Sunwest Bank Wins $5.8-Million Verdict Over Lloyd’s of London

Sunwest Bank in Tustin has won a $5.8-million jury verdict against its insurance carrier, Lloyd’s of London, for failing to defend the bank against claims of wrongful seizure of certain deposits four years ago.

The unanimous verdict Tuesday by a six-person jury in U.S. District Court includes $2.5 million in punitive damages. The judgment could grow to more than $7 million once Judge Robert M. Takasugi tacks on attorney fees and interest at an as-yet-unscheduled hearing.

“It’s a good result--certainly a fair result,” said Steven M. Goldberg of Los Angeles, the bank’s trial lawyer.

Lloyd’s will seek to overturn the judgment either through motions filed in Takasugi’s court or through an appeal to the U.S. 9th Circuit Court of Appeals, said Mary G. Whitaker of Los Angeles, Lloyd’s trial attorney.

The case stemmed from an insurance bond that a Lloyd’s underwriting group had provided Sunwest to cover dishonest or fraudulent actions by employees. To win its case, the bank had to prove that a former employee had committed such acts.

In 1986, Ronson Equities Inc., a real estate syndicator, had loans outstanding at Sunwest. It also had placed funds due its investors into certificates of deposit at the bank. When Ronson defaulted, the bank seized the CDs believing them to be collateral for the loans.

But a bank employee had not disclosed the fact that Ronson had no authority to pledge the CDs as collateral, Goldberg said. When the investors sued the bank, Lloyd’s refused to defend the bank’s interests.

Sunwest later determined that it had acted improperly and paid the investors $1.3 million, representing the deposits, lost interest and some attorney fees. The bank then sued Lloyd’s, accusing it of bad faith in failing to defend the bank.

Whitaker said the bond covers dishonesty with intent to cause a loss at the bank and to gain a financial advantage. She asserted that no act was dishonest and that there was no intent to cause a loss and no financial advantage to any employee.

She also contended that the bank failed to provide a sworn proof of loss and failed to notify the carrier about the claims within a specified time period, two conditions mandated by the policy.

Ronson has since been liquidated in bankruptcy proceedings.

The case is the second of three major lawsuits involving Sunwest, one of Orange County’s largest community banks.

In July, the bank paid $12,900 awarded by an Orange County Superior Court jury to a borrower who had sought $5 million. The borrower had accused the bank of improperly seizing deposits for payment of past-due loans and of acting in bad faith by demanding payment of a loan for which prior management had agreed orally to extend the payment period. The court dismissed the bad-faith claim, but the borrower is appealing.

In addition, Sunwest’s owner, West Coast Bancorp in Orange, is seeking $30 million from the bank’s prior owners and an accounting firm on allegations that they misrepresented the bank’s financial condition when they sold it for $12 million in 1985. That suit is pending.