United States District Court, W.D. Washington, Seattle
ORDER GRANTING IN PART UNDERWRITERS AT LLOYD'S
MOTION FOR SUMMARY JUDGMENT
Robert S. Lasnik United States District Judge
matter comes before the Court on “Defendants Those
Certain Underwriters at Lloyd's, London Whose Names are
Severally Subscribed to Excess Financial Institution Bond No.
509/QA015607 (“The Excess Bond”) and
Württembergische Versicherung A.G. (Collectively,
“Underwriters”) Motion for Summary
Judgment.” Dkt. # 120. The Underwriters are excess
insurers on a financial institution blended policy issued to
Washington Mutual Bank (“WaMu”) starting in May
2006. They seek a summary determination (a) that their excess
layer has not been reached, (b) that the claimed losses are
indirect and do not trigger coverage under the terms of the
policy, (c) that the policies do not cover fraudulent
mortgages originated prior to the policy period, and/or (d)
that the claims for cost of funds, prejudgment interest, and
attorney's fees fail as a matter of law . WaMu, the
insured, collapsed in 2008, and the United States Office of
Thrift Supervision placed it into receivership with the
Federal Deposit Insurance Corporation (“FDIC”).
The FDIC is pursuing a claim for insurance coverage that WaMu
made in 2007. The FDIC opposes the Underwriters' motion
and requests that it be denied or, in the alternative, that
the Court defer ruling under Fed.R.Civ.P. 56(d)(2).
judgment is appropriate when, viewing the facts in the light
most favorable to the nonmoving party, there is no genuine
issue of material fact that would preclude the entry of
judgment as a matter of law. The party seeking summary
dismissal of the case “bears the initial responsibility
of informing the district court of the basis for its
motion” (Celotex Corp. v. Catrett, 477 U.S.
317, 323 (1986)) and “citing to particular parts of
materials in the record” that show the absence of a
genuine issue of material fact (Fed. R. Civ. P. 56(c)). Once
the moving party has satisfied its burden, it is entitled to
summary judgment if the non-moving party fails to designate
“specific facts showing that there is a genuine issue
for trial.” Celotex Corp., 477 U.S. at 324.
The Court will “view the evidence in the light most
favorable to the nonmoving party . . . and draw all
reasonable inferences in that party's favor.”
Krechman v. County of Riverside, 723 F.3d 1104, 1109
(9th Cir. 2013). Although the Court must reserve for the jury
genuine issues regarding credibility, the weight of the
evidence, and legitimate inferences, the “mere
existence of a scintilla of evidence in support of the
non-moving party's position will be insufficient”
to avoid judgment. City of Pomona v. SQM N. Am.
Corp., 750 F.3d 1036, 1049 (9th Cir. 2014); Anderson
v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986).
Factual disputes whose resolution would not affect the
outcome of the suit are irrelevant to the consideration of a
motion for summary judgment. S. Cal. Darts Ass'n v.
Zaffina, 762 F.3d 921, 925 (9th Cir. 2014). In other
words, summary judgment should be granted where the nonmoving
party fails to offer evidence from which a reasonable jury
could return a verdict in its favor. FreecycleSunnyvale
v. Freecycle Network, 626 F.3d 509, 514 (9th Cir. 2010).
reviewed the memoranda, declarations, and exhibits submitted
by the parties,  the Court finds as follows:
early 2000s, WaMu contracted with third parties to have them
originate residential real property mortgage loans which WaMu
agreed to purchase. In March 2004, WaMu discovered that a
mortgage originated by CIP Mortgage Corporation was based on
a misstatement regarding the borrower's income.
Subsequent investigation revealed eleven CIP loans that were
based on false income statements. WaMu's Correspondent
Area Risk and Risk Mitigation departments concluded
“that the borrowers misrepresented their income and
employment.” Dkt. # 173-4 at 3. WaMu notified CIP of
its findings and requested that it repurchase the loans. CIP
agreed to do so and fired the processor who originated the
loans. At approximately the same time, however, WaMu
discovered that CIP's 2003 net worth was less than 1/10th
what it had been in 2002, in large part due to a “huge
distribution” to shareholders. Dkt. # 99 at 40-41. On
September 2, 2004, WaMu notified CIP that its selling
privileges for WaMu had been suspended.
to September 2005, WaMu purchased three fraudulent loans from
another mortgage company, Coastal Capital.
September 18, 2007, a defendant in a pending criminal matter
notified WaMu that over 100 of the mortgages originated by
CIP for WaMu were actually unsecured. WaMu conducted an
investigation and found that CIP prepared fraudulent
paperwork, including loan applications, mortgages, notes, and
title insurance, to make it look like a third party was
borrowing money that was secured by real property owned or
controlled by CIP's CEO. In fact, the CEO and others
involved in the fraud fronted just enough money to get
through settlement, then sold the loans to WaMu and pocketed
the proceeds without ever recording the mortgage, paying
taxes, or purchasing insurance. The CEO and/or his companies
would make monthly payments on the loan so that they appeared
legitimate. The properties that were supposedly securing
WaMu's loan were often sold to end-users, thereby
compromising WaMu's position in the chain of title. WaMu
concluded that it had purchased 124 fraudulent loans for $53,
344, 641.16. WaMu notified the Underwriters of the loss on
July 18, 2008.
April 11, 2014, the FDIC filed this litigation in its
capacity as the Receiver for WaMu against the third and
fourth excess layer insurers. The FDIC alleged that it had
covered losses of over $25 million after reducing the claim
by the amount recovered by third parties and its
self-insurance obligations. A more detailed calculation of
the damages, including specific categories of losses for
which coverage is sought, was disclosed in November 2014
pursuant to Fed.R.Civ.P. 26(a). The discovery cut off date is
February 4, 2018.
parties agree that the underlying bond is to be interpreted
under Washington law. Insurance policies are construed
“as contracts, giving them a fair, reasonable, and
sensible construction as would be given to the contract by an
average person purchasing insurance.” Xia v.
ProBuilders Specialty Ins. Co., 188 Wn.2d 171, 181
(2017) (internal quotations marks omitted). Undefined terms
are given their plain and ordinary meaning and, if the policy
language is clear and unambiguous, it will be applied as
written. Id. Where there is an ambiguity, coverage
provisions are liberally construed in favor of coverage while
exclusions are strictly construed against the insurer.
Ross v. State Farm Mut. Auto. Ins. Co., 132 Wn.2d
507, 523 (1997). If an insured shows that the loss falls
within the coverage provision, the insurer must show that it
is excluded by specific policy language. Moeller v.
Farmers Ins. Co. of Wash., 173 Wn.2d 264, 272 (2011).
Underwriters issued an insurance policy to WaMu in excess of
$30 million in self-insured retention and $75 million in four
underlying policy layers. The Underwriters argue that,
although the first three layers of insurance coverage have
been exhausted, the FDIC has $29 million in self insurance
and the $20 million policy offered by Arch and National Union
remaining before the Underwriters could possibly have an
obligation to pay under the policy. They seek dismissal of
the two claims the FDIC has asserted against them: breach of
contract and declaratory judgment.