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Marion Bank Ordered To Pay Letter of Credit Related to Crittenden Regional Bankruptcy

2 min read

An insurance company had a straightforward $300,000 commercial letter of credit from First Community Bank of Eastern Arkansas, and that’s bad news for the Marion bank with $150.8 million in assets.

Last week, U.S. District Judge D.P. Marshall Jr. ordered the bank to pay Arch Specialty Insurance Co. of New York the $300,000 plus nearly $45,000 in interest for refusing to honor the letter of credit, and there may eventually be court costs to pay as well.

Arch was represented by attorneys Lance Miller and Stan Smith of the Little Rock law firm of Mitchell Williams Selig Gates & Woodyard.

The bank issued the letter of credit back in November 2007 on behalf of Crittenden Regional Hospital in West Memphis. Arch had provided insurance coverage to the hospital, but it required a letter of credit that would cover the deductible on the policy if the hospital didn’t pay.

And that’s exactly what happened.

And as you probably remember, Crittenden Regional filed for Chapter 7 bankruptcy liquidation in September 2014. In December of that year, Arch Specialty Insurance asked First Community Bank for the $300,000, but the bank refused to pay.

Compounding the problem, the hospital didn’t list the bank as a creditor in the bankruptcy filing, and it’s too late for the bank to file a claim in the bankruptcy case, according to the bank’s pleadings in U.S. District Court in Jonesboro.

First Community’s attorney, Stuart Hankins of Sherwood, argued in his filings that the letter of credit wasn’t straightforward or ordinary. He said the bank shouldn’t have to pay it for several reasons, including the fact that Arch never contacted the bankruptcy court about the letter of credit.

But Judge Marshall, in his order, boiled the dispute down to the question of whether the bank improperly refused to honor the letter of credit. He found that it did and “must pay on an unconditional letter of credit regardless.”

Hankins didn’t return a call for comment.

The bank had net income in 2015 of $1.4 million, which was about the same as the previous year.

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