BancorpSouth Ruling Makes It Harder to Battle Overdraft Claims

By Chris Bruce

Banks could face a bigger price tag if they want to fight or settle class lawsuits related to claims of excessive overdraft fees as a result of an Oct. 12 federal appeals court ruling on insurance coverage.

Although each insurance contract has its own particular provisions, the decision by the U.S. Court of Appeals for the Seventh Circuit may affect overdraft cases in district courts in Wisconsin, Indiana, and Illinois ( BancorpSouth Inc. v. Fed. Ins. Co. , 7th Cir., 17-cv-01425, 10/12/17 ).

The ruling, which centered on a policy exclusion, also may create tension in the federal circuits because of an unpublished Third Circuit ruling last year that reached the opposite conclusion in a case involving a similar exclusion.

Tupelo, Miss.-based BancorpSouth reached a $24 million settlement of class claims that it manipulated its debit processing to maximize fees charged to consumers who overdraw their checking and savings accounts. The bank submitted the settlement claim to its insurer, Federal Insurance Co., but Federal Insurance denied it, saying it had no duty to defend the suit or to indemnify the bank for a settlement. It cited a policy provision that excludes coverage for any case involving fees.

BancorpSouth sued Federal Insurance, saying fees were only part of the case. The district court held for Federal Insurance, and the U.S. Court of Appeals for the Seventh Circuit upheld the decision. Federal Insurance, the court said, “had no duty to defend the overdraft fees claims because they are excluded from coverage.”

Overdraft lawsuits against banks are common, often arising in connection with claims that banks engineer their debit processing to rack up more fees. The plaintiff in the underlying case against BancorpSouth alleged that the bank processed debits by handling large-dollar transactions before smaller ones, instead of processing debits on a chronological basis. So-called high-low processing can spark more overdrafts than chronological processing. The plaintiffs also said BancorpSouth failed to give customers accurate information about their overdrafts, and also didn’t tell them they could opt out of the bank’s overdraft policy.

To contact the reporter on this story: Chris Bruce in Washington at

To contact the editor responsible for this story: Michael Ferullo at

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