800 F. Supp. 2d 722
E.D. Va.2011Background
- SunTrust filed a motion for partial summary judgment on Count I seeking a ruling that the IOF Combo 100 loans were covered under UG's insurance policy.
- The policy comprises a Master Policy (circa 1998), a 2004 Closed-End Purchase Money Seconds—Flow Business Risk Sharing Program, and a 2005 Flow Plan.
- UG contends exclusions exist under Section 4.14 (Failure to Conform to Reporting Program Guidelines) based on Guideline Matrices and the DU underwriting method.
- The Guideline Matrices, emails, and related evidence were previously deemed inadmissible to modify the unambiguous contract terms, creating facial/patent and latent ambiguities.
- The court upheld ST’s position that UG’s DU-based exclusion cannot be applied given the policy language and prior ruling on parol evidence, and ST was entitled to partial SJ on liability.
- UG’s new reliance on DU as a condition to coverage was found procedurally improper and substantively unpersuasive, and ST met its burden to show coverage prior to any denial.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the policy's exclusion is clear and unambiguous. | ST: exclusion rests on Guideline Matrices; the court already found parol evidence inadmissible and the language is ambiguous. | UG: DU and Guideline Matrices govern coverage; the guideline documentation is embedded in the policy via Reporting Program Guidelines. | UG's exclusion fails as a matter of law; policy language viewed as a whole supports ST's coverage. |
| Whether ST established coverage under the policy. | ST: issuance of unique certificate numbers extended coverage; certificates extended coverage upon issuance, regardless of later guideline conformity. | UG: coverage is contingent on meeting guidelines; certificates do not confer coverage unless guidelines are satisfied. | ST has shown coverage; certificates extended coverage and the policy text supports that coverage existed. |
| Whether UG's misrepresentation/fraud defense survives summary judgment. | ST: no false representation by ST; audits showed non-DU loans but do not prove a false representation by SunTrust. | UG: ST misrepresented underwriting method, relying on 3.2(b) and 3.6 to cancel coverage. | UG's fraud defense fails as a matter of law; no false representation proven and reliance cannot be shown. |
| Whether UG procedurally forfeited new arguments about DU as a condition to coverage. | ST: UG raised the DU condition late; not pleaded or briefed timely; severity of prejudice to ST. | UG: arguments based on policy interpretation and prior pleadings; not a new theory. | UG's late argument is procedurally barred; not heard. |
Key Cases Cited
- Zehler v. E.L. Bruce Co., 160 S.E.2d 786 (Va. 1968) (parol evidence limitations in contract interpretation)
- Transcon. Ins. Co. v. RBMW, Inc., 551 S.E.2d 313 (Va. 2001) (burden shifting on exclusions in Virginia insurance law)
- Allstate Ins. Co. v. Gauthier, 641 S.E.2d 101 (Va. 2007) (exclusionary language construed against insurer; must be clear and unambiguous)
- American Reliance Ins. Co. v. Mitchell, 385 S.E.2d 583 (Va. 1989) (plain meaning rule for unambiguous terms in insurance contracts)
- Foremost Guaranty Corp. v. Meritor Savings Bank, 910 F.2d 118 (4th Cir. 1990) (insurer cannot rely on misrepresentations without proper reliance analysis)
- TRAVCO Ins. Co. v. Ward, 715 F. Supp. 2d 699 (E.D. Va. 2010) (burden shifting in Virginia insurance coverage actions)
- Maryland Cas. Co. v. Cole, 158 S.E. 873 (Va. 1931) (initial burden on policyholder to establish coverage)
- Nat'l Hous. Bldg. Corp. v. Acordia of Virginia Ins. Agency, 591 S.E.2d 88 (Va. 2004) (contract interpretation and whole-policy approach)
- Smith v. Ramsey, 82 S.E. 189 (Va. 1914) (every word of contract construed to give effect)
- Elephant Butte Irrigation District of New Mexico v. U.S. Department of the Interior, 538 F.3d 1299 (10th Cir. 2008) (late-argument waiver concerns and not allowing belated theories)