On August 5, 2011, the Fifth Circuit Court of Appeals ruled that five insurers need not cover any part of Citigroup Inc.’s $263 million settlement of a statewide class action suit and a Federal Trade Commission action.  Citigroup, Inc. v. Federal Insurance Co., 2011 WL 3422073 (5th.Cir. 2011).  The class action and FTC   action   suits   alleged   that   Citigroup's   predecessor,   Associates   First   Capital   Corporation, misrepresented the benefits of refinancing to customers regarding policies from primary insurer Certain Underwriters of Lloyd’s of London (“Lloyd’s”) and nine excess insurers.  Citigroup settled both cases for $263 million, with $15 million paid to Citigroup by Lloyd’s (of its $50 million limits of liability), without obtaining the consent of the excess insurers.

Each excess insurer initially denied coverage causing Citigroup to file suit against them.  Citigroup eventually settled with two of the excess insurers and claims against two other excess insurers proceeded to arbitration where they were stayed pending the outcome of Citigroup’s case against the other insurers. As to the remaining five excess carriers, the Appeals Court affirmed the district court judgment holding that the five insurers were not required to cover any part of the settlement since the plain language of policies by excess insurers did not attach when Citigroup settled with Lloyd’s for less than its policy limits of liability. Hence, the terms of Citigroup’s settlement with the Lloyd’s did not satisfy the requirements necessary to trigger the excess insurers’ coverage.

The Court also held that Citigroup’s claims against excess insurer, Twin City, was time barred since Twin City issued a letter effectively denying coverage in April of 2002 and suit was filed by Citigroup in October of 2006.   The Court found that Twin City’s April 2002 letter contained statements clearly communicating its denial and reasons for the denial even though it did not contain the word “denial.”

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