Federal Deposit Insurance Corporation v. Arch Insurance Company et al

Filing 192

ORDER striking Defendant Arch Insurance Company's 187 Notice of Motion for Reconsideration; denying Defendant Arch Insurance Company's 188 Motion for Reconsideration ; denying Defendants Lloyd's Syndicate Nos. 2987, 2000 and 382, Wuerttembergische Versicherung A.G. 202388900007 190 Motion for Reconsideration ; denying Defendant National Union Fire Insurance Company's 191 Motion for Reconsideration, signed by Judge Robert S. Lasnik. (SWT)

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UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF WASHINGTON
AT SEATTLE

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_______________________________________
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FEDERAL DEPOSIT INSURANCE
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CORPORATION,
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Plaintiff,
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v.
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ARCH INSURANCE COMPANY, et al,
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Defendants.
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_______________________________________)

Civil Case No. C14-0545RSL
ORDER DENYING MOTIONS FOR
RECONSIDERATION

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This matter comes before the Court on the insurer defendants’ motions for

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reconsideration. Dkt. # 188,1 190, and 191. Motions for reconsideration are disfavored in this

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district and will be granted only upon a “showing of manifest error in the prior ruling” or “new

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facts or legal authority which could not have been brought to [the Court’s] attention earlier with

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reasonable diligence.” LCR 7(h)(1). Defendants assert that the Court erred in finding that the

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definition of “Loan Originator” was ambiguous, that the Court misapplied Washington law when

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it interpreted an ambiguity in the insurance policy in favor of the insured, and that “new facts”

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establish that the causal relationship between the alleged fraud and the loss was indirect.

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The first two arguments are unpersuasive. The parties took opposing positions regarding
the meaning of the phrase “which originates” in the definition of “Loan Originator.” Plaintiff’s

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The “Notice of Motion” filed at Dkt. # 187 is hereby STRICKEN.

ORDER DENYING MOTIONS
FOR RECONSIDERATION - 1

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preferred interpretation is consistent with other provisions of the contract (most notably the

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discovery provision) and is, at the very least, reasonable. In light of this ambiguity, the Court

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construed the phrase “against the insurer and in favor of the insured” as provided by Washington

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law. Holden v. Farmers Ins. Co. of Wash., 169 Wn.2d 750, 757 (2010). Defendants’ suggestion

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that the Court misapprehended the record regarding how the insuring agreement was drafted is

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unsupported. The record was clear on this point.

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With regards to the third argument, defendants offer new evidence showing that the FDIC

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has no idea what its predecessor, Washington Mutual (“WaMu”), paid the loan originators for

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the fraudulent loans and argue that plaintiff must, therefore, be seeking to recover the amounts

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paid to repurchase the loans from third parties. Thus, the argument goes, Universal Mortg. Corp.

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v. Württembergische Versicherung AG, 651 F.3d 759, 763 (7th Cir. 2014), compels the

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conclusion that the loss for which the FDIC seeks coverage arose out of WaMu’s contractual

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obligation to repurchase fraudulent loans and did not arise “directly” from the loan originators’

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dishonest or fraudulent acts.

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For the reasons stated in the Court’s previous order, a common sense understanding of the

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risks for which WaMu negotiated coverage and the relationships between the entities shows that

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WaMu suffered a loss the moment it delivered funds to CIP Mortgage Corporation and Coastal

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Capital and received worthless paperwork in return. Dkt. # 184 at 8. Under Washington law, a

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loss generally occurs under a fidelity bond when the money or other covered property is

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misappropriated through employee dishonesty or fraud. See Fireman’s Fund Ins. Co. v. Puget

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Sound Escrow Closers, Inc., 96 Wn. App. 227, 234-35 (1999). The amount of the original loss

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did not remain static over time, however. The fraudsters made payments on some of the loans,

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and the FDIC would be hard-pressed to justify pursuing a claim for losses that have already been

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recovered. The fact that the amount at issue corresponds to the unpaid principal balances of the

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loans originated by CIP and Coastal Capital reflects the reality of plaintiff’s actual loss and does

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ORDER DENYING MOTIONS
FOR RECONSIDERATION - 2

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not resolve the “directly resulting” issue. If the FDIC were attempting to collect penalties WaMu

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was contractually obligated to pay when the loans were repurchased or other types of

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consequential damages arising from the fraudulent loans, those damages would arguably be

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indirect: but defendants offer no evidence of such payments or demand for recovery. Construing

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the record in the light most favorable to plaintiffs, the unpaid principal balance on the fraudulent

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loans corresponds to the outstanding losses directly attributable to the loan originators’ fraud. In

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addition, the Seventh Circuit’s interpretation of “directly resulting” is not dispositive. Under

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Washington law, policy provisions requiring that a loss result directly from fraudulent or

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dishonest acts means that the acts must have been the proximate cause of the loss. See Hanson

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PLC v. Nat’l Union Fire Ins. of Pittsburgh, PA, 58 Wn. App. 561, 572-73 (1990). Defendants’

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reliance on Universal Mortgage is unavailing as a matter of fact and law.

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The Court acknowledges National Union’s reservation of the right to contest factual
statements that were not disputed in the context of this motion.

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For all of the foregoing reasons, defendants’ motions for reconsideration are DENIED.

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Dated this 1st day of December, 2017.

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A

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Robert S. Lasnik
United States District Judge

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ORDER DENYING MOTIONS
FOR RECONSIDERATION - 3