first
be a "claim for Loss" as stated in the prefatory language before any one of the
exclusions is triggered.

In contrast to KBS's argument on the coverage issue, Wintermute's argument
is based on a phrase that does exist in the exclusion section's prefatory
language—"claim for Loss." Wintermute argues that the exclusion provisions apply
only to "claims for Loss" made against a director, and a criminal indictment is not a
claim for Loss because the claim (the criminal indictment) does not seek an amount
owed by the director. However, if we substitute the policy definition of "Loss" into
the exclusion provision language, it would read: "[KBS] shall not be liable to make

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any payment or provide any defense in connection with any claim for 'any amount
which the Directors . . . are legally obligated to pay . . . for a claim . . . made against
the Directors . . . for Wrongful Acts and shall include . . . defense of legal claims'
made against the . . . Directors." In other words, coverage is excluded for a claim for
any amount a director is legally obligated to pay for a claim against the director for
a wrongful act made against the director that falls within one of the enumerated types
of exclusions. The claim for Loss is different than the claim for a wrongful act. The
attorney's fees associated with Wintermute's criminal defense of the acquitted counts
(the covered counts) are a claim for an amount she is legally obligated to pay related
to a claim against her for a wrongful act. See Polychron, 916 F.2d at 463-64 (holding
that attorney's fees incurred in aid of a criminal defense fell within the definition of
"Loss" contained in the policy under a similar definition as the definition of "Loss"
used here).

Although the prefatory exclusion provision uses the term "claim for Loss" and
the coverage provision does not, substitution of the contract's definition of Loss into
the prefatory exclusion provision makes clear that the exclusion provision's prefatory
language is meant to mirror the coverage provision, so that the prefatory language
does nothing more than state there is no coverage under the policy if one of the
enumerated exclusions applies. This interpretation "give[s] effect to the overall
meaning of the contract," reconciling the two clauses, see Travelers Indem. Co., 764
S.W.2d at 599, and is consistent with the prior panel opinion, see McAninch, 491 F.3d
at 769 ("The district court's construction of this contract fails to harmonize—or for
that matter acknowledge—the language which expressly provides coverage (subject
to various exclusions) for actual or alleged wrongful acts."); id. at 772 ("Had KBS
intended to exclude from coverage any and all costs or losses or attorneys fees arising
out of or attendant to any criminal charge made against its insured, a simple
declarative sentence could have been easily inserted into the policy.").

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 1. Personal Profit Exclusion

"Once it is determined that there is coverage, it must be determined whether the
exclusionary provisions in the policy eliminate coverage." Smith v. Farm Bureau
Mut. Ins. Co. of Ark., Inc., 194 S.W.3d 212, 218 (Ark. Ct. App. 2004). The general
requirements that the insurance terms must be expressed in clear and unambiguous
language apply equally to exclusions. Id. Unambiguous language controls, but if the
language is found to be ambiguous, then the rules of construction—including that
contracts are read against the insurer who prepared the policy—apply. Id. at 218-19.
If the policy can reasonably be construed to justify recovery, or if the policy language
is susceptible to two interpretations, the court must adopt the interpretation most
favorable to the insured. Id. at 219.

The district court concluded that exclusion 2 and exclusion 11 each precluded
coverage for Wintermute's attorney's fees related to the criminal case. Exclusion 2
provides that KBS shall not be liable for payment or defense of any claim for Loss
made against a Director "based upon or attributable to the Director[] . . . gaining in
fact any personal profit or advantage to which [she was] not legally entitled." (Add.
tab 1 at 15.) The district court concluded that even if the policy provided coverage,
this "personal profit" exclusion would apply to deny coverage, rejecting Wintermute's
argument that her acquittal shows that she did not "gain[] in fact" any personal profit.

The pleadings against the insured, no matter how groundless, false, or
fraudulent the pleadings may be, determine an insurer's duty to defend. That duty
"arises where there is a possibility that the injury or damage may fall within the policy
coverage." Madden v. Cont'l Cas. Co., 922 S.W.2d 731, 734 (Ark. Ct. App. 1996).
The district court relied on this rule of law to conclude that it could look only at the
allegations in the complaint to determine whether KBS had a duty to defend and that
those allegations fell squarely within the personal profit exclusion. According to the

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district court, the eventual outcome of the underlying lawsuit is irrelevant if the
allegations of the complaint fall within the exclusionary language.

While coverage is determined based on the allegations in the complaint, we are
dealing here with an exclusion issue, not with a coverage issue. See id. (addressing
a fraud exclusion and concluding that questions of fact as to whether the policy
exclusions actually applied precluded summary judgment). "Absent absolute clarity
on the face of the complaint that a particular policy exclusion applies, there exists a
potential for coverage and an insurer cannot justifiably refuse to defend." Lorenzo v.
Capitol Indem. Corp., 928 N.E.2d 1274, 1278 (Ill. Ct. App. 2010) (internal marks
omitted).

The district court's analysis ignores the term "in fact" contained in the personal
profit exclusion. Under Arkansas law, contracts are to be construed as a whole, and
all terms of a contract should be given meaning. See Travelers Indem. Co., 764
S.W.2d at 599. Review of the exclusionary provisions of the KBS policy reveals that
other exclusions apply wholesale to all allegations of a particular class. For example,
the policy excludes coverage for claims "involving political contributions of any
kind," "involving sexual, racial, religious, or age discrimination or harassment," or
"involving allegations of racketeering activity as defined in [18 U.S.C. § 1961]."
(Add. tab 1 at 15, exclusions 5-7 (emphasis added).) If the policy was intended to
exclude all claims merely alleging a personal profit, it could have used a similar
format as exclusions 5, 6, and 7 do and defined the exclusion as applying to a claim
"involving" illegal personal profits. But it does not; it defines the exclusion as "based
upon or attributable to the Directors . . . gaining in fact any personal profit . . . to
which they were not legally entitled." (Id. at 15, exclusion 2 (emphasis added).) We
believe the phrase "gaining in fact" must have some meaning, and relying solely on
the allegations of a personal gain contained in the complaint reads that phrase out of
the insurance contract. See PMI Mortg. Ins. Co. v. Am. Int'l Specialty Lines Ins. Co.,
No. C-02-1774, 2006 WL 825266, at *5-6 (N.D. Cal. Mar. 29, 2006) (unpublished)

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(noting that the "in fact" language did not appear in all the exclusions, such that the
phrase had to mean something in the personal profit exclusion).

The district court noted a conflict of authority over whether exclusion
provisions using the term "in fact" require the court to look beyond the face of the
complaint. The district court followed the Seventh Circuit, see Brown & LaCounte,
L.L.P. v. Westport Ins. Corp., 307 F.3d 660, 663 (7th Cir. 2002) (rejecting, as contrary
to Wisconsin law, an interpretation of a gaining-in-fact-personal-profit exclusion that
would require a defense until the allegations of personal profit were proved), which
concluded that if an insurer had to await the outcome of the underlying litigation to
determine whether the director "in fact" gained a personal profit, it would always have
to defend the director, eviscerating the exclusion. The Seventh Circuit concluded that
a personal gain exclusion applies to the whole class of claims, at least where the
underlying complaint unequivocally and directly alleges a personal gain by the
insured. Id. at 664.

An opposing line of cases concludes that the term "in fact" must have some
meaning. See PMI Mortg. Ins., 2006 WL 825266, at *5-6 (concluding that there must
be some determination of fact before an identical personal profit exclusion could be
applied in order to give effect to the plain and ordinary meaning of the term "in fact,"
particularly where the actual illegality of the alleged gain was in dispute); St. Paul
Mercury Ins. Co. v. Foster, 268 F. Supp. 2d 1035, 1045-46 (C.D. Ill. 2003) (relying
on rules that all policy provisions should be given meaning and that interpretations
rendering any part of the contract superfluous should be avoided to conclude that mere
allegations of an improper personal profit were insufficient to trigger policy exclusion
without further fact development). We agree with this line of cases. The term "in
fact" means "actual or real" or "resulting from the acts of parties rather than by
operation of law." Pendergest-Holt v. Certain Underwriters at Lloyd's of London, 600
F.3d 562, 570-71 (5th Cir. 2010) (quoting Black's Law Dictionary 792 (8th ed. 2004)).
To give effect to its meaning, the insurer cannot deny a defense based solely on the

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allegations in the complaint unless the facts are uncontested. Whether an insured in
fact gained a personal profit is a fact issue that must be decided by a trier of fact if the
relevant evidence is disputed. Cf. TIG Specialty Ins. Co. v. Pinkmoney.com Inc., 375
F.3d 365, 371 (5th Cir. 2004) (looking at the state court jury findings that determined
that a director did not actually benefit from his misrepresentations to conclude that
coverage concerning a securities fraud claim brought solely against that director
would not be excluded under a similar personal profit exclusion); Jarvis Christian
Coll. v. Nat'l Union Fire Ins. Co. of Pittsburgh, PA, 197 F.3d 742, 747 (5th Cir. 1999)
(reviewing for clear error the district court's factual determination, made during a
bench trial, of whether an insured actually gained a personal profit).

We reject KBS's claim that looking beyond the allegations in the complaint will
result in a final adjudication requirement even though the policy contains no such
requirement. As noted by the Fifth Circuit, "in fact" language is generally read more
broadly than a "final adjudication" clause and can be satisfied by a "final decision on
the merits in either the underlying case or a separate coverage case, or an admission
by the insured." Pendergest-Holt, 600 F.3d at 573. Thus, while "in fact" language
does not require a final adjudication in the underlying case, it should include "at a
minimum, at least some evidentiary proof that the insured reaped an illegal profit or
gain." PMI Mortg. Ins. Co., 2006 WL 825266, at *7.

Even the facts alleged in the indictment do not unequivocally assert that
Wintermute illegally gained a personal profit. As related to the covered counts, the
criminal indictment charged Wintermute with illegal participation, misapplication of
bank funds, and bank fraud. The facts supporting the charges in the indictment related
to the covered counts alleged that she and her husband failed to disclose to the
Comptroller of the Currency (OCC) their financial relationship with Sinclair
Management Services and with Stevens Financial Group and used their positions as
bank directors to cause SNB to buy several million dollars worth of loans from
Stevens Financial Group without disclosing their interest in the loans to the other

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directors and in violation of federal lending limits. The indictment further charged
that the purchase of Wintermute's home was funded by Stevens Financial Group after
Clarence Stevens obtained funds from SNB. It also alleged that Stevens Financial
Group paid Wintermute more than $300,000 over a one-year period.

Missing from the facts stated in the indictment is an allegation that Wintermute
received a personal gain to which she was not legally entitled. See Alstrin v. St. Paul
Mercury Ins. Co., 179 F. Supp. 2d 376, 400-01 (D. Del. 2002) (concluding that
securities fraud allegations did not fit within a personal gain exclusion where at most
the allegations alleged a gain as a side benefit but did not allege that the gain was itself
illegal, focusing on the elements of the underlying cause of action). The Seventh
Circuit in Brown distinguished cases involving "allegations of breaches of fiduciary
duty where the dispute concerned the illegality of the actions taken or profits
received." Brown, 307 F.3d at 664; see also Am. Chem. Soc'y v. Leadscope, Inc., No.
04AP-305, 2005 WL 1220746, at *12 (Ohio Ct. App. May 24, 2005) (distinguishing
Brown and noting that "there remains a question of whether any conversion, in fact,
took place. Only if a conversion actually took place would the profits derived from
appellees' patent be deemed illegal."). By contrast, Brown involved direct and
unequivocal allegations that Brown reaped an illegal profit by billing a client for legal
services provided under an illegal contract.

In Homebank of Ark. v. Kan. Bankers Sur. Co., No. 4:06cv1670, 2008 WL
2704670 (E.D. Ark. July 7, 2008), the district court denied summary judgment to KBS
on its claim that it did not have a duty to defend a bank president against a claim of
fraudulent inducement resulting in an improper benefit to the bank president, where
KBS relied on the same personal profit exclusion at issue in this case. The court noted
that the duty to defend arose from the possibility of coverage. Id. at *7. In later
denying KBS's motion for reconsideration, the court further explained its rationale that
KBS had a duty to defend the bank president against the fraudulent inducement and
related claims because there was "a possibility, however remote, that the to-be-

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established facts will show that the personal profit and dishonesty exclusions do not
apply." Homebank of Ark. v. Kan. Bankers Sur. Co., No. 4:06-1670, slip op. at 3-4
& n.2 (E.D. Ark. Aug. 28, 2008). We conclude that the Arkansas courts would follow
the line of cases giving meaning to the term "in fact" and would require at least some
evidence that the insured actually received a personal gain to which she was not
legally entitled before allowing the insurer to deny a defense. See Madden, 922
S.W.2d at 734. The district court erred in granting summary judgment based on the
personal profit exclusion by relying solely on the allegations in the indictment.

2. Dishonesty Exclusion

Exclusion number 11 provides that KBS shall not be liable to make payment
or provide any defense in connection with any claim for Loss against a Director
"brought about or contributed to by the dishonesty of the Directors . . . . This
exclusion shall not apply to any protection provided for any Director . . . under the
terms of this policy who was not involved in the dishonest acts." (Add. tab 1 at 15.)
The district court applied a similar analysis to the dishonesty exclusion as it did to the
personal profit exclusion, looking at the allegations in the indictment to determine
whether the exclusion was triggered, and concluded that "[c]learly the dishonesty
exclusion applies in this case" (Add. tab 3 at 26) because counts 4 and 6 alleged that
Wintermute acted with the intent to defraud and counts 7 and 8 alleged bank fraud.
Notably, the district court did not discuss the last sentence of the exclusion, which
makes the exclusion inapplicable to a director not involved in the dishonest acts.

We conclude that the last sentence of the dishonesty exclusion serves the same
purpose as the "in fact" language contained in the personal profit exclusion. The last
sentence must be given some meaning, see Travelers Indem. Co., 764 S.W.2d at 599,
and by its ordinary language, it makes the dishonesty exclusion inapplicable if the
specific director was not actually involved in the dishonest acts. Thus, it is not
enough that the criminal indictment charged Wintermute with committing fraud.

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Material fact disputes exist concerning whether Wintermute "was involved in the
dishonest acts" alleged, particularly in light of her acquittal on those counts. Cf.
Polychron, 916 F.2d at 464 (noting the policy did "not exclude attorney's fees incurred
in defense of a criminal matter, at least where the insured is acquitted"). The district
court therefore erred in granting summary judgment to KBS under the dishonesty
exclusion based solely on the allegations contained in the criminal indictment.

III.

Because the district court improperly considered only the allegations in the
complaint in determining that the exclusions applied, and because issues of material
fact remain concerning whether Wintermute in fact received a personal gain to which
she was not entitled or whether Wintermute was involved in any dishonest acts, we
reverse the district court's grant of summary judgment and remand for further
proceedings. That Wintermute was acquitted on the covered charges does not
necessarily determine that the exclusions do not apply, as a criminal conviction
requires proof beyond a reasonable doubt on each of the elements of the underlying
offense. That, however, is a separate issue from whether, for purposes of a duty to
defend, KBS can establish that the personal profit or dishonesty exclusions apply. Cf.
Zinger v. Terrell, 985 S.W.2d 737, 741-42 (Ark. 1999) ("A criminal acquittal for
murder where the proof does not convince a jury beyond a reasonable doubt should
not prohibit a civil trial where proof of wrongdoing may well be proved by a
preponderance of the evidence."). "Although our decision here may result in a retrial
of essentially the same facts, the specific issues of policy coverage must be determined
by a jury or trier of fact as the facts deciding those issues remain in conflict." Morris
v. Valley Forge Ins. Co., 805 S.W.2d 948, 951 (Ark. 1991) (reversing summary
judgment granted in favor of insurer where trial court had relied on verdict against
attorney/insured in underlying malpractice case; facts before the court in the coverage
case were in dispute).

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 The district court's judgment denying Wintermute's motion to amend is
affirmed, and its summary judgment in favor of KBS on Wintermute's contract claim
is reversed. The case is remanded for further proceedings consistent with this opinion.
______________________________

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