## Facts

- Fidelity and Deposit Company of Maryland issued directors’ and officers’ liability policies to a bank affiliate and its subsidiary banks.
- The policies were claims-made policies requiring written notice during the policy period of claims or potential claims to trigger coverage.
- During the policy period, the banks provided the insurer financial and annual reports describing worsening finances, increased delinquencies and loan losses, and regulatory difficulties, including the existence of an OCC cease-and-desist order.
- The insurer canceled the policies mid-term due to the banks’ deteriorating condition.
- The banks later failed, and the FDIC was appointed receiver.
- The FDIC sued former directors and officers for allegedly improper or illegal loan making, administration, or collection.
- The insurer denied coverage, asserting that the insureds failed to provide adequate written notice of a claim or potential claim within the policy period.
- The FDIC filed a declaratory judgment action seeking a determination of coverage; the district court granted summary judgment for the insurer.
- The FDIC appealed, arguing the communications during the policy period satisfied the notice requirement and that additional discovery should have been allowed.

## Issues

1. Whether generalized reports of financial deterioration and regulatory problems satisfied a claims-made D&O policy’s notice requirement, or whether the policy required written notice identifying specified wrongful acts by particular directors or officers.
2. Whether summary judgment was improper because the FDIC was denied additional discovery into the insurer’s internal interpretation of the insureds’ communications.

## Decision

- The Fifth Circuit affirmed summary judgment for the insurer.
- The court held the policies required timely written notice of specified wrongful acts (or specific potential claims) to trigger coverage.
- The banks’ reports about worsening finances, delinquencies, loan losses, and regulatory trouble did not constitute notice of any officer’s or director’s act, error, or omission.
- The court held additional discovery into the insurer’s subjective understanding of the materials received was irrelevant to whether the insureds provided contractually sufficient notice.

## Legal Principles

- In a claims-made policy, timely notice within the policy period is a coverage trigger, not merely a condition aimed at preventing prejudice.
- Where the policy requires notice of specified wrongful acts, generalized information about adverse business conditions, loan performance, or regulatory scrutiny does not satisfy the notice requirement.
- Relaxing a claims-made notice requirement can expand coverage beyond the policy’s bargained-for temporal limits.
- The adequacy of notice is determined by what the insured communicated in writing during the policy period, not by the insurer’s internal impressions or interpretations.

## Conclusion

The court held that the insureds’ generalized reports of financial decline and regulatory problems failed to provide timely written notice of specified wrongful acts required by the claims-made D&O policies, so coverage was never triggered; summary judgment and the denial of further discovery were affirmed.


McCullough v. Fidelity & Deposit Co., 2 F.3d 110 (5th Cir. 1993)