The principal issue here was insurance coverage for Bank of America’s settlement payments in connection with litigation against it relating to Worldcom. The Court rejected the insurer’s argument the Bank had not suffered a "loss" within the meaning of the policies because the public policy of North Carolina would not permit insurance coverage for claims made under Section 11 and 12 of the Securities Act of 1933.
The Court also rejected the argument that the "personal profit" exclusion applied. Similarly rejected was the insurer’s argument that the Bank’s claim was barred by its warranty statement that it was unaware of any facts that might give rise to a future claim. The Court held that a subjective test would apply to the statement based on the knowledge of the signer, not an objective test of what the Bank should have guessed what might happen under the circumstances.
The insurer also argued that the settlement paid by the Bank of $460 million was unreasonable. The Court dismissed this argument as well, noting that the Bank faced an exposure of more than $17 billion, that the Bank had paid an amount over and above its coverage, and that the insurer had presented no facts to support its argument of unreasonableness.
The Court denied the Bank’s motion for summary judgment as to the insurer’s claims for fraud, unfair trade practices, and rescission, nothing that there were issues of fact whether the bank’s broker had misled the insurer.
The Court granted the insurer’s motion for summary judgment on the Bank’s bad faith claim, after a thorough discussion of the elements of a bad faith claim and their application to the complex situation before it.