No Coverage For Bank’s Class Action Settlement For Overdraft Fees (PA)

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Six class actions were filed against PNC Bank on the grounds that it manipulated overdraft fees and failed to disclose to customers that there was an “opt out” option for such fees. PNC settled the litigation for $102 million that included a $30 million attorneys’ fee component.  Axis Insurance Company, an excess insurer for PNC, denied coverage for the settlement as a refund or “reimbursement” of overdraft fees falling within the “professional services charge exception” to covered damages.

PNC put forth three arguments. First, PNC argued that the language of the “professional services charge exception” was ambiguous, and should be construed in favor of coverage. PNC also argued that the district court was mistaken in holding that the exclusion barred coverage for reimbursements. And finally, PNC argued that it was an error to categorize the settlement as a “reimbursement,” as the crux of the suit dealt with a broader issue of PNC’s overall banking policies.

 

The District Court ruled that PNC was not entitled to coverage for the settlement under the exception.  Nonetheless, it ruled that Axis was on the hook to pay the $30 million portion of the settlement that was designated for attorneys’ fees. On May 9, 2016, the U.S. Court of Appeals for the Third Circuit affirmed that PNC was not entitled to coverage, but reversed the District Court’s ruling with respect to  attorney’s fees.

The Appeals Court, led by Third Circuit Judge Thomas Vanaskie, ruled that there was no ambiguity in the professional services charge exception.  It was factually accurate to categorize the settlement as a “reimbursement,” and therefore the “professional services charge exception” applied to bar coverage under the Axis policy. Since the entire settlement could be categorized as a “reimbursement,” the $30 million earmarked for attorney’s fees also constituted a reimbursement, and Axis was not liable for such under the “professional services charge exception.”

Thanks to Melanie Brother for her contribution.

For more information, contact Denise Fontana Ricci at .