Universal Mortgage Corporation v. Wurttembergische Versicherung AG

Filing 16

ORDER signed by Judge J P Stadtmueller on 7/30/10 granting 7 defendant's Motion to Dismiss as to each of plaintiff's claims and DISMISSING this action. (cc: all counsel) (nm)

U n i v e r s a l Mortgage Corporation v. Wurttembergische Versicherung AG

D o c . 16

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF WISCONSIN
U N IV E R S A L MORTGAGE CORPORATION, P l a i n t if f , v. W U R T T E M B E R G IS C H E VERSIGHERUNG, AG., D e fe n d a n t. C a s e No. 09-CV-1142

ORDER
Plaintiff Universal Mortgage Corporation ("Universal") is a mortgage lender w h o filed this action to recover losses it attributes to dishonest acts by one of its loan m a n a g e rs . Specifically, Universal seeks to recover these amounts pursuant to a f id e lity bond 1 issued by defendant W u rtte m b e rg is c h e Versigherung, AG. The

d e fen d a n t has filed a motion to dismiss pursuant to Federal Rule of Civil Procedure 1 2 (b )(6) alleging that the bond does not cover Universal's claimed losses. The court a g r e e s and will dismiss each of Universal's claims. B AC K G R O U N D U n iv e rs a l originates mortgage loans for resale to investors. (Compl. ¶ 6). To p ro tec t itself, Universal obtained a Mortgage Bankers Blanket Bond ("the Bond") fro m the defendant and from certain Underwriters at Lloyds of London. (Compl. ¶ 4).

"Fidelity bonds are indemnity contracts that guarantee reimbursement for losses sustained by the insured resulting from the dishonesty of the insured's employees." Continental Corp. v. Aetna Casualty & Surety Co., 892 F.2d 540, 543 (7th Cir. 1989).

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T h e Bond indemnifies Universal for direct losses caused by employee dishonesty, a n d Insuring Clause 1 reads in relevant part: D ire c t financial loss sustained by the Assured subsequent to the R e tro a c tiv e date and discovered by the Assured during the Bond P e r io d by reason of and directly caused by: (a) dishonest acts by any E m p lo ye e of the Assured, whether committed alone or in collusion with o th e rs , which dishonest acts were committed by the Employee with the m a n ife s t intent to obtain and resulted in the receipt of Improper P e rs o n a l Financial Gain for said Employee, or for the persons acting in c o llu s io n with said Employee... ( C o m p l. ¶ 4 and Ex. 1). The Bond also provides for a number of exclusions from c o ve ra g e . One such exclusion is Exclusion 18, which states that the Bond will not c o ve r: "Any loss resulting from the Assured having repurchased or having been re q u ire d to repurchase a Real Estate Loan from an Investor or Secondary Market Ins titutio n except when covered under Insuring Clause 5(b), 6, 9(c) or 11." (Ex. 1). U n iv e rs a l sells its mortgage loans to investors and requires its loans to meet th e standards of the Federal National Mortgage Association (FNMA). Universal w a rra n ts to investors that its mortgage loans meet the standards. If an investor later d is c o ve rs that a particular loan it purchased from Universal fails to comply with the F N M A standards, then Universal commits to repurchase the loan. (Compl. ¶ 6). U n iv e rs a l employees ensure compliance with FNMA standards by confirming th a t mortgage applications accepted and funded by Universal meet the standards. O n e FNMA standard monitored by employees is the requirement that borrowers ta k in g out purchase money mortgages make down payments equal to a specified p e rc e n ta g e of the purchase price. The standard prohibits use of programs providing -2-

th e borrower with funds to use as a down payment in which the down payment a s s is ta n c e exceeds a specified percentage of the mortgage amount. Universal e m p lo ye d Ray Hightower ("Hightower") as the Regional W h o le s a le Manager for its P a lm Harbor, Florida, office. Hightower was responsible for supervising other

e m p lo ye e s who processed Universal's mortgage applications and for verifying c o m p lia n c e with FNMA standards. (Compl. ¶ 7). H ig h to w e r did not faithfully execute his duties to ensure compliance, however. H ig h to w e r entered into a conspiracy with representatives of a mortgage brokerage c o m p a n y, Global Mortgage, whereby he accepted mortgage loan applications with d o w n payment assistance that violated FNMA standards. Hightower accomplished the scheme by directing mortgage processors working in his office to approve more th a n 35 non-compliant mortgages. In return for his help, Hightower received

p e rs o n a l payments from Global Mortgage. (Compl. ¶¶ 8, 9). The non-compliant m o rtg a g e s were sold to investors and many of the loans later went into default. W h e n it was discovered that the mortgages did not meet FNMA standards, Universal w a s obliged to repurchase the loans pursuant to its contracts with investors. (Compl. ¶ 10). O n May 2, 2008, Universal notified the defendant's designated representative t h a t it suspected losses resulting from employee dishonesty within the terms of In s u rin g Clause 1 of the Bond. (Compl. ¶ 11). Approximately six weeks later, on J u n e 24, 2008, Universal filed a sworn proof of loss. Universal continued to discover

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n o n -c o m p lia n t loans improperly made under Hightower's supervision; the loss a m o u n t claimed against the defendant now totals $833,332. (Compl. ¶ 12). The d e fe n d a n t's representative requested additional information from Universal in June a n d August 2008. The defendant ultimately denied Universal's claim for coverage m o re than one year later, in November 2009. (Compl. ¶ 17). U n iv e r s a l filed suit on December 14, 2009, and asserts three claims against th e defendant. Universal alleges breach of contract, failure of timely payment in vio la tio n of W is c o n s in Statute § 628.46, and bad faith failure to pay. In connection w ith its claims, Universal seeks compensatory damages, statutory damages and in tere s t, and punitive damages. (Compl. ¶¶ 13-19). AN AL Y S IS F e d e ra l Rule of Civil Procedure 12(b)(6) allows the court to dismiss an action th a t "fails to state a claim upon which relief can be granted." W h e n a court resolves a Rule 12(b)(6) motion, it takes all well-pleaded allegations as true and draws all re a s o n a b le inferences in favor of the plaintiff. Pugh v. Tribune Co., 521 F.3d 686, 6 9 3 (7th Cir. 2008). The court may consider documents attached to the pleading as e xh ib its in deciding a motion to dismiss because such documents are "a part of the p le a d in g for all purposes." Fed. R. Civ. P. 10(c); see also Venture Associates Corp. v . Zenith Data Systems Corp., 987 F.2d 429, 431 (7th Cir. 1993). T h e defendant asks the court to dismiss each of Universal's claims because th e asserted losses are not covered under the terms of the Bond. The Bond states

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th a t it covers "direct financial loss" that is "directly caused by" dishonest acts of an e m p lo ye e . (Compl. ¶ 4 and Ex. 1). There are competing interpretations of loss d ire c tly caused by employee dishonesty. Some courts understand such a loss to be o n e proximately caused by the employee's actions, such that the acts need not be th e "sole" or "immediate" cause of the loss. See e.g. Scirex Corp. v. Federal Ins. Co., 3 1 3 F.3d 841, 848-50 (3d Cir. 2002). Other courts interpret a loss directly caused b y employee dishonesty to require a narrower definition, described as "direct means d ir e c t ." See e.g. Vons Companies, Inc. v. Federal Ins. Co., 212 F.3d 489, 492-93 (9 th Cir. 2000). The W is c o n s in courts 2 have aligned themselves with the "direct m e a n s direct" school of thought and reject the contention that "direct" is synonymous w ith "proximately" or "proximate cause" for purposes of coverage under a fidelity b o n d . See Tri City National Bank v. Federal Ins. Co., 2004 W I App 12, ¶¶ 21-22, 268 W is.2 d 785, 674 N.W .2 d 617. T h e defendant argues that Universal's losses are not directly caused by e m p lo ye e dishonesty under a "direct means direct" interpretation because Universal s e e k s liability coverage for its contractual obligation to repurchase loans from thirdp a rty investors, and not fidelity coverage for losses directly caused by Hightower's a c tio n s . The defendant relies strongly upon the decision of the W is c o n s in Court of A p p e a ls in Tri City National Bank v. Federal Insurance Company to support its

The parties assume that Wisconsin law applies to their dispute and the court will do likewise.

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c o n te n tio n . In Tri City, employees of the plaintiff bank engaged in a conspiracy to fra u d u le n tly obtain mortgage loans for borrowers who did not otherwise qualify for th e loans. 2004 W I App 12, ¶ 2, 674 N.W .2 d at 790. The bank employees falsely ve rifie d to mortgage companies that the borrowers had sufficient amounts to cover a down payment and, after approval of a mortgage, the bank employees would issue c a s h ie r's checks for use at the closing. Id. Upon closing, the outside conspirator w o u ld pay the bank employees and repay the bank for the cashier's check. Id. Many o f the loans associated with the scheme went into default and the fraud was e ve n tu a lly uncovered. Id. The mortgage companies then sued the bank to recover th e ir losses. Id. at ¶ 3, 674 N.W .2 d at 791. The bank settled the claims of the m o r tg a g e companies and then sought reimbursement from the defendant insurance c o m p a n y pursuant to a fidelity bond. Id. at ¶ 5, 674 N.W .2 d at 791. The fidelity b o n d provided coverage for "losses resulting directly from dishonest or fraudulent a c ts committed by an Employee." Id. at ¶ 15, 674 N.W .2 d at 623. The W is c o n s in C o u rt of Appeals determined that the bank's losses did not result directly from the e m p lo ye e actions and affirmed dismissal of the action for failure to state a claim. Id. a t ¶ 1, 674 N.W .2 d at 619. In reaching its conclusion, the court emphasized the d iffe re n c e between a fidelity bond, like the one at issue, and a liability policy. It n o te d that a liability policy "covers the liability of the insureds to a third-party while fid e lity bonding covers the loss of property owned by the insureds or held by the in s u re d s , as a consequence of employee dishonesty." Id. at ¶ 13, 674 N.W .2 d at 622 -6-

(q u o tin g Aetna Casualty & Surety Co. v. Kidder, Peabody & Co., Inc., 246 A.D.2d 2 0 2 , 211, 676 N.Y.S.2d 559, 565 (1998)). The W is c o n s in Court of Appeals also fo u n d that the bank's loss in settling the claims of the mortgage companies was not th e direct result of employee dishonesty because the bank's liability only occurred a fte r the mortgage loans went into default. Id. at ¶ 18, 674 N.W .2 d at 623. T h is court reaches the same conclusion in the instant case as the W is c o n s in C o u rt of Appeals reached in Tri City. The fidelity bond issued to Universal does not c o ve r Universal's claimed losses because the losses were not "directly caused by" H ig h to w e r's actions. Universal issued mortgage loans that did not comply with the F N M A standards. However, the dispersal of loan proceeds to non-qualifying

b o rr o w e rs did not inflict loss upon Universal. Indeed, no loss could be inflicted until th e mortgages went into default. See Tri City, 2004 W I App 12, ¶ 18, 674 N.W .2 d at 6 2 3 (stating that "the losses did not exist until the unsuitable mortgage holders d e fau lted on their loans"). However, Universal sold its mortgage loan to investors b e fo re any default occurred and suffered no direct financial harm when the loans la te r defaulted. The only parties adversely affected at the time the non-FNMAc o m p lia n t mortgages went into default were the investors who purchased the m o rtg a g e s . Universal first suffered loss when it was required to repurchase the nonc o m p lia n t loans. See id. ("The losses did not result directly from dishonest or fra u d u le n t acts committed by the employees, as the losses did not exist until the u n s u ita b le mortgage holders defaulted on their loans and the mortgage companies -7-

s u e d [the plaintiff bank]."). Thus, Universal first suffered a loss when the buy-back p ro vis io n s in its contracts were enforced and not earlier when it dispersed loan p ro c e e d s , or when it sold the mortgages to investors, or when the borrowers initially d e fa u lt e d . T h e losses Universal incurred by repurchasing the non-conforming mortgages w e re not the immediate result of Hightower's approval of unqualified borrowers. In s te a d , the costs were the immediate result of Universal's contractual obligations to repurchase. If Universal was not subject to buy-back provisions in its contracts w ith investors, it would not be financially affected by the default of the borrowers b e c a u s e Universal no longer owned the mortgages. See RBC Mortgage Co. v. N a tio n a l Union Fire Ins. Co. of Pittsburgh, 812 N.E.2d 728, 735 (Ill. App. 2004) (s ta tin g that the plaintiff's losses were not derived directly from the conduct of its e m p lo ye e , but from the plaintiff's breach of the warranty contained in its brokerage a g re e m e n t with the loan broker to indemnify the broker if the loan packages c o n ta in e d untrue statements, because "had there been no contractual liability on the p a rt of the [plaintiff] for the fraudulent loan packages, [the plaintiff] would not have in c u rre d monetary losses."). Thus, the losses Universal claims for the required re p u rc h a s e were "directly caused by" its contractual obligations and not by employee d ish o n e s ty. Further, Universal's claimed losses do not represent "direct financial loss" b e c a u s e they were contingent upon several future events. -8First, they were

c o n tin g e n t upon borrowers defaulting on the mortgages. Default is not the inevitable re s u lt of issuing mortgages to individuals who do not meet FNMA standards. If the b o r ro w e r s had paid or continued to make their payments in a timely manner, no loss w o u ld have resulted. Therefore, no party experienced "loss" until the loans went into d e f a u lt. Second, the repurchase costs were contingent upon enforcement of

c o n tra c tu a l repurchase obligations. If investors had not uncovered the mortgage irreg u la ritie s and enforced the buy-back provision, Universal would not have e x p e r ie n c e d any loss. These intervening events had to transpire before Universal fe lt any financial injury related to Hightower's approval of unqualified borrowers. T h e re fo re , the loss Universal asserts is neither "direct financial loss" nor is it "directly c a u s e d by" employee dishonesty and the Bond does not provide coverage. T h e U.S. District Court in the District of Utah came to the same conclusion on n e a rly-id e n tic a l facts in Direct Mortgage Corp v. National Union Fire Ins. Co., 625 F. S u p p . 2d 1171, 1177-78 (D. Utah 2008). In Direct Mortgage, the plaintiff mortgage c o m p a n y originated mortgages and resold them to investors. Id. at 1173. An e m p lo ye e of the mortgage company falsified documents necessary to close loans b y changing appraisal values, falsifying income verifications, and modifying property d e s c rip tio n s . Id. The investors who purchased the fraudulently-obtained loans then d e m a n d e d that the mortgage company buy back the loans pursuant to obligations in the sales agreements. Id. The mortgage company settled with its investors and th e n filed a claim with the defendant insurer under the company's fidelity bond. Id. -9-

T h e fidelity bond covered "loss resulting from dishonest or fraudulent acts committed b y an Employee." Id. at 1174. The court granted partial summary judgment to the d e fe n d a n t insurer after finding that the loss suffered by the mortgage company was in d ire c t and not covered by the bond. Id. at 1172. In rendering its decision, the c o u rt explained that the loss suffered by the plaintiff mortgage company in having to repurchase fraudulently-obtained mortgages was not direct because the "loss was c o n tin g e n t on the occurrence of a series of events that were not inevitable, and such a contingency takes the loss outside the scope of the Fidelity Bond." Id. at 1177-78. T h e plaintiff mortgage company argued that it suffered a direct loss at the time the lo a n s were issued and sold to third-parties, and not after its buy-back obligations w e re enforced, because it was "on the hook" for violation of the warranty as soon as th e loans were issued and sold. Id. at 1178. However, the court rejected this a rg u m e n t stating: "although [the plaintiff] was potentially `on the hook' as soon as the loans were sold, its loss was theoretical at that point." Id. U n iv e rs a l disagrees with the court's determination in Direct Mortgage and a rg u e s that this court should not reach the same conclusion. Universal argues that it suffered "direct" losses at the time mortgage proceeds were dispersed to u n q u a lifie d borrowers, and not at the time investors enforced the contractual p ro vis io n s requiring it to repurchase the loans. However, as the court previously n o te d , distribution of the loan proceeds, standing alone, does not inflict a loss. The b o rro w e r, even if he or she is unqualified under FNMA standards, may make the -10-

re q u ir e d repayments on the loan. A financial loss only occurs after the borrower d e fa u lts for failing to do so (though even this event did not inflict financial harm on U n ive rs a l since it no longer owned the mortgages). Further, the authority cited by U n ive rs a l does not persuade the court otherwise. Universal relies upon Portland F e d e ra l Employees Credit Union v. Cumis Ins. Society, Inc., 894 F.2d 1101 (9th Cir. 1 9 9 0 ), Fitchburg Savings Bank v. Massachusetts Bonding & Ins. Co., 174 N.E. 324 (M a s s . 1931), and dicta appearing in Tri City to support its assertion. However, t h e s e cases are distinguishable and do not convince the court that Universal in c u rre d loss at the time it distributed loan proceeds. The court in Portland Federal a d d re s s e d the question of whether a bank's losses due to improper loans and u n a p p ro ve d contracts fell within the fidelity bond's definition of "property," "money," o r "securities." 894 F.2d at 1104. The Ninth Circuit Court of Appeals did not address th e issue of whether the bank employee's actions resulted in a "direct" or "indirect" lo s s . Indeed, the court specifically noted that it was not addressing the question of w h e th e r the plaintiff's loss was direct or indirect because the district court reached its decision based solely on interpretations of the bond terms "property" and "money" to exclude coverage of the plaintiff's loan losses. Id. at 1105.3 ("The district court b a s e d its decision rejecting coverage on its interpretation of `property' and `money,'

The court notes that Universal quotes a passage in its brief that it attributes to Portland Federal, which states, in part: "In terms of a loss with respect to the making of loans, a bank suffers a loss when funds are disbursed, like in the case at bar, due to the employees wrongful conduct." (Pl.'s Br., at 10-11). However, this quotation does not appear anywhere within Portland Federal. See 894 F.2d 1101.

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a n d therefore did not reach the question of whether part or all of Portland's loss was d ire c t as opposed to indirect or consequential. W e leave this determination for the d is tric t court on remand to consider in the first instance."). The case does not s u p p o r t Universal's argument that it suffered direct loss upon issuing loan proceeds. F itc h b u rg Savings Bank is similarly unhelpful. In this 1931 case, the Supreme J u d ic ia l Court of Massachusetts stated that "loss" under the fidelity bond at issue m e a n t the deprivation of money due to the fraudulent acts of employees, regardless o f the security the bank had for the loss. Fitchburg Savings Bank, 174 N.E. at 328. T h e case arose from a bank treasurer's scheme to fraudulently draw checks and g e n e ra te notes to back them in order to pay off debts he owed. Id. at 326-27. The d e fe n d a n t insurance company denied coverage of the losses under a fidelity bond b e c a u s e it was not reported within the time period required. Id. at 329. The case did n o t turn on the nature of loss as direct or indirect, nor did it involve expenses in c u rre d due to contractual obligations to third parties. The court does not find it to b e determinative on the issue of direct loss. F in a lly , Universal relies on dicta in Tri City to support the contention that it s u ffe r e d direct losses upon dispersing loan proceeds to the unqualified borrowers. H o w e ve r, the cited statements do not persuade the court that a loss occurred simply b e c a u s e Universal issued loan proceeds. The portion of Tri City that Universal cites a p p e a rs within the W isc o n s in Court of Appeals's analysis of a separate case, First A m e ric a n State Bank v. Continental Ins. Co., 897 F.2d 319 (1990). In the relevant -12-

s e c tio n , the W is c o n s in Court of Appeals rejects the conclusion reached in First A m e ric a n and notes that the Eighth Circuit Court of Appeals wrongly predicted how th e Iowa Supreme Court would interpret "directly resulting from" language appearing w ith in a fidelity bond. Tri City, 2004 W I App 12, ¶ 28, 674 N.W.2d at 627. The court fu r th e r distinguishes First American by noting that in First American, the plaintiff b a n k was also a victim of the fraudulent loan scheme arising when its bank president c o n vin c e d customers to take out loans and give him the proceeds in exchange for h is promissory notes. Id. at ¶ 26, 674 N.W . 2d at 626-27. After distinguishing the c a s e , the W is c o n s in Court of Appeals stated that the ultimate result reached in First A m e ric a n "may be correct as the bank did appear to suffer some direct loss as a re s u lt of the bank president's dishonest acts." Id. at ¶ 29, 674 N.W . 2 d at 627. H o w e ve r, the dicta from Tri City does not alter the court's analysis. The bank in First A m e r ic a n "appeared" to suffer loss because it was never repaid for the loan fra u d u le n tly issued to customers. The W is c o n s in Court of Appeals specifies that in F irs t American, the bank's "loan proceeds were lost." Id. However, the situation in th e instant case differs from First American because Universal did not suffer the loss o f its loan proceeds. Instead, the fraudulently-obtained mortgages were purchased b y investors. Thus, Universal was compensated for the loan amounts issued and it was only after enforcement of contractual buy-back obligations that Universal s u ffe r e d any loss.

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T h e losses Universal suffered were not "direct losses," nor were they "directly c a u s e d by" the dishonest acts of Hightower. Therefore, the losses do not fall within th e coverage afforded under the terms of the Bond. However, Universal's claimed lo s s e s are not covered for an additional reason. The Bond explicitly excludes losses re s u lt in g from "having repurchased or having been required to repurchase a Real E s ta te Loan from an Investor." (Ex. 1). The damages that Universal asserts are the im m e d ia te consequence of having to repurchase non-conforming mortgages from th e parties to whom they were sold. Therefore, the terms of the fidelity bond exclude c o v e ra g e of Universal's claimed losses. In d e e d , the express terms of the Bond seem to present an insurmountable o b s ta c le to Universal's claims. Universal, however, attempts to overcome the plain la n g u a g e of the exclusion by arguing that its losses are not losses "resulting from" th e repurchase of loans. Universal instead asserts that its losses result from

d is b u rs e m e n t of its own proceeds in the form of loans to unqualified borrowers. The c o u rt previously addressed this argument and concluded that Universal suffered no f in a n c ia l harm until forced to buy back its loans from investors. Therefore, the c la im e d losses fall squarely within the definition of losses excluded by the Bond. T h e Bond issued to Universal does not cover the losses Universal claims. C o n s e q u e n tly, the defendant's refusal to cover those losses cannot constitute a vio la tio n of the Bond and Universal's breach of contract claim fails as a matter of

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la w .

The exclusion of Universal's claims from coverage similarly dooms its

re m a in in g claims for failure of timely payment and bad faith failure to pay. Universal alleges in its complaint that the defendant violated W is c o n s i n S ta tu te § 628.46 by failing to timely reimburse Universal after receiving notice of its c la im s . The statute reads in relevant part: U n le s s otherwise provided by law, an insurer shall promptly pay every in s u r a n c e claim. A claim shall be overdue if not paid within 30 days a fte r the insurer is furnished with written notice of the fact of a covered lo s s and of the amount of the loss...Any payment shall not be deemed o ve rd u e when the insurer has reasonable proof to establish that the in s u re r is not responsible for the payment, notwithstanding that written n o tic e has been furnished to the insurer. W is . Stat. § 628.46. The statute expressly states that it does not apply in instances w h e n the insurer has "reasonable proof" to show that the insurer is not responsible fo r paying the claim. "Reasonable proof" under § 628.46 is information sufficient to "a llo w a reasonable insurer to conclude that it may not be responsible for payment o f a claim," which exists when the "coverage issue is fairly debatable." Kontowicz v. A m e ric a n Standard Ins. Co., 2006 W I 48, ¶ 48, 714 N.W .2 d 105, 117 (quoting A lls ta te Ins. Co. v. Konicki, 186 W is . 2d 140, 160, 519 N.W.2d 723 (Ct. App. 1994)). R e a s o n a b le proof that the defendant is not responsible for paying Universal's claim c le a rly exists here. The court's conclusion that the Bond does not cover the losses a t issue and the authority it relies upon establish that the issue of coverage is "fairly d e b a ta b le . " The defendant does not owe any payment to Universal because the

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B o n d does not cover Universal's losses. Therefore, the statutory requirement of p ro m p t payment is not implicated and Universal's claim must fail. U n ive r s a l's last claim is one for bad faith failure to pay. To show bad faith fa ilu re to pay an insurance claim, a plaintiff must demonstrate the "absence of a re a s o n a b le basis for denying benefits of the policy and the defendant's knowledge o r reckless disregard of the lack of a reasonable basis for denying the claim." A n d e r s o n v. Continental Ins. Co., 85 W is . 2d 675, 691, 271 N.W.2d 368, 376 (1978). A n insurer lacks a reasonable basis for denying a claim when the insurer's re s p o n s ib ility to pay the claim "is not fairly debatable." Mowry v. Badger State Mutual C a s u a lty Co., 129 W is .2 d 496, 516-17, 385 N.W .2 d 171, 181 (1986). The

d e fe n d a n t's responsibility to pay the claim at issue here cannot fulfill the re q u ire m e n t. The court determined that the Bond does not provide coverage for U n ive rs a l's asserted losses. The court's decision establishes that the defendant's re s p o n s ib ility to pay the claim was indeed debatable. The defendant's failure to pay a claim which it is not required to pay cannot establish bad faith and Universal's c la im fails as a matter of law. A c c o r d in g ly ,

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IT IS ORDERED that the defendant's motion to dismiss (Docket #7) be and the same is hereby GRANTED as to each of the plaintiff's claims. and this action be a n d the same is hereby DISMISSED. T h e clerk is directed to enter judgment accordingly. D a te d at Milwaukee, W is c o n s in , this 30th day of July, 2010. BY THE COURT:

J .P . Stadtmueller U .S . District Judge

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