A Chubb unit must comply with a previous order forcing it to give documents relating to the drafting history of certain policy provisions to Silicon Valley Bank former parent SVB Financial Group in a $73 million private equity fraud coverage dispute, a North Carolina federal court ruled.

In an order Monday, U.S. Magistrate Judge Robert T. Numbers II granted a motion to compel compliance filed by Federal Deposit Insurance Corp., the receiver for the bank. Ruling on a second motion to compel filed by the FDIC, the judge ordered Chubb unit Federal Insurance Co. to produce regulatory filings that it claimed were publicly available, but refused to force the insurer to produce an executive for a deposition because the FDIC can instead subpoena him.

"Since FDIC-R has prevailed, at least partially, on both motions, it is entitled to recover the expenses, including attorney's fees, incurred in connection with those motions," Judge Numbers said.

The bank and its former parent company sued Federal and excess insurer Berkley Regional Insurance Co. in January 2023, after the insurers refused to cover $73 million that the bank was unable to recoup from a fraudster.

According to court filings, Florida private equity manager Elliot Smerling used forged documents to defraud SVB into a $150 million line of credit, and then immediately requested $95 million. After Smerling was arrested by the FBI in February 2021, he pled guilty to bank and wire fraud charges and was sentenced to eight years in prison in May 2022.

The insurers denied coverage under the policies' extended forgery provision, which covers losses resulting directly from SVB extending credit while relying on any original document, such as a "corporate, partnership or personal guarantee" or a "security agreement," that "bears a forgery" or "is fraudulently materially altered."

In January, Judge Numbers ordered Federal to produce documents relating to the underwriting and sale of SVB's policy, the drafting history of the extended forgery provision and the insurer's communications with state regulators regarding the provision.

On Monday, the judge said Federal must comply with the court's earlier order compelling it to supplement its responses to the FDIC's request for drafting history documents.

According to the order, the insurer must produce documents related to the drafting history of the language used in the extended forgery provision in the financial institution bond policy issued to SVB and other financial institutions from Jan. 1, 2012, to present. Federal must also produce documents related to the drafting history of any other provision or exclusion that the insurer relied on to deny coverage, and documents to or from the Surety Association of America or the Surety & Fidelity Association of America related to the extended forgery provision, the judge said.

Federal must also search for and produce regulatory filings that it told the court and the FDIC were publicly available, the judge said.

"It appears that what Federal was really confirming was that it filed documents with a public entity and then assumed they were publicly available. That leaves FDIC-R in the same position as it was before the court issued its order," Judge Number said.

However, Judge Numbers held that there is no reason for the court to compel Federal to produce Ayo Oshodi, who oversees the insurer's financial institution bonds sold to U.S. banks, for a deposition.

The FDIC can require Oshodi's attendance by serving him with a deposition notice and subpoena, and, if the Federal believes it is improper for the FDIC to take Oshodi's deposition, it can seek a protective order, the judge said.

"But if [Federal] does not, Oshodi must comply with a properly issued notice and subpoena. Failure to do so may result in sanctions or initiation of contempt proceedings," Judge Numbers said.

Representatives of the parties did not immediately respond to requests for comment Tuesday.

SVB Financial Group is represented by Amy E. Richardson of HWG LLP and by Keith McKenna, Orrie A. Levy, Nicholas R. Maxwell and Justin V. Javier of Cohen Ziffer Frenchman & McKenna LLP.

The FDIC is represented by Kelly Margolis Dagger of Ellis & Winters LLP and by Andrew M. Reidy and Joseph M. Saka of Nossaman LLP.

Federal is represented by Scott L. Schmookler, Angela Sullivan and Suzanne R. Walker of Gordon Rees Scully Mansukhani LLP.

Berkley is represented by Michael Keeley of Clark Hill PLC and by Heather G. Connor of McAngus Goudelock and Courie LLC.

The case is SVB Financial Group et al. v. Federal Insurance Co. et al., case number 5:23-cv-00095, in the U.S. District Court for the Eastern District of North Carolina.