Indymac Federal Bank, FSB v. PMI Mortgage Insurance Co.

Filing 14

STIPULATION AND ORDER RE LEAVE FOR INDYMAC TO FILE FIRST AMENDED COMPLAINT AND SUPPLEMENTAL COMPLAINT. Signed by Judge Alsup on November 4, 2008. (whalc1, COURT STAFF) (Filed on 11/4/2008)

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Kirk A. Pasich (CA SBN 94242) ~asichk(idicksteinshapiro.com Cameron H. Faber (CA SBN 100643) faberc(Ldicksteinshapiro.com Julia K:Holt (CA SBN 221291)

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DICKSTEIN SHAIRO LLP 2049 Century Park East, Suite 700 Los Angeles, CA 90067
Tel: [phone] Fax: [phone]
James R. Murray (admitted

hol tjulia(Ldicksteinshapiro. com

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murray J (Ldicksteinshapiro .com
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pro hac vice)

Gina A. Bough (admitted pro hac vice) houghg(Ldicksteinshapiro.com
A vner ItMizrahi (admitted pro hac vice)

mizrahia(Ldicksteinshapiro .com

DICKSTff SHAIRO LLP 1825 Eye Street NW
Telephone: [phone]
Facsimile: [phone]

Washington, D.C. 20006-5403

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Attorneys for Plaintiff

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA
INDYMAC FEDERAL BANK, F.S.B., CASE NO. CV08-4303 WHA bY' the FEDERA DEPOSIT

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INSURNCE CORPORATION as Conservator,
Plaintiff,
vs.

Assigned to the Hon. Wiliam H. Alsup

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STIPULATION AND PROPOSED ORDER RE LEAVE FOR INDYMAC TO FILE FIRST AMENDED AND SUPPLEMENTAL COMPLAINT
Complaint Filed: Sept. 12, 2008

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PMI MORTGAGE INSURNCE CO., an Arizona corporation,
Defendant.

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STIPULA TION AND PROPOSED ORDER RE LEAVE FOR INDYMAC TO FILE FIRST AMENDED AND SUPPLEMENTAL COMPLAINT

1 STIPULATION
2 This Stipulation is entered into by Plaintiff INYMAC FEDERA BANK,

3 F.S.B., by the FEDERAL DEPOSIT INSURNCE CORPORATION as Conservator

4 ("IndyMac") and Defendant PMI MORTGAGE INSURNCE CO., an Arizona
5 corporation ("PMI"), by and though their counsel of record.

6 WHREAS, IndyMac filed its original complaint on September 12,2008; 7 WHREAS, IndyMac intends to file a first amended and supplemental
8 complaint, which includes allegations concerning acts occurring between IndyMac

9 and PMI (collectively, the "Parties") after September 12, 2008, a copy of which is
10 attached hereto as Exhibit A;

11 WHREAS, the Parties desire that all current disputes between them be
12 resolved in this one action;
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STIPULA TION AND PROPOSED ORDER RE LEAVE FOR INDYMAC TO FILE FIRST AMENDED AND SUPPLEMENTAL COMPLAINT

1 NOW THEREFORE, the parties hereby stipulate and agree, subject to this
2 Court's approval, that IndyMac be given leave to file its First Amended and
3 Supplemental Complaint and that PMI be given leave to file its response thereto
4 within 20 days thereafter.

5 SO STIPULATED.
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Dated: October 31, 2008

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DICKSTEIN SHAPIRO LLP

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By:

IndyMac Federal Bank, F.S.B., by the Federal Deposit Insurance Corporation as Conservator
Attorn~ys for Plaintiff

Isl Kirk A. Pasich

Dated: October 31, 2008

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HOWAR, RICE, NEMEROVSKI, CANADY, F ALK & RABKIN
By:

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Isl
Douglas A. Winthrop

17 ATTESTATION
18 I, Kirk A. Pasich, am the ECF User whose identification and password are
19 being used to file this Stipulation and Proposed Order re Leave For IndyMac to File

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Attorneys for Defendant PMI Mortgage Co., an Arizona corporation

20 First Amended and Supplemental Complaint Pursuant to Civil Local Rule 6-2. I
21 hereby attest that Douglas A. Winthrop has concurred in this filing.
22 Dated: October 31, 2008

DICKSTEIN SHAPIRO LLP

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By:

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IndyMac Federal Bank, F.S.B., by the Federal Deposit Insurance Corporation as Conservator
Attorn~ys for Plaintiff

Isl Kirk A. Pasich

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STIPULATION AND PROPOSED ORDER RE LEAVE FOR INDYMAC TO FILE FIRST AMENDED AND SUPPLEMENTAL COMPLAINT

1 ORDER
2 IT is SO ORDERED. IndyMac shall have leave to file its First Amended and
3 Supplemental Complaint in the form attached hereto. PMI wil have 20 days to
4 respond to the First Amended and Supplemental Complaint.
UNIT ED
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Judge ot the United States Distnct Court
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F D IS T IC T O R

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STIPULATION AND PROPOSED ORDER RE LEAVE FOR INDYMAC TO FILE FIRST AMENDED AND SUPPLEMENTAL COMPLAINT

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EXHIBIT A

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Cameront-. Faber (CA: SBN 100643) F aberC(LdicksteinshaRiro.com

Kirk A. Pasich (SBN 94242) PasichK(Ldicksteinshapiro.com

Julia K.tlolt (CA SBN 221291)

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Ho ItJulia(Ldicksteinshapiro. com

DICKSTEI SHAIRO LLP 2049 Century Park East, Suite 700 Los Angeles, CA 90067-3109
Tel: [phone] Fax: [phone]
James R. Murray (admitted

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pro hac vice)

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Gina A. ffougl (admitted pro hac vice) HoughG(Ldicksteinshapiro.com
A vner E.'Mizrahi (admitted pro hac vice)

Murray J (Ldicksteinshapiro.com

MizrahiA(LdicksteinshaRiro .com

DICKSTEI SHAIRO LLP 1825 Eye Street NW Washington, DC 20006-5403
Tel: [phone] Fax: [phone]

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Attorneys for Plaintiff

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA
INYMC FEDERA BANK, F.S.B., CASE NO. CY08-4303 WH QY the FEDERAL DEPOSIT INSURNCE CORPORATION as Conservator, Assigned to the Hon. Wiliam H. Alsup
Plaintiff,
vs.

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PMI MORTGAGE INSURNCE CO., an Arizona corporation,
Defendant.

INJUNCTIVE RELIEF; BREACH OF CONTRACT; TORTIOUS BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING; AND REFORMATION
DEMAND FOR JURY TRIAL

FIRST AMENDED AND SUPPLEMENTAL COMPLAINT FOR DECLARATORY RELIEF;

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26 PlaintiffINYMAC FEDERAL BANK, F.S.B., by the FEDERAL DEPOSIT

27 INSURNCE CORPORATION as Conservator, complains of defendant and alleges

28 as follows:
FIRST AMENDED AND SUPPLEMENTAL COMPLAINT AND DEMAND FOR JURY TRIAL

1 NATUR OF THE ACTION
2 1. IndyMac Federal Bank, F.S.B. ("IndyMac"), by the Federal Deposit
3 Insurance Corporation (the "FDIC") as Conservator, seeks a comprehensive

4 declaration of the rights, duties, and liabilities of PMI Mortgage Insurance Co.
5 ("PMI") under the lender-paid mortgage insurance ("LPMI") coverage program that

6 IndyMac's predecessor, IndyMac Bank, F.S.B. ("Old IndyMac"), purchased from
7 PMI to insure the risk of borrower defaults on thousands of mortgage loans that
8 IndyMac originated to its residential borrowers or acquired and sold into the
9 secondary mortgage market.
10 2. Pursuant to the parties' established practice and course of dealings, PMI

11 has a limited right to "audit" certain loan files. However, pursuant to that practice and
12 course of dealings, PMI is entitled to exercise that right only as to files for delinquent
13 loans or loans for which IndyMac has made a claim under the LPMI coverage

14 program, and only on a reasonable basis. Contrary to that practice and course of
15 dealings, in July 2008, PMI made an unprecedented demand that IndyMac produce

16 more than 5,300 insured loan files within 30 days (all 26 prior requests combined did

17 not exceed 582 loan files, the largest prior request was for 140 loan files, and 19 of the
18 26 prior requests were for 4 or fewer loan files). PMI then unreasonably refused to

19 grant IndyMac a reasonable extension to comply with this unprecedented and
20 unreasonable demand, instead abruptly informing IndyMac in August 2008 that it was
21 rescinding the LPMI coverage on 5,565 loans-as to which IndyMac paid PMI more

22 than $13.7 millon in premiums to insure. IndyMac then filed the initial complaint in
23 this lawsuit on September 12,2008. Even though IndyMac was not required to

24 deliver all 5,565 loan files under the parties' established practice and course of
25 dealings because most of

the files were for loans that are not delinquent or for which

26 IndyMac has not made a claim, IndyMac nonetheless delivered the loan files as

27 quickly as possible to PMI as an act of good faith. IndyMac has incurred substantial
28 expense in collecting, compiling, and delivering these loan files so quickly.
FIRST AMNDED AND SUPPLEMENTAL COMPLAINT AND DEMAND FOR JURY TRIAL

1 3. More than three weeks after IndyMac filed the original complaint in this
2 lawsuit, PMI, in early October 2008, purported to rescind LPMI coverage on

3 approximately 292 additional insured loans under a new rescission theory, asserting4 incorrectly-that those loans were ineligible for coverage under the LPMI coverage

5 program. PMI also asserted that this new rescission theory applied to 1,287 of the
6 5,565 loans for which PMI previously purported to rescind LPMI coverage in August

7 2008. The 292 loans and 1,287 loans (totaling 1,579 loans), however, were eligible
8 for LPMI coverage when Old IndyMac submitted them to PMI. Moreover, PMI has

9 waived any right it may have had to argue that these 1,579 insured loans were
10 ineligible and is estopped from making that argument because PMI treated those loans

11 as eligible by affirmatively agreeing to provide LPMI coverage on those loans,
12 charging Old IndyMac andlor IndyMac premium on them, accepting the premium,

13 continuing to charge and accept premium each month for more than a year, and later
14 paying out claims for coverage on some of

those loans.

15 4. Therefore, without any justification in law or fact, PMI, to date,

has

16 purported to rescind LPMI coverage on approximately 5,857 loans (5,565 loans under
17 the original erroneous rescission theory-1,287 of

which also fall under PMI's new,

18 also incorrect, rescission theory-and an additional 292 loans under that new
19 rescission theory), and has attempted to shift more than $1.57 bilion of

risk exposure

20 to IndyMac. IndyMac thus seeks a declaration that PMI's attempt to rescind LPMI
21 coverage on those 5,857 insured loans with a total value of

more than $1.57 bilion

22 has no legal effect, is null and void, and is unenforceable.
23 5. IndyMac also seeks an injunction (a) requiring PMI to withdraw its

24 alleged rescission ofLPMI coverage on the 5,857 loans, (b) preventing PMI from
25 demanding loan files for loans that are not delinquent or for which IndyMac has not
26 made a claim, and (c) requiring PMI to allow IndyMac a reasonable period of

time to

27 furnish PMI with the loan files that PMI is permitted to review-only files for loans
28 that are delinquent or for which IndyMac has made a claim under the LPMI coverage
FIRST AMENDED AND SUPPLEMENTAL COMPLAINT AND DEMAND FOR JURY TRIAL

1 program.
2 6. IndyMac also seeks damages from PMI for its unreasonable and

3 unprecedented conduct and its violation of the implied covenant of good faith and fair
4 dealing that it owed, and stil owes, IndyMac. PMI has tortiously breached this

5 covenant, thus acting in bad faith, and has acted contrary to the customs, practices,

6 and standards in the insurance industry.
7 7. If, for any reason, any language in the policy relied upon by PMI can be

8 reasonably interpreted to mean only what PMI contends in seeking rescission, then
9 that language does not reflect, because of mistake, the mutual understanding and

11 THE PARTIES
13 Act, 12 U.S.C. § 1811, et seq., with its principal place of 14 Washington, District of

10 expectation of

the parties and should be reformed to do so.

12 8. The FDIC is a corporation organized under the Federal Deposit Insurance

business located in

Columbia.

15 9. IndyMac.Bank, F.S.B. ("Old IndyMac") was a federally chartered and
16 FDIC insured savings association. On July 11,2008, the Office of

Thrift Supervision

17 (the "OTS") closed Old IndyMac and appointed the FDIC as receiver (the "Receiver")
18 pursuant to 12 U.S.C. § 1464(d)(2)(A).
19 10. Also on July 11,2008, pursuant to 12 U.S.C. § 1821(d)(2)(F)(i), the OTS

20 granted the Receiver's application to organize IndyMac Federal Bank, F.S.B.

21 ("IndyMac") as a new federal savings association. The OTS then appointed the FDIC
22 as Conservator. The Receiver transferred most of

Old IndyMac's insured deposits and

23 substantially all of

Old IndyMac's assets, including the LPMI coverage program, to

24 IndyMac. As Conservator, the FDIC succeeds to the rights, titles, powers, and
25 privileges of

the insured depository institution by operation oflaw. 12 U.S.C.

26 § 1821(d)(2)(A). The Conservator may take action "appropriate to carr on the
27 business of the institution and preserve and conserve the assets and propert of the
28 institution." 12 U.S.C. § 1821 (d)(2)(D)(ii).

FIRST AMENDED AND SUPPLEMENTAL COMPLAINT AND DEMAND FOR JURY TRIAL

1 11. IndyMac is a federally chartered and FDIC insured savings bank with its
2 principal place of business in Pasadena, County of

Los Angeles, California.

3 12. Upon information and belief, PMI is an Arizona corporation with its
4 principal place of

business at 3003 Oak Road, Walnut Creek, California 94597. PMI

5 is licensed to do business and is doing and transacting business in California.

6 13. Throughout this Complaint, the term "Old IndyMac" wil be used for the
7 entity (and its actions) that existed before July 11,2008 (IndyMac Bank, F.S.B.).

8 The term "IndyMac" wil be used for the entity (and its actions) that was created on

9 July 11,2008 (IndyMac Federal Bank, F.S.B.). The term "IndyMac" also wil be used
1 0 for the Plaintiff in this action-IndyMac by the FDIC as Conservator.

11 JURISDICTION AND VENUE
12 14. Under 12 U.S.C. § 1819(b)(2)(A), "all suits ofa civil nature at common
13 law or in equity to which the (FDIC), in any capacity, is a part shall be deemed to
14 arise under the laws of

the United States." This Court thus has subject matter

15 jurisdiction over this action under 28 U.S.C. § 1331.
16 15. This Court has personal jurisdiction over PMI because PMI contractually

17 agreed to submit to the jurisdiction of this Court. This Court also has personal

18 jurisdiction over PMI because PMI was authorized to transact, and was transacting,
19 business in the State of California within the time period relevant to the claims stated

20 herein.
21 16. Venue is proper in this District because PMI contractually agreed to
22 venue being in this District. Venue also is proper in this District under 28 U.S.C.

23 § 1391(a)(1) and (c) because PMI resides in this District, as it is a corporation subject
24 to personal jurisdiction in this District. Venue also is proper in this District under
25 28 U.S.C. § 1391(a)(2) because a "substantial part of the

events or omissions giving

26 rise to the claim occured" in this District.
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FIRST AMENDED AND SUPPLEMENTAL COMPLAINT AND DEMAND FOR JURY TRIAL

1 OLD INDYMAC'S PURCHASE OF MORTGAGE INSURANCE FROM PMI

2 17. IndyMac is a federal savings bank that has a substantial business
3 servicing residential mortgage loans. Old IndyMac had a substantial business
4 originating, acquiring, sellng, and servicing residential mortgage loans. As a regular
5 part of its business, Old IndyMac securitized large pools of

the mortgage loans that it

6 originated to borrowers or acquired from other sellers of mortgage loans, transferring

7 those loans to trusts as collateral for the issuance of bonds (known as certificates or
8 notes) to those who invested in the trusts. Old IndyMac also sold loans to whole loan

9 investors and the government sponsored enterprises (the "GSEs"), primarily the

10 Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan

11 Mortgage Corporation ("Freddie Mac"). Old IndyMac acted as the servicer for the
12 loans transferred to the trusts, whole loan investors, and GSEs (collectively, the

13 "investors"), and assumed contractual responsibility for a wide range of servicing
14 actions essential to the investors, including the responsibility to maintain mortgage

15 insurance on the loans in the trusts. Old IndyMac's mortgage loan servicing rights
16 and responsibilities have been transferred to IndyMac.
17 18. To protect itself and the investors from the risk of

borrower defaults on

18 the mortgage loans that it services for others or holds in its portfolio, Old IndyMac

19 purchased mortgage insurance from various insurers, including PMI. Old IndyMac
20 first purchased lender-paid mortgage insurance ("LPMI") coverage from PMI on loans
21 with loan-to-value ratios up to 100% on or about December 11, 1995. On February 8,

22 2006, Old IndyMac renewed this coverage, which was provided by a letter agreement,

23 as amended by a letter agreement executed on March 1, 2006, and another letter
24 agreement executed on August 7, 2007(collectively, the "Letter Agreements"). The

25 LPMI coverage program also was provided by the PMI First Lien Master Policy

26 (Form UW 2170.00 (3/94)) (the "Policy"), as amended by the Partner Delivered

27 Quality ("PDQ") Endorsement (Form UW 2170.03 (5/95)).
28 19. The LPMI coverage program-consisting of

the Policy, the PDQ

FIRST AMENDED AND SUPPLEMENTAL COMPLAINT AND DEMAND FOR JURY TRIAL

1 Endorsement, and the Letter Agreements-insured all

loans that Old Indy

Mac

2 delivered to PMI between February 8, 2006 and February 8, 2008.

3 20. Old IndyMac purchased LPMI coverage to insure loans that it originated
4 or acquired as loans without mortgage insurance. By buying LPMI coverage for these
5 loans before it sold them into the secondary mortgage market, Old IndyMac was able

6 to improve the execution of the sale of these loans to investors. The PDQ
7 Endorsement provided the mechanism to facilitate the LPMI coverage for these

8 mortgage loans. After approving a loan, Old IndyMac would deliver a form to PMI
9 (the "PDQ Transmittal Form") describing the terms of

the loan, the borrower

10 documents relied on by Old IndyMac in approving the loan, the loan's loan-to-value

11 ratio, the borrower's FICO score (a type of credit score that lenders use to assess an
12 applicant's credit risk), and other factors related to the loan. Within one business day
13 of

receiving from Old IndyMac the PDQ Transmittal Form for a new loan, PMI was

14 required to issue a certificate extending coverage for that loan, unless the loan was

15 ineligible for coverage. Thus, each loan that Old IndyMac delivered to PMI was
16 insured by the LPMI coverage program, subject to PMI's review and approval of
17 eligibility and Old IndyMac's payment of

premium.

18 21. Old IndyMac paid a different premium for each loan, depending on the

19 individual terms of the loan and, among other things, the borrower documents relied

20 on by Old IndyMac in approving the loan, the loan's loan-to-value ratio, and the

21 borrower's FICO score. The Letter Agreements provide the precise calculation for
22 determining each loan's premium.

23 22. Old IndyMac delivered thousands of loans to PMI and paid tens of

24 millions of dollars in premiums for LPMI coverage for those loans.

25 23. The PDQ Endorsement grants PMI the right to review a paricular loan's
26 file record to verify the accuracy of

the information that Old IndyMac provided in the

27 loan's PDQ Transmittal Form.

28 24. The PDQ Endorsement provides that PMI "reserves the right to rescind
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FIRST AMENDED AND SUPPLEMENTAL COMPLAINT AND DEMAND FOR JURY TRIAL

1

coverage with respect to a Loan or deny a Claim for a Loan if the Loan file record for

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such Loan is not furnished for review or audit within thirt (30) days after (PMI's)
written request for the same, to the extent that (PMIj is damaged by such delay."
PDQ Endorsement ir 4 (emphasis added).
25. The PDQ Endorsement thus contemplates a 30-day delivery time

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for

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each individual

loan file.

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26. The PDQ Endorsement also requires that PMI be actually damaged by

any delay in the delivery time before PMI can even attempt to rescind LPMI coverage
for a loan.

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PMI AND OLD INDYMAC'S PRACTICE AND COURSE OF DEALINGS

REGARDING LOAN FILE REQUESTS
27. In the course of PM

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I and Old IndyMac's dealings under the LPMI

coverage program, PMI periodically asked Old IndyMac to furnish PMI with certain
loan files.

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28. The particular loan files that PMI requested, in its practice and course of

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dealings with Old IndyMac, typically involved a loan where Old IndyMac had either
( a) sent PMI a notice of delinquency about the loan or (b) filed a claim with PMI to
recover insurance proceeds for the loan.
29. IfPMI did not receive all of

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the documents that it requested for a

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particular loan, PMI would reject the loan file and return it to Old IndyMac.

30. To ensure that PMI received all documents that it requested, Old
IndyMac was required to undertake, among others, the following time-consuming
tasks:
a. gather origination files from off-site storage and other internal

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Old IndyMac groups;
b. review each file, by trained quality control staff, to ensure

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completeness;
c. reorganize the files using document level file tabs;

FIRST AMENDED AND SUPPLEMENTAL COMPLAINT AND DEMAND FOR JURY TRIAL

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d. print any missing documentation from Old IndyMac's imaging

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system and/or other applications;
e. deliver the files to the scanning vendor to (i) image the files,

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(ii) index the specific set of documents required by PMI for each
loan, and (iii) create compact disc ("CD") copies of

these

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document sets to send to PMI; and
f. receive origination files in return and send the CDs to PMI.

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Each loan file produced thus requires manual intervention, and, even though Old

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IndyMac generally retained (and IndyMac generally stil retains) loan files
electronically, a significant amount of employee time and vendor time was required to
ensure compliance with PM!' s requests. PMI knew about this time-consuming

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process.
31. Between August 8, 2007 and May 1, 2008, PMI made 26 separate

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requests for loan files, requesting a total of 582 loan files. All 582 files were for loans
as to which Old IndyMac either (a) sent PMI a notice of delinquency or (b) filed a

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claim with PMI to recover insurance proceeds. The largest request was for 140 loan
files, and 19 of the requests were for 4 or fewer loan files.
32. Because of

the time-consuming process to collect and compile each loan

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file and ensure that no document that PMI requested was missing, Old IndyMac
delivered almost all 582

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loan files much later than 30 days after PMI's written

requests. Not once did PMI rescind, or even threaten to rescind, coverage based on
Old IndyMac's inability to deliver a loan file within 30 days after PMI's request. In
fact, Old IndyMac delivered hundreds of loan files to PMI more than three months
after they were requested, and PMI did not once complain.

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33. Old IndyMac and PMI developed a practice and course of dealings
regarding loan file requests, specifically that (a) PMI would request a loan file only when Old IndyMac had submitted to PMI a notice of delinquency or filed a claim to recover insurance for the loan (but not every loan with a notice of delinquency was
FIRST AMENDED AND SUPPLEMENTAL COMPLAINT AND DEMAND FOR JURY TRIAL

26 27 28

1 subject to a loan file request by PMI), (b) each request would be for a reasonable
2 number of

loan files, and (c) PMI would allow Old IndyMac a reasonable period of

3 time to deliver the loan files to PMI to account for the time-consuming process of

4 collecting and compilng the files (a reasonable period for approximately 100
5 documents often being three months or longer).
6 34. On June 7, 2008, PMI abruptly disregarded the parties' practice

and
loan files from Old IndyMac,

7 course of dealings and requested approximately 511

8 almost four times larger than any request PMI previously had made.

9 35. Old IndyMac promptly began collecting and compiling the

10 approximately 511 loan files and delivered them to PMI.

11 PMlS UNREASONABLE DEMAND FOR APPROXIMATELY 5,324 LOAN

12 FILES TO BE DELIVERED WITHIN 30 DAYS
13 36. By letter dated July 8, 2008, PMI demanded that Old IndyMac deliver the

14 loan file for each loan listed on a diskette enclosed with the letter. PMI did not
15 indicate in the letter that the enclosed diskette listed every single loan for which PMI

16 had not previously requested a loan file-approximately 5,324 loans. This was an
17 unprecedented request.

18 37. Old IndyMac had not sent PMI a notice of delinquency or filed a claim
19 for the overwhelming majority of the 5,324 loans. In fact, 4,237 of

the 5,324

20 requested loans were not delinquent. Nonetheless, PMI disregarded the established
21 practice and course of

the parties' dealings under the LPMI coverage program and

22 demanded delivery of every single insured loan file.

23 38. In the July 8, 2008, letter, PMI also indicated that it had received only 2
24 of the 511

loan files that it requested on June 7, 2008 and that PMI would rescind
loans if

25 coverage for the outstanding 509

the files were not delivered by July 17,2008.

26 Old IndyMac, however, had in fact delivered all 511 loan files to PMI on July 1, 2008.

27 39. PMI's July 8, 2008, letter was the first time PMI had ever threatened to
28 rescind coverage for a loan on the ground that Old IndyMac did not deliver the loan
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FIRST AMENDED AND SUPPLEMENTAL COMPLAINT AND DEMAND FOR JURY TRIAL

1 file within 30 days ofPMI's written request.

2 40. On July 9, 2008, after reading PMI's July 8, 2008, letter, Aaron D. Wade,

3 IndyMac's Senior Vice President, Secondary Marketing, telephoned Bil Shirreffs,
4 PMI's Senior Vice President of

National Sales, and provided Mr. Shirreffs with
511 loan files to PMI on July 1,
those 511

5 evidence that Old IndyMac.had in fact delivered all

6 2008. PMI subsequently rejected loan files for approximately 223 of

loans;

7 PMI requested additional information on those 223 loans, but made that request
8 directly to Old IndyMac's repurchase administration division.

9 41. During the days following his receipt ofPMI's July 8, 2008, letter,

10 Mr. Wade had several phone conversations with Mr. Shirreffs regarding-the loan file

11 requests.
12 42. Mr. Wade did not realize that the July 8, 2008, letter requested 5,324 loan
13 files because the letter did not say so. Mr. Wade only learned of

the enormous volume

14 of

the request from one of

his conversations with Mr. Shirreffs.

15 43. In their final discussion, Mr. Wade explained to Mr. Shirreffs that
16 because of the unprecedented volume of PMI' s request and the time-consuming

17 process required to ensure that PMI received all documents that PMI requested for

18 each loan, it would be physically impossible for IndyMac to deliver the 5,324
19 requested loan files within 30 days. Mr. Wade further noted that the FDIC's recent
20 takeover of

Old IndyMac and the FDIC's appointment as Conservator also would

21 slow down IndyMac's ability to deliver the loan files because IndyMac would have to
22 secure the FDIC's approval before delivering the files. Mr. Wade explained that

23 IndyMac would need at least 60 additional days, and possibly longer, to comply with
24 PMI's request.
25 .44. Mr. Shirreffs indicated that a 60-day or longer extension was reasonable

26 and that PMI likely would grant it, particularly because IndyMac had taken PMl's

27 request seriously and had contacted PMI about the 511 requested loan files.
28 Mr. Shirreffs promised that he would get back to Mr. Wade quickly about the oral
11 FIRST AMENDED AND SUPPLEMENTAL COMPLAINT AND DEMAND FOR JURY TRIAL

1 request for an extension. Mr. Wade never heard back from Mr. Shirreffs.

2 45. By letter dated August 13,2008, PMI acknowledged IndyMac's request
3 for an extension on delivering the 5,324 loan files. PMI wrote that the PDQ

4 Endorsement required delivery within 30 days of a written request and that PMI did

5 not understand why IndyMac was unable to meet that deadline. Disregarding the
6 reasons that Mr. Wade had given to Mr. Shirreffs about the basis for IndyMac's
7 reasonable request for an extension, PMI asked IndyMac to explain why it needed an

8 extension.

9 46. On August 27,2008, Martha M. Belcher, IndyMac's Senior Vice
10 President and Secondary Marketing General Counsel, sent an email to Willam M.

11 Levinthal, PMl's Vice President and Assistant General Counsel, explaining that
12 IndyMac was in the process of

responding to PMI's August 13,2008, letter and that if
responding to Ms. Belcher's email, the following day,

13 Mr. Levinthal had any questions he should contact Ms. Belcher.
14 47. Instead of

15 August 28, 2008, Mr. Levinthal sent a letter to IndyMac stating that PMI was
16 rescinding LPMI coverage for 5,565 loans-the 5,324

loans that PMI unreasonably
loans that PMI claimed it had
the 5,565

17 demanded in its July 8, 2008, letter and 241 additional

18 requested files for but not received within 30 days. Approximately 680 of

19 loans were loans for which Old IndyMac sent PMI files but that PMI rejected and thus

20 claims are "stil outstanding." PMI claimed that it had the right to rescind LPMI

21 coverage for the 5,565 loans under the PDQ Endorsement on the grounds that
22 IndyMac had not delivered the loan files for those 5,565

loans within 30 days of

23 PMI's written requests and PMI had allegedly been damaged by the delay.
24 48. Mr. Levinthal explained that the delay allegedly caused PMI damage

25 because the insured loan pool was exhibiting an exorbitant delinquency rate, IndyMac

26 had been placed in conservatorship, and PMI allegedly could not protect its rights

27 without performing an adequate investigation of all of the insured loans. However, it
28 is unclear if or how PMI sustained any actual damage as a result of any delay.
FIRST AMENDED AND SUPPLEMENTAL COMPLAINT AND DEMAND FOR JURY TRIAL

1 49. In fact,PMI disregarded (a) the language of

the PDQ Endorsement,
loan

2 which contemplated a 30-day delivery time per individual

3 request of

file, not for a massive more than 5,000 loan files; (b) IndyMac's reasonable explanation for the

4 delay; (c) that the delay was in fact caused by PMl's unprecedented burdensome
5 request, not by IndyMac; and (d) IndyMac and PMl's practice and course of dealings
6 over 26 prior requests and deliveries under the LPMI coverage program.

7 50. The following day, August 29,2008, PMI sent IndyMac a letter
8 enclosing a check returning $13,713,883.72 in premiums that IndyMac paid to insure
9 the 5,565 loans for which PMI claims it has rescinded insurance coverage.

10 51. IndyMac did not deposit the check. Instead, on September 12, 2008,

11 IndyMac returned the check to PMI because IndyMac disputes PMI's attempt to
12 rescind coverage. IndyMac also filed the original complaint in this case on September
13 12,2008.
14 52. Even though IndyMac was not required, under the parties' established

15 practice and course of dealings, to deliver loan files for loans that are not delinquent or

16 for which IndyMac has not made a claim, IndyMac nonetheless delivered the 5,565
17 loan files as quickly as possible to PMI as an act of good faith, delivering the final set
18 of

those loan files on September 29,2008. IndyMac thus delivered all 5,565 loan files

19 within 83 days after PMI's written request, conforming to the delivery times
20 established by the parties' practice and course of dealings for a request significantly
21 smaller than PMl's unprecedented and unreasonable request. IndyMac incurred

22 substantial expense in collecting, compiling, and delivering these loan files so quickly.

23 PMlS UNREASONABLE PURPORTED RESCISSION OF LPMI
24 COVERAGE ON 1,579 LOANS ON THE ERRONEOUS BASIS THAT THE

25 LOANS WERE INELIGIBLE FOR LPMI COVERAGE
26 53. After IndyMac filed the original complaint in this case, PMI sent
27 IndyMac a letter dated October 3,2008 in which PMI informed IndyMac that it was
28 rescinding LPMI coverage on approximately 292 additional

loans on the ground that

FIRST AMENDED AND SUPPLEMENTAL COMPLAINT AND DEMAND FOR JURY TRIAL

1 those loans were ineligible for LPMI coverage, a new theory for its purported

2 rescission.

3 54. PMI also asserted in the October 3,2008, letter that this new rescission
4 theory applied to 1,287 of

the 5,565 loans for which PMI previously purported to

5 rescind LPMI coverage on August 28, 2008.
6 55. The 292 loans and 1,287 loans (totaling 1,579

loans) all were interest-

7 only, stated income loans with loan-to-value ratios greater than 95%.

8 56. An interest-only loan is a loan where the borrower pays only interest and
9 does not pay principal for a period of

the loan term. For example, a loan that the

10 borrower pays only interest on for the first 10 years and a combination of interest and

11 principal for the remaining 20 years of the loan term is an interest-only loan because
12 for a part of the total

loan term, the borrower pays only interest.

13 57. A stated income loan is a loan where the borrower states his or her
14 income in writing on a form accompanying the mortgage loan application or on some
15 other documentation, but does not provide any records proving the accuracy of that
16 Income.
17 58. According to PMl's October 3,2008, letter, Old IndyMac had submitted
18 the 1,579 loans to PMI for LPMI coverage beginning on or about May 4, 2007

19 through on or about August 7, 2007.

20 59. In the October 3, 2008, letter, PMI claimed that interest-only, stated
21 income loans with loan-to-value ratios greater than 95% purportedly did not comply

22 with PMI's Approved Underwriting Guidelines and thus purportedly were ineligible

23 for LPMI coverage. PMI further asserted in that letter that the Policy and the Letter
24 Agreements permit PMI to rescind coverage on loans that were not originated in
25 compliance with PMl's Approved Underwiting Guidelines.

26 60. Upon information and belief, interest-only, stated income loans with
27 loan-to-value ratios greater than 95% did comply with PMI's Approved Underwriting
28 Guidelines that were in force during the period that Old IndyMac submitted the 1,579
FIRST AMENDED AND SUPPLEMENTAL COMPLAINT AND DEMAND FOR JURY TRIAL

1 loans to PMI for LPMI coverage, and the 1,579 loans thus were eligible for LPMI
2 coverage.

3 61. When Old IndyMac submitted the 1,579 loans to PMI for LPMI

4 coverage, Old IndyMac informed PMI in the PDQ Transmittal Forms that these loans
5 were interest-only, stated income loans with loan-to-value ratios greater than 95%.
6 62. Upon information and belief, PMI reviewed the PDQ Transmittal Forms
7 that contained these 1,579

loans and thus knew or should have known that these 1,579

8 loans were interest-only, stated income loans with loan-to-value ratios greater than

9 95%.

10 63. Upon information and belief, PMI has from time to time rejected as
11 ineligible certain loans that Old IndyMac submitted for LPMI coverage after PMI
12 reviewed the loan information that Old IndyMac provided in the PDQ Transmittal
13 Forms.
14 64. PMI did not reject any of

these 1,579 loans when, or shortly after,

15 Old IndyMac submitted them to PMI for LPMI coverage. Instead, PMI affirmatively

16 agreed to provide LPMI coverage on these 1,579 insured loans, calculated and
17 charged Old IndyMac andlor IndyMac premium on them, and accepted the premium

18 that Old IndyMac andlor IndyMac paid. In fact, PMI continued to charge and accept
19 premium on these 1,579

loans each month for more than a year. PMI insured these

20 loans for more than a year without once informing Old IndyMac andlor IndyMac that

21 it believed they were ineligible for LPMI coverage.
22 65. Old IndyMac also submitted claims for insurance coverage on some of

23 these loans. Upon information and belief, PMI reviewed the loan files of the loans for
24 which Old IndyMac submitted claims. PMI paid out claims on some of

these 1,579

25 loans.
26 66. Upon information and belief, LPMI coverage was available

27 from mortgage insurers other than PMI for these interest-only, stated income loans

28 with loan-to-value ratios greater than 95% during the period that Old IndyMac
FIRST AMENDED AND SUPPLEMENTAL COMPLAINT AND DEMAND FOR JURY TRIAL

1 submitted the 1,579 loans to PMI for LPMI coverage. Had PMI rejected the loans as
2 ineligible when, or shortly after, Old IndyMac submitted them to PMI for LPMI

3 coverage, Old IndyMac would have purchased the insurance elsewhere. Upon

4 information and belief, such replacement insurance is no longer available in the
5 marketplace.

6 67. By letter dated October 13,2008, PMI sent IndyMac checks returning
7 more than $575,000 in premiums that

IndyMac paid to insure the approximately 292

8 additional

loans for which PMI claimed it rescinded insurance coverage in the October

9 3, 2008, letter.

10 68. IndyMac has not deposited the checks. Instead, IndyMac is returning the
11 checks to PMI because IndyMac disputes PMl's attempt to rescind coverage.
12 69. To date, PMI has purported to rescind LPMI coverage on approximately

13 5,857 insured loans. PMl's attempt to rescind coverage on these 5,857 loans, totaling

14 more than $1.57 bilion in value, is unprecedented, unenforceable, and a tortious
15 breach of

the implied duty of good faith and fair dealing. PMI's conduct should be

16 deemed null and void.

18 (Declaratory Relief)
20 contained in paragraphs 1 through 69 above.

17 FIRST CAUSE OF ACTION

19 70. IndyMac realleges and incorporates by reference herein each allegation

21 71. PMI has contended that it is permitted to rescind LPMI coverage on
22 5,857 insured loans that have a total loan value of

more than $1.57 bilion. PMI has

23 contended that it is permitted to rescind LPMI coverage on 5,565 loans on the ground

24 that IndyMac did not deliver loan files to PMI for those 5,565 loans within 30 days of

25 PMI's requests, and that PMI somehow has actually been damaged by IndyMac's

26 delay. PMI also has contended that it is permitted to rescind LPMI coverage on an
27 additional 292 loans on the ground that those 292 loans purportedly are ineligible for

28 LPMI coverage as they are interest-only, stated income loans with loan-to-value ratios
FIRST AMENDED AND SUPPLEMENTAL COMPLAINT AND DEMAND FOR JURY TRIAL

1

greater than 95%-and that 1,287 of

the 5,565 loans for which PMI purportedly

2
3

rescinded coverage under the first rescission theory also fall under this second

rescission theory. IndyMac disputes PMl's contentions.
72. IndyMac contends that
a. the parties contemplated-as evidenced by the language in the

4
5

6

PDQ Endorsement-a 30-day delivery time when a request was
made for an individual

7
8

loan file, not for a massive request of more

than 5,000 loan files;

9
10
11

b. PMI has not, in any way, been actually damaged by the purported
delay, as required by the PDQ Endorsement before PMI can even
attempt to rescind LPMI coverage for a single loan, let alone 5,565
loans;
c. given the unprecedented nature of PMI' s request and the inherent
overbreadth and burden of

12
13

14
15

the request, IndyMac has not delayed,

or any delay is excused;
d. IndyMac provided PMI with a reasonable explanation for any

16 17
18

delay in delivering the loan files, but PMI unreasonably
disregarded that explanation;
e. PMI, not IndyMac, is responsible for the delay. The volume of

19

20
21

PMl's request was unprecedented, PMI required a specific set of
documents for each loan file, and PMI knew that collecting,

22
23

compiling, and organizing all those documents in the proper format was so time-consuming that it would be impossible for IndyMac to
comply with the request within 30 days;

24
25

f. IndyMac and PM!' s practice and course of dealings under the
LPMI coverage program, as evidenced by 26 prior requests and deliveries, demonstrate that the parties did not contemplate a strict
30-day delivery time for loan file requests, particularly not for such
FIRST AMENDED AND SUPPLEMENTAL COMPLAINT AND DEMAND FOR JURY TRIAL

26 27
28

1

an unprecedented, massive request;

2
3

g.

even if

the PDQ Endorsement specifies a 30-day delivery deadline

regardless of the size of the request, the parties modified any such

4
5

requirement by their practice and course of dealings, and PMI has waived any right it may have had to rescind coverage on the ground of delay because on multiple prior occasions, PMI accepted
loan files much later than 30 days after the requests;
h.

6

7
8

the 1,579 loans that PMI claims were ineligible for LPMI coverage were in fact eligible for LPMI coverage when Old IndyMac
submitted them to PMI for coverage;

9 10
11
1.

PMI knew or reasonably should have known at the time that it
agreed to provide LPMI coverage for these 1,579 loans that these
loans were interest-only, stated income loans with loan-to-value
ratios greater than 95%;

12
13

14
15

J.

PMI has waived any right to argue, and/or is estopped from
arguing, that the 1,579 loans are ineligible because PMI has treated these loans as eligible for more than one year by affirmatively agreeing to provide LPMI coverage on these loans, calculating and charging Old IndyMac and/or IndyMac premium on them,
accepting the premium, continuing to charge and accept premium

16 17
18

19

20
21

each month for more than a year, and later paying out claims for
coverage on some of these loans;
k.

22
23

during the period that Old IndyMac submitted the 1,579 loans to

24
25

PMI for coverage, LPMI coverage was available from other
mortgage insurers for interest-only, stated income loans with loanto-value ratios greater than 95%, but such replacement insurance is

26

27
28
1.

no longer available in the marketplace; and
PM!' s failure to reject these 1,579 loans when, or shortly after,
18
FIRST AMENDED AND SUPPLEMENTAL COMPLAINT AND DEMAND FOR JURY TRIAL

1 Old IndyMac submitted them to PMI for LPMI coverage has
2 injured IndyMac because IndyMac cannot now insure the 1,579
3 loans as it would have been able to do and would have done had
4 PMI rejected the loans as ineligible at the time Old IndyMac

5 submitted them for coverage.
6 IndyMac is informed and believes, and based thereon alleges, that PMI disputes its
7 contentions.
8 73. An actual and

justiciable controversy exists between IndyMac and PMI

9 concerning the matters alleged herein.
10 74. IndyMac seeks a

judicial declaration confirming that PMI's contentions

11 as stated above are wrong and that IndyMac's contentions as stated above are correct;
12 that PMI must honor all duties under the LPMI coverage program, including its duty

13 to provide LPMI coverage for the 5,857 loans for which PMI contends it has
14 rescinded LPMI coverage; that PMI's attempted rescission of

LPMI coverage on these

15 5,857 insured loans has no legal effect and is unconscionable, unenforceable, and null
16 and void; and that because ofPMI's conduct, IndyMac is excused from performing or

17 complying with any conditions and duties otherwise imposed on it by the LPMI
18 coverage program.

20 (Injunctive Relief)
23 76. PMI's alleged rescission of

19 SECOND CAUSE OF ACTION

21 75. IndyMac realleges and incorporates by reference herein each allegation

22 contained in paragraphs 1 through 69 and 70 through 74 above.
LPMI coverage on 5,857 insured loans
24 totaling more than $1.57 bilion in value has already inflicted significant irreparable
25 injury on IndyMac by shifting more than $1.57 billon of

risk exposure to IndyMac.

26 IndyMac also cannot protect all of

the $1.57 bilion risk because mortgage insurance

27 for some or all of those loans is no longer available in the marketplace.
28 77. PMI's alleged rescission of 5,857 loans also wil put IndyMac at

FIRST AMENDED AND SUPPLEMENTAL COMPLAINT AND DEMAND FOR JURY TRIAL

1 significant risk of further irreparable injury because IndyMac may be required, under
2 applicable securitization documents and loan sale agreements, to maintain mortgage

3 insurance for each loan. Believing that IndyMac no longer maintains such insurance

4 because of PMI' s alleged rescission, the investors likely wil demand that IndyMac
5 repurchase the 5,857 loans. The likelihood of such a demand places IndyMac at

6 immediate additional risk of extreme and irreparable injury.

7 78. PMI wil suffer no injury if it is enjoined from rescinding coverage for
8 the 5,857 loans and from demanding loan files for loans that are not delinquent or for

9 which IndyMac has not made a claim, and compelled to allow IndyMac a reasonable
10 period of time to deliver the loan files that PMI is permitted to review. The risk of

the

11 irreparable injury to IndyMac far outweighs any harm PMI might possibly suffer from

12 an injunction.
13 79. To correct the injury that PMI already has caused IndyMac and to

14 prevent probable irreparable injury that IndyMac likely wil suffer in the very near

15 future, PMI should be (a) compelled to correct the injury it has inflicted by
16 withdrawing its alleged rescission, (b) prevented from demanding loan files for loans
17 that are not delinquent or for which IndyMac has not made a claim, and (c) compelled
18 to allow IndyMac a reasonable period of

time to deliver the loan files that PMI is

19 permitted to review-only files for loans that are delinquent or for which IndyMac has
20 made a claim under the LPMI coverage program. An injunction will return the parties

21 to the last peaceable uncontested status that existed before PMI's unprecedented and
22 unconscionable conduct in allegedly rescinding coverage for the 5,857

loans.

23 80. IndyMac has no adequate remedy at law.

25 (Breach of Contract)

24 THIRD CAUSE OF ACTION

26 81. IndyMac realleges and incorporates by reference herein each allegation
27 contained in paragraphs 1 through 69, 70 through 74, and 75 through 80 above.
28 82. Implied in the Policy was a covenant that PMI would act in good faith

20
FIRST AMENDED AND SUPPLEMENTAL COMPLAINT AND DEMAND FOR JURY TRIAL

1 and deal fairly with IndyMac, that PMI would do nothing to interfere with the rights
2 of the Insureds to receive the benefits of

the Policy, and that PMI would give at least

3 the same level of consideration to the Insureds' interests as it gives to its own
4 interests. PMI breached these duties by, among other things,

5 a. wrongfully and uneasonably asserting grounds for rescission that
6 it knows are not supported by, and in fact are contrary to, the terms
7 of

the Policy, the law, insurance industry custom, practice, and

9 the facts;
13 are contrary to, the terms of

8 standards, its practice and course of dealings with IndyMac, and

10 b. wrongfully and uneasonably demanding loan files for loans for

11 which IndyMac has not sent PMI a notice of delinquency or filed a 12 claim, on grounds that it knows are not supported by, and in fact
the Policy, the law, insurance industry

14 custom, practice, and standards, its practice and course of dealings

15 with IndyMac, and the facts;
16 c. giving greater consideration to its own interests than it gave to the

17 interests of the Insureds;
18 d. failng to properly investigate before purporting to rescind

19 coverage, and failing to communicate and follow accepted

20 insurance industry custom, practice, and standards in responding to
21 IndyMac's requests for coverage and in purporting to rescind

22 coverage; and
23 e. otherwise acting as alleged above.
24 83. To the extent not waived or otherwise excused, IndyMac has complied

25 with all terms and conditions precedent contained in the Policy.
26 84. As a direct and proximate result ofPMI's acts, IndyMac has been

27 damaged in an amount to be proven at triaL.
28
21
FIRST AMENDED AND SUPPLEMENTAL COMPLAINT AND DEMAND FOR JURY TRIAL

1

FOURTH CAUSE OF ACTION
(Tortious Breach of the Implied Covenant of Good Faith and Fair DeaIine;)

2
3

85. IndyMac realleges and incorporates by reference herein each allegation
contained in paragraphs 1 through 69, 70 through 74, 75 through 80, and 81 through

4
5

84 above.
86. Implied in the Policy was a covenant that PMI would act in good faith

6
7
8

and deal fairly with IndyMac, that PMI would do nothing to interfere with the rights

of the Insureds to receive the benefits of the Policy, and that PMI would give at least

9
10
11

the same level of consideration to the Insureds' interests as it gives to its own

interests. Instead of complying with these duties, PMI acted in bad faith by, among
other things,

12
13

a. wrongfully and uneasonably asserting grounds for rescission that
it knows are not supported by, and in fact are contrary to, the terms
of

14
15

the Policy, the law, insurance industry custom, practice, and

standards, its practice and course of dealings with IndyMac, and
the facts;

16

17
18

b. wrongfully and unreasonably demanding loan files for loans for
which IndyMac has not sent PMI a notice of delinquency or filed a
claim, on grounds that it knows are not supported by, and in fact
are contrary to, the terms of

19

20
21

the Policy, the law, insurance industry

custom, practice, and standards, its practice and course of dealings
with IndyMac, and the facts;
c. giving greater consideration to its own interests than it gave to the

22
23

24
25

interests of the Insureds;
d. failing to properly investigate before purporting to rescind

26 27
28

coverage, and failing to communicate and follow accepted
insurance industry custom, practice, and standards in responding to

IndyMac's requests for coverage and in purporting to rescind
22
FIRST AMENDED AND SUPPLEMENTAL COMPLAINT AND DEMAND FOR JURY TRIAL

1 coverage; and
2 e. otherwise acting as alleged above.
3 87. In breach of

the implied covenant of good faith and fair dealing, PMI did

4 the things and committed the acts alleged above for the purpose of consciously

5 withholding from IndyMac the rights and benefits to which it was entitled under the
6 LPMI coverage program, and without considering the interests of

IndyMac and its

7 employees at least to the same extent as it did its own interests.
8 88. PMI's acts are inconsistent with IndyMac's reasonable expectations, are
9 contrary to established practices and legal requirements, are contrary to the express

10 terms of the LPMI coverage program, and constitute bad faith.
11 89. Pursuant to Brandt v. Superior Court, 37 CaL. 3d 813, 210 CaL. Rptr. 211

12 (1985), IndyMac is entitled to recover all attorneys' fees and costs that it reasonably
13 has incurred, and continues to incur, in its efforts to protect the benefits of insurance

14 that have been, and continue to be, wrongfully and in bad faith withheld by PMI.
15 90. PMI's conduct is despicable within the meaning of

California Civil Code
IndyMac's rights,

16 section 3294, and has been done with a conscious disregard of

17 constituting malice, in that PMI engaged in a series of acts designed to deny the
18 benefits due under the LPMI coverage program and to conceal and/or misrepresent

19 material facts.
20 91. In light of

information, facts, and relevant law to the contrary, PMI, by as alleged above, consciously disregarded IndyMac's rights and forced

21 acting

22 IndyMac to incur substantial financial risk, without any assistance from PMI, thereby

23 inflicting substantial financial damage on IndyMac. PMI ignored IndyMac's interests
24 and concerns, with the requisite intent to injure within the meaning of California Civil
25 Code section 3294. Therefore, under California Civil Code section 3294, IndyMac is
26 entitled to recover punitive damages from PMI in an amount to be determined at trial

27 for the sake of example and to deter similar conduct in the future.
28

FIRST AMENDED AND SUPPLEMENTAL COMPLAINT AND DEMAND FOR JURY TRIAL

1 FIFTH CAUSE OF ACTION
2 (Reformation of Written Instrument Based on Mistake)
3 92. IndyMac realleges and incorporates by reference herein each allegation
4 contained in paragraphs 1 through 69, 70 through 74, 75 through 80, 81 through 84,

5 and 85 through 91 above.
6 93. If, and to the extent that, the Policy, the PDQ Endorsement, and/or the
7 Letter Agreements permit PMI to rescind LPMI coverage on the 5,857

loans under the

8 above alleged circumstances, then the Policy, the PDQ Endorsement, andlor the Letter

9 Agreements do not reflect the true intent of the parties. This result is from the mutual
10 mistake of

the parties. The parties' true agreement is that (a) PMI could rescind

11 coverage for a particular loan if and only if (i) IndyMac unreasonably refused to
12 deliver a loan file within a reasonable period of

time after a written request from PMI

13 for the file, and (ii) IndyMac's refusal caused actual and substantial damage to PMI,
14 and (b) interest-only, stated income loans with loan-to-value ratios greater than 95%
15 were eligible for LPMI coverage when Old IndyMac submitted them to PMI.
16 94. Without knowledge of

the true facts and in reliance on PMI's

17 representations, IndyMac was deceived and misled into accepting the Policy, the PDQ

18 Endorsement, andlor the Letter Agreements to the extent that they differ materially
19 from the prior oral and written understandings of

the parties. IndyMac's reliance on

20 PMI's representations that the Policy, the PDQ Endorsement, and/or the Letter
21 Agreements conformed to the parties' intended agreement was reasonable and
22 justified. Therefore, if, and to the extent that, PMl's present contention-that the

23 Policy, the PDQ Endorsement, andlor the Letter Agreements, as written, permit PMI

24 to rescind coverage for the 5,857 loans under the above alleged circumstances-is
25 correct, then this result is based on mutual mistake. Therefore, the Policy, the PDQ
26 Endorsement, andlor the Letter Agreements should be reformed, to the extent

27 necessary, to prohibit PMI from rescinding coverage (a) on any loan unless
28 (i) Indy

Mac uneasonably refuses to deliver a loan file within a reasonable period of
FIRST AMENDED AND SUPPLEMENTAL COMPLAINT AND DEMAND FOR JURY TRIAL

1

time after a written request from PMI for the file and (ii) IndyMac's refual causes
actual and substantial damage to PMI, or (b) on any interest-only, stated income loan

2
3

with a loan-to-value ratio greater than 95% that Old IndyMac submitted to PMI for

4
5

LPMI coverage between on or about May 4,2007 and on or about August 7, 2007,
and, to the extent necessary, to delete any language in the Policy, the PDQ
Endorsement, and/or the Letter Agreements that PMI contends permits PMI to rescind
coverage on the 5,857 loans under the above alleged circumstances.

6

7
8

9
10
11

WHREFORE, IndyMac prays for judgment as follows:

ON THE FIRST CAUSE OF ACTION
1. For declarations in accord with IndyMac's contentions stated above;

12
13

ON THE SECOND CAUSE OF ACTION
2. For an injunction (a) requiring PMI to withdraw its alleged rescission of

14
15

LPMI coverage for the 5,857 loans, (b) preventing PMI from demanding loan files for

loans that are not delinquent or for which IndyMac has not made a claim, and
(c) requiring PMI to allow IndyMac a reasonable period of

16 17
18

time to furnish PMI with

the loan files that PMI is permitted to review-only files for loans that are delinquent
or for which IndyMac has made a claim;

19

ON THE THIRD CAUSE OF ACTION
3. F or damages according to proof at the time of trial, plus interest;

20
21

ON THE FOURTH CAUSE OF ACTION
4. For damages according to proof at the time of

22
23

trial, plus interest;

5. F or reasonable attorneys' fees and costs incurred in obtaining the benefits

24
25

due under the LPMI coverage program, according to proof at the time of trial, plus
interest;
6. For punitive damages in an amount to be determined at the time of

26

trial;

27
28
7. For the reformation of

ON THE FIFTH CAUSE OF ACTION
the Policy, the PDQ Endorsement, and/or the

FIRST AMENDED AND SUPPLEMENTAL COMPLAINT AND DEMAND FOR JURY TRIAL

1 Letter Agreements to the extent necessary to reflect the true intent of the parties as
2 described above;

3 ON ALL CAUSES OF ACTION
4
5

8.

F or Indy Mac's costs of suit incurred herein; and
For such other, further, and/or different relief as the Court may deem

9.

just

6 and proper.
7

8 DATED: October
9
10
11

2008

Kirk A. Pasich Attorneys for Plaintiff

"".~£ J f\. - / By: l~~ '~à~
DICKSTEIN SHAPIRO LLP
, 1 .... ...... .,

12
13

14
15

16

17
18

19

20
21

22
23

24
25

26
27 28

FIRST AMENDED AND SUPPLEMENTAL COMPLAINT AND DEMAND FOR JURY TRIAL

1 DEMAND FOR JURY TRIAL
2 IndyMac hereby demands a trial by jury in this action.
3

4 DATED: October ~ r, 2008
5

DICKSTEIN SHAPIRO LLP

6 7
8

Attorneys for Plaintiff

L- (\ ~) " '0 By'K:irkIA.~ ,b¿,~-~ Pasich

9
10
11

12
13

14
15

16 17
18 19

20
21

22
23

24
25

26

27
28 27
FIRST AMENDED AND SUPPLEMENTAL COMPLAINT AND DEMAND FOR JURY TRIAL