Convicted Bank Fraudster to Get Insurance Benefits

ST. LOUIS (CN) - An insurance company must cover a former bank director who was indicted and convicted in a criminal action, but the officer cannot amend her complaint that accuses the insurance company of sabotaging her defense by withholding evidence, the 8th Circuit ruled.

The Kansas Bankers' Surety (KBS) argued that it was not obligated to defend Susan Wintermute against criminal charges under a directors and officers liability insurance policy.

Wintermute and her husband, Damian Sinclair, were indicted for filing false statements during their purchase of Sinclair National Bank (SNB). The pair also faced various bank fraud charges related to loans that SNB purchased from two companies in which the couple held financial interests.

Sinclair sued KBS in 2003, alleging that the insurer had wrongfully refused to defend him, but he died before the trial began.

Wintermute, who was convicted on two of the six criminal counts against her on Aug. 24, 2004, stepped in as the plaintiff in the case, along with Sinclair's estate.

In a second amended complaint on Oct. 19, 2004, Wintermute included a tort claim for malicious interference with her criminal defense. She claimed that KBS withheld documents that her counsel had subpoenaed and that would have assisted in her defense.

When KBS complied with a court order to produce 500 pages from its SNB crime file bond, Wintermute claimed that her signature was forged on 17 of the loans and would have cleared her from all criminal charges.

The district court, though, ruled against her. It granted summary judgment in favor of KBS based on its determination that coverage had not triggered since Wintermute lacked a "claim for loss" made against her as a director.

A three-judge panel for the 8th Circuit reversed the ruling on Thursday, finding that the lower court misinterpreted two policy exclusions.

"The district court erred in granting summary judgment based on the personal profit exclusion by relying solely on the allegations in the indictment," Judge David Hansen wrote for the court.

"Material fact disputes exist concerning whether Wintermute 'was involved in the dishonest acts' alleged, particularly in light of her acquittal on those counts. The district court therefore erred in granting summary judgment to KBS under the dishonesty exclusion based solely on the allegations contained in the criminal indictment," he continued.

Wintermute was foreclosed, however, from amending her complaint against the insurer under res judicata, which holds that a judgment on the merits in an earlier lawsuit bars a second suit involving the same parties based on the same cause of action.

"Because the district court improperly considered only the allegations in the complaint in determining that the exclusions applied, and because issues of material fact remain concerning whether Wintermute in fact received a personal gain to which she was not entitled or whether Wintermute was involved in any dishonest acts, we reverse the district court's grant of summary judgment and remand for further proceedings," the ruling states.

In the ruling's conclusion, Hansen quoted Morris v. Valley Forge Ins. Co., a 1991 Arkansas Supreme Court ruling: "Although our decision here may result in a retrial of essentially the same facts, the specific issues of policy coverage must be determined by a jury or trier of fact as the facts deciding those issues remain in conflict."

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