United States District Court, D. South Carolina, Columbia Division
Accident Insurance Company, Inc., a South Carolina Corporation, Plaintiff,
v.
U.S. Bank National Association, Defendant. U.S. Bank National Association, Third Party Plaintiff,
v.
Southport Lane Advisors, Southport Specialty Finance, Administrative Agency Services, and Alexander Chatfield Burns, Third Party Defendants.
ORDER AND OPINION
Plaintiff
Accident Insurance Company, Inc. (“AICI”) filed
this action against Defendant U.S. Bank National Association
seeking monetary damages for breach of contract, breach of
fiduciary duty, negligence/gross negligence, negligent
misrepresentation, and civil conspiracy regarding a trust
agreement. (ECF No. 154 at 21 ¶ 116-25 ¶ 141.)
This
matter is before the court on U.S. Bank's Motion for
Partial Summary Judgment (ECF No. 159) seeking a
court-imposed cap on AICI's damages on the basis that its
“actual damages, if any, are a maximum of $2.44
million.”[1] (ECF No. 159-1 at 36.) AICI opposes U.S.
Bank's Motion in its entirety. (ECF No. 174.) For the
reasons set forth below, the court DENIES
U.S. Bank's Motion for Partial Summary Judgment as to
AICI's damages.
I.
RELEVANT FACTUAL AND PROCEDURAL BACKGROUND
Starting
in or about April 2013, AICI began participating in a fronted
reinsurance program (the “Program”) with
Freestone Insurance Company (“Freestone”),
formerly known as Dallas National Insurance Company.
(See ECF No. 154 at 5 ¶ 24 (explaining that in
a fronted insurance program, the reinsurer (here, Freestone)
bears the actual risk of program performance and the
insurance company (here, AICI) receives a fee for allowing
its name and paper to be used as the front).) The Program was
governed by a Program Agreement between AICI and Freestone.
(See ECF No. 159-5.) The Program Agreement required
Freestone to establish a segregated bank or trust account to
secure its obligations. (See Id. at 6 ¶ 12
(“So long as AIC[I] shall have any loss exposure in
respect of the Policies, there shall be established and
maintained in a segregated bank or trust account . . .
established for the benefit of AIC[I]. . . one or more
reserve funds for Policy liabilities . . . to be funded by
DNIC.”).) Therefore, on September 25, 2013, after AICI
and Freestone had been running their fronted reinsurance
program for approximately five months, they contracted with
U.S. Bank through a Trust Agreement (ECF No. 159-4) to serve
as the trustee for the trust that was created to support
their reinsurance relationship (the “Trust
Account”). (ECF No. 154 at 6 ¶ 26.)
The
Trust Agreement, in which AICI is the Beneficiary, Freestone
is the Grantor, and U.S. Bank is the Trustee, provided in
relevant part that:
WHEREAS, the Beneficiary desires the Grantor to secure
payments of all amounts at any time and from time to time
owing by the Grantor to the Beneficiary under or in
connection with the Reinsurance Agreements;
(ECF No. 159-4 at 2.)
Paragraph 2(b): The Assets shall consist only of
cash (United States legal tender) and Eligible Securities (as
hereinafter defined). The Trustee shall have no duty or
responsibility with respect to the qualification, character
or valuation of the Assets deposited in the Trust Account,
except to determine whether the Assets are in such form that
the Beneficiary, or the Trustee upon direction by the
Beneficiary, may whenever necessary negotiate any such Assets
without consent or signature from the Grantor or any other
person or entity.
(ECF No. 159-4 at 3 ¶ 2(b).)
Paragraph 5(b): The Grantor may direct the Trustee
to accept substitute Assets for other Assets held in the
Trust Account.
(Id. at 4 ¶ 5(b).)
Paragraph 5(c): The Grantor represents and warrants
that each Investment Order or Asset substitution will involve
an investment in Eligible Securities satisfying the
requirements of Applicable Law regarding investments in the
Trust Account. The Trustee has no responsibility for
determining whether any Assets invested pursuant to an
Investment Order or Asset substitution are made in Eligible
Securities that comply with the requirements of Applicable
Law regarding investments in the Trust Account.
(Id. ¶ 5(c).)
Paragraph 8(a): The Trustee shall furnish to Grantor
and Beneficiary an accounting of all Assets in the Trust
Account upon its inception and thereafter at intervals no
less frequent than as of the end of each calendar month. Such
accounting shall include a statement of all Assets in the
Trust Account and shall be given as soon as [] ...