Lloyd’s owes $3 million in prejudgment interest for late payment of A&D claim

Lloyd’s of London underwriters must pay more than $3 million in prejudgment interest on top of the $10 million the syndicate has already paid in damages for wrongful acts by former directors of a bank declared insolvent in of the financial crisis of 2008, the 11th Circuit Court of Appeals ruled.

The Appeals Panel held that under Georgia law, prejudgment interest is due when the amount of the claim is known and the plaintiff has made a claim for interest before a final judgment requiring payment not be pronounced. The ruling overturns a ruling by the United States District Court of North Georgia that denied the Federal Deposit Insurance Co.’s claim for prejudgment interest.

“On appeal, the FDIC argues that requests for prejudgment interest are expedient under Georgia law as long as they are made before the entry of a coercive final judgment, which declaratory judgments are not” , indicates the opinion. “We agree and, accordingly, overrule the district court.”

Lloyd’s underwriters issued a $10 million insurance policy for directors and officers of Omni Bank in 2007 after the US Office of the Comptroller of the Currency launched an investigation into home lending practices in low bank income. 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 poured more money into renovations.

After the bank’s stability rating reached the worst possible level, the bureau declared Omni insolvent in March 2009 and took control of its operations as a receiver. The FDIC sued Omni’s former directors and officers for negligence in 2012. Former Omni CEO 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 sued the FDIC and former directors and officers of Omni, seeking declaratory relief that the policy it issued did not cover damage caused by their negligence. The district court ruled against the insurer, finding that the coverage was due.

The 11th Circuit upheld the decision. Lloyd’s appealed to the Supreme Court.

In April 2018, just before the Supreme Court refused to reconsider the decision, the FDIC sent a formal demand requesting payment of the policy limit of $10 million plus $3,004,287.67 in interest before judgment under Georgian law.

Lloyd’s paid the $10 million plus $115,000 for postjudgment interest, but refused to pay the prejudgment interest. The FDIC filed a new lawsuit against Lloyds in the US District Court in Atlanta.

The district court ruled that the FDIC’s request for prejudgment interest came too late because Georgia law requires a request for interest “prior to the entry of a final judgment as to the principal amount owed.” The court’s declaratory judgment finding that the insurer must pay the policy limits amounted to a final judgment, the court said.

The 11th Circuit disagreed. The appeal committee said Georgia law allows creditors compensation at a rate of 7% per annum when a debtor delays payment of a “liquidated debt”, i.e. a claim made when the specific amount due is known. The request must be made before a final “coercive” judgment is rendered, that is, a judgment that orders a party to take action.

The panel said the declaratory judgment issued by the district court was not an order to pay, it was a statement of the rights of the parties involved in the lawsuit.

“Essentially for this case, the Georgian courts have ruled that a simple determination of liability does not preclude the recovery of prejudgment interest, as there remains a full and fair opportunity to plead liability for interest until entry of a coercive final judgment,” the opinion reads. .

An FDIC spokesperson said agency attorneys will not comment on court rulings. Lloyd’s lawyers did not respond to requests for comment.

Want to stay up to date?

Receive the latest insurance news
sent straight to your inbox.

Comments are closed.