Background
Pacific Premier Bancorp and Pacific Premier Bank (collectively “PPB”), a California-based banking group, sought insurance coverage from Columbia Casualty Company for settlement and defense costs arising from litigation that accused PPB of prolonging a real estate Ponzi scheme. PPB held a professional liability insurance policy with Columbia that contained several lending exclusions.
Both sides filed cross-motions for summary judgment in the Central District of California. PPB argued that the policy’s lending exclusions were ambiguous and failed California’s “conspicuous, plain and clear” standard for exclusionary clauses. PPB also argued that even if enforceable, the exclusions did not apply because its alleged conduct was “non-lending” in nature. The district court granted summary judgment for Columbia, finding the exclusions applied and barred coverage.
The Court’s Holding
The Ninth Circuit affirmed in an unpublished memorandum. The panel—Judges Paez, Callahan, and Bumatay—found that the policy’s three relevant lending exclusions (Exclusion 16, Endorsement 15, and Endorsement 6) were unambiguous, conspicuous, plain, and clear under California insurance law.
Applying standard California rules of contract interpretation, the court reviewed the policy as a whole and concluded there was no reasonable alternative interpretation of the lending exclusions. Exclusion 16 broadly precluded coverage for any loss “based upon or arising out of” the purchase, sale, origination, participation, or extension of credit, including loan participation. Because the underlying litigation arose from PPB’s role in authorizing loans from investment pools to external parties, the conduct fell squarely within this exclusion—regardless of whether PPB characterized it as “non-lending.”
Key Takeaways
- California courts will enforce broadly worded lending exclusions in professional liability policies when the exclusion language is unambiguous and satisfies the “conspicuous, plain and clear” standard.
- The “arising out of” language in lending exclusions captures not just direct lending activity but also ancillary conduct connected to loan transactions, such as authorizing disbursements from investment pools.
- Policyholders cannot avoid lending exclusions by recharacterizing their conduct as “non-lending” when the underlying activity is functionally tied to loan origination or participation.
Why It Matters
This case reinforces the difficulty California banks and financial institutions face when trying to obtain coverage for claims related to lending activity under professional liability policies with lending exclusions. For in-house counsel at banks and lending institutions, the decision underscores the importance of carefully reviewing exclusion language at the policy procurement stage and considering whether separate or excess coverage is needed for lending-related risks.
For insurance coverage litigators, the case is a reminder that California courts apply standard contract interpretation principles to exclusionary clauses and will give effect to broad “arising out of” language when the exclusion’s text is clear on its face.