Lloyd’s Owes $3M in Prejudgment Interest for Delayed Payment of D&O Claim
Lloyd’s of London underwriters must pay more than $3 million in pre-judgment interest in addition to the $10 million the syndicate has already paid in damages for the wrongful acts of the former directors of a bank that was declared insolvent during the 2008 financial crisis, the 11th Circuit Court of Appeals ruled.
The appellate panel held that under Georgia law, pre-judgment interest is owed when the amount of the claim is known and the plaintiff made a demand for interest before a final judgment requiring payment is entered. The decision overturns a Northern Georgia US District Court decision that refused the Federal Deposit Insurance Co.’s demand for prejudgment interest.
“On appeal, the FDIC argues that demands for prejudgment interest are timely under Georgia law so long as they are made before the entry of a coercive final judgment, which declaratory judgments are not,” the opinion says. “We agree and, accordingly, reverse the District Court.”
Lloyd’s underwriters issued a $10 million directors and officers policy to Omni Bank in 2007, after the US Office of the Comptroller of Currency launched an investigation into the bank’s low-income real estate loan practices. Omni foreclosed on many of the mortgages it issued in 2008 and 2009. But instead of selling the properties to recoup its losses, the bank invested more money in renovations.
After the bank’s stability rating reached a worst-possible level,the office declared Omni insolvent in March 2009 and took control of its operations as receiver.The FDIC sued Omni’s former directors and officers for negligence in 2012. Omni’s former chief executive officer, Stephen Klein, agreed to settle the lawsuit for $10 million, but only if the FDIC sought to recover the money only from Lloyd’s. Two other former directors agreed to similar settlement terms.
Lloyd’s filed a lawsuit against the FDIC and the former Omni directors and officers, seeking a declaratory judgment that the policy it issued did not cover damages caused by their negligence. The District Court ruled in against the insurer, finding that coverage was owed.
The 11th Circuit affirmed the decision. Lloyd’s appealed to the Supreme Court.
In April 2018, just before the Supreme Court declined to review the decision, the FDIC sent a demand letter seeking payment of the $10 million policy limit plus $3,004,287.67 in prejudgment interest under Georgia law.
Lloyd’s paid the $10 million plus $115,000 for post-judgment interest, but refused to pay pre-judgment interest. The FDIC filed a new lawsuit against Lloyds in the US District Court in Atlanta.
The District Court ruled that FDIC’s demand for prejudgment interest came too late because Georgia law requires a demand for interest “before the entry of a final judgment as to the principal amount due.” The declaratory judgment from the court finding that the insurer must pay the policy limits amounted to a final judgment, the court said.
The 11th Circuit disagreed. The appellate panel said Georgia law entitles creditors for compensation at a rate of 7% per annum when a debtor delays payment of a “liquidated claim,” meaning a claim made when the specific amount owed is known. The demand must be made before a “coercive” final judgment is made, meaning a judgment that directs a party to take some action.
The panel said the declaratory judgment issued by the district court was not an order to pay, it was a declaration about the rights of the parties involved in the lawsuit.
“Critically for this case, the Georgia courts have held that a mere determination of liability does not preclude the recovery of prejudgment interest because a full and fair opportunity to litigate liability for interest remains until the entry of a coercive final judgment,” the opinion says.
A spokesman for the FDIC said the agency’s attorneys will not comment on legal decisions. Attorneys for Lloyd’s did not respond to requests for comment.
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