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State ex rel. Doak v. Red Rock Insurance Company

Court of Appeals of Oklahoma, Division I

December 7, 2018

STATE OF OKLAHOMA, ex rel. JOHN D. DOAK, Insurance Commissioner, Plaintiff/Appellee,
v.
RED ROCK INSURANCE COMPANY, a licensed insurer in the State of Oklahoma, Respondent/Appellee, and THE BANKERS BANK, Appellant.

          Mandate Issued: 07/03/2019

          APPEAL FROM THE DISTRICT COURT OF OKLAHOMA COUNTY HONORABLE THOMAS E. PRINCE, JUDGE

          Ryan Leonard, Robert Edinger, Jason A. Reese, EDINGER, LEONARD & BLAKLEY, PLLC, Oklahoma City, Oklahoma, for Plaintiff/Appellee,

          Jon Epstein, Tami J. Hines, HALL, ESTILL, HARDWICK, GABLE, GOLDEN & NELSON, P.C., Oklahoma City, Oklahoma, for Appellant.

          ROBERT D. BELL, PRESIDING JUDGE

         ¶1 Appellant, The Bankers Bank, appeals from the trial court's order denying Appellant's proofs of claim in this receivership proceeding to liquidate Respondent, Red Rock Insurance Company. At issue in this proceeding is the interpretation of an insurance contract. For the reasons set forth below, we affirm.

         ¶2 Appellant is an Oklahoma state banking corporation engaged primarily in the business of making banking and bank-related products and services available to other financial institutions. In 2010, BancInsure, Inc., issued the Extended Professional Liability Policy in question here (Policy) to Bankers Bancorp of Oklahoma, Inc., and certain of its subsidiaries, including Appellant. The Policy provided coverage for, among other things, acts done by Appellant "in the performance of services for or on behalf of a customer." BancInsure later changed its name to Red Rock Insurance Company, Inc.

         ¶3 LendingTools.com (LT) is a software company that licenses its own banking software systems to financial institutions. In 2010 and 2011, two of LT's customers (UBB and FNBB) chose not to renew their banking software contracts with LT and instead entered into contracts with Appellant. Each of the customers asked Appellant to develop correspondent software systems for them and to customize certain elements of Appellant's software platform.

         ¶4 In February 2012, Appellant was joined as a co-defendant in a suit filed by LT in Kansas state court. LT's suit alleged Appellant and the Bankers Bank of Kansas (BBOK) entered into a joint venture to develop and sell a banking software product; BBOK executed an agreement with LT that included non-compete and non-disclosure provisions; Appellant and BBOK pursued two of LT's customers (UBB & FNBB) in violation of the non-compete provision; and both UBB and FNBB allowed Appellant and BBOK access to LT's software in violation of the non-disclosure provision. LT sought monetary damages and injunctive relief, asserting claims for breach of contract, tortious interference with contract, misappropriation of trade secrets, civil conspiracy, fraud, and breach of the covenant of good faith and fair dealing.

         ¶5 In March 2012, Appellant submitted its first claim for coverage to Red Rock in connection with the Kansas litigation. Red Rock denied coverage under the Policy, explaining there were no allegations in the litigation of wrongful acts covered by the Policy. Between July 2012 and January 2014, Appellant renewed its request for coverage multiple times. Each time, Red Rock denied coverage.

         ¶6 In August 2014, upon application by the Oklahoma Insurance Commissioner and pursuant to the Oklahoma Uniform Insurers Liquidation Act, 36 O.S. 2011 §1901 et seq., Red Rock was placed into liquidation and receivership by the District Court of Oklahoma County. Insurance Commissioner John D. Doak was appointed as Receiver. Thereafter, Appellant filed two proofs of claim with the Receiver in an attempt to recover litigation costs and any potential judgment arising out of the Kansas litigation; the first proof of claim represented any loss payment that may arise from the litigation and the second represented attorney fees and defense costs incurred by Appellant in the litigation.

         ¶7 The Kansas litigation culminated in 2016 with a jury verdict finding Appellant did not breach any alleged contract with LT and did not misappropriate any of LT's trade secrets. Appellant's first proof of claim in the receivership proceeding was thereafter reduced to $0.00 because no liability in the Kansas litigation was established. The second proof of claim sought $7, 262, 105.22 for Appellant's attorney fees and defense costs. The Receiver recommended denial of the claims.

         ¶8 Following a hearing, the trial court denied Appellant's proofs of claim. In an exhaustive ruling, the court held the Policy's "professional services" coverage did not apply because the definition of "professional services" was limited to wrongful acts committed by Appellant "in the performance of services for or on behalf of a customer," not against its competitor. The trial court also rejected Appellant's argument that its alleged conduct fell within the scope of an "electronic banking wrongful act" provision of the Policy, because the electronic system at issue was not owned, licensed by or licensed to Appellant. Finally, although of little consequence because the court held no coverage was available to Appellant, the court rejected the Receiver's argument that the "profit or advantage exclusion" barred any coverage for Appellant. From said judgment, Appellant appeals. Oral argument was held before this Court on August 29, 2018.

         ¶9 In State ex rel. Fisher v. Heritage Nat'l Ins. Co., 2006 OK CIV APP 119, ¶12, 146 P.3d 815, the Court described litigation brought pursuant to the Insurers Liquidation Act as "a special proceeding in the nature of equity." "Accordingly, the trial court's judgment will be affirmed unless it is against the clear weight of the ...


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