Two life insurance company subsidiaries of Aviva USA should recover only 16% of the $11.3 million they deposited in a Topeka, Kan., bank that failed in 2008, according to a 3-judge panel of the 10th U.S. Circuit Court of Appeals.
The life companies – Aviva Life & Annuity Company and American Investors Life Insurance Company – had deposited most of the funds in the bank, Columbian Bank & Trust Company, Topeka — in two large accounts.
Aviva USA, Des Moines, Iowa, has argued in the case, Aviva vs. FDIC, No. 10-3163, that the life companies created the accounts for a large number of annuity holders, and that each annuity contract holder should get the FDIC protection accorded an annuity contract holder.
The FDIC determined that the deposits were held in two corporate accounts and had only $200,000 in FDIC insurance protection. A judge at the U.S. District Court for the District of Kansas upheld found that the FDIC had not acted arbitrarily or capriciously in determining that, “because the two challenged accounts were each entitled ‘operating account,’ they were to be aggregated as corporate accounts, up to the deposit limit of $100,000,” Judge Michael Murphy writes in an opinion for the 10th Circuit panel.
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The 10th Circuit panel sustained the lower-court ruling.
If the court had upheld Aviva USA’s claim, the life companies would have received $8.6 million in FDIC insurance payments up front and 12.287% of the proceeds from the sale of the bank’s assets.
Columbian, a bank that held $622 million in total deposits, including $268 million in brokered deposits, was closed and its deposits sold to a Chillicothe, Mo., bank Aug. 22, 2008.
According to the FDIC, outside of the brokered deposits, Columbian held only $46 million in 610 accounts that exceeded the insurance limits, apparently $11.3 million in Aviva uninsured accounts, according to the court ruling.
Aviva USA is a unit of Aviva P.L.C., London (NYSE:AV).
Kevin Waetke, a spokesman for Aviva USA, says Aviva does not intend to pursue the matter further.
“The court’s decision was limited to a narrow issue of administrative law regarding the FDIC’s authority,” Waetke says. “It is important to note that this issue occurred three years ago and the decision has no impact on our current operations. Aviva does not intend to pursue the matter any further.”