Cost-Advancement Order Issued in DJ Action Is Appealable, First Circuit Holds
April 30, 2014 |The U.S. Court of Appeals for the First Circuit has ruled that an insurance carrier may appeal an order issued in a declaratory judgment action requiring that it advance defense costs to its insureds.
The Case
After Westernbank of Puerto Rico was closed and the Federal Deposit Insurance Corporation (“FDIC”) was appointed receiver, the FDIC contended that certain bank directors and officers had breached their fiduciary duty by jeopardizing the bank’s financial soundness and demanded that they pay $367 million.
The insurance company that had issued the bank a directors and officers liability insurance policy was notified about the FDIC’s claim. The insurer denied coverage, relying on the policy’s “insured versus insured” exclusion.
The directors and officers sued the insurer, seeking a declaratory judgment of coverage. Believing that there was at least a “remote possibility” of coverage, the directors and officers also moved the judge to order the insurer to advance their defense costs.
The court ordered the insurer to advance defense costs. The insurer appealed, and the directors and officers argued that the cost-advancement order was not an appealable order.
The First Circuit’s Decision
The circuit court found that the order was appealable.
In its decision, it acknowledged that, typically, only final judgments were appealable. The circuit court also pointed out that an exception to that rule existed for orders granting injunctions – and it declared that the district court’s cost-advancement order “certainly seems to fit the bill.”
Even though the order was not labeled an injunction, the First Circuit explained that it was aimed at a particular party (the insurer), was enforceable by contempt, and provided some of the relief (costs) that the directors and officers sought in the case.
Given these characteristics, the circuit court ruled, the order was an injunction and, therefore, was “immediately appealable regardless of finality.”
The case is W Holding Co., Inc. v. AIG Ins. Co. – Puerto Rico, No. 12-2008 (1st Cir. March 31, 2014).
