PNC Bank was recently sanctioned by a federal court for failing to produce insurance policies in a case involving an alleged “Ponzi” scheme.  See Jo Ann Howard and Associates PC et al. v. J. Douglas Cassity et al., Case No. 4:09-cv-01252 (E.D. Mo., July 22, 2015). The “Ponzi” scheme was run by executives of National Prearranged Services (“NPS”) who pocketed proceeds from funeral services contracts rather than safeguarding them with a trust or an insurance policy. PNC was linked to scheme as the successor in interest to NPS trustee, Allegiant Bank and Trust Co., and found liable for $390 million in compensatory and punitive damages.

In resisting disclosure of its insurance policies, PNC argued that its insurers had not acknowledged coverage and, even if they had, any available insurance had already been exhausted by prior claims. In rejecting those contentions, the court relied on Federal Rule of Civil Procedure 26(a(1)(A)(iv), which requires disclosure of any insurance policy which “may” cover the claims at issue.

In addition to ordering the immediate disclosure of any applicable insurance policies, the court also agreed that an award of sanctions was warranted. To that end, the court allowed the plaintiffs to submit for the court’s consideration a specific amount of attorneys fees to be awarded as sanction.

Finally, and perhaps most problematic for PNC, the court also agreed to review any communications that PNC had with its insurers for possible disclosure to the plaintiffs. The plaintiffs argue that those communications could reveal inconsistent positions taken by PNC.

This case underscores two equally important points. First, insurance policies that may cover a claim at issue are often subject to disclosure and discovery, but are frequently overlooked. Second, failure to timely disclose and produce such insurance polices may lead to the imposition of sanctions.

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