Suntrust Mortgage, Inc. v. United Guaranty Residential Insurance
2011 U.S. Dist. LEXIS 94366
| E.D. Va. | 2011Background
- ST sought insurance coverage from UG for second-lien Combo Loans under a Master Policy and Flow Plans, with premiums paid monthly and UG's liability capped by a pool-based maximum cumulative liability.
- Pursuant to Count I ST alleged UG denied claims on IOF Combo 100 Loans not underwritten via DU, initiating litigation that culminated in earlier summary judgment on Count I for ST and settlement-related disputes.
- From 2007–2009 UG began denying certain IOF Combo 100 claims and later demanded premiums on performing loans that ST believed were ineligible for coverage, prompting settlement discussions and a tolling agreement through July 2009.
- The policy collected premiums based on a master, pool-based structure where each Policy Year formed a pool; premiums and losses were managed via the 2004 Flow Plan and 2005 Flow Plan, including an Experience Rating System based on seven-year loss experience.
- In 2011 the Court vacated a summary judgment ruling to entertain ST's first material breach defense, held a bench trial, and concluded ST did not waive its right to rely on UG’s denial of claims; it also addressed whether the policy is severable and whether UG’s breaches were material.
- The Court ultimately held that ST proved UG breached the policy in two ways—denying IOF Combo 100 claims and continuing to collect premiums on loans ST identified as non-coverable—and that the contract is indivisible, barring further performance by ST on additional premiums.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Waiver of first material breach defense | ST did not intend to relinquish rights; tolling agreement preserved claims | ST waived rights by continuing to pay premiums after Gaines letter | ST did not waive its first material breach defense |
| Remedies election and pleading | ST may seek contract damages while also pledging a first material breach defense | Election of remedies doctrine bars simultaneous remedies/defenses | Damages and first material breach defense may coexist |
| UG's denial of IOF Combo 100 claims | UG breached by denying claims on non-DU loans covered by the policy | DENIAL of DU-nonconforming loans was a valid coverage decision under policy terms | UG breached the policy by denying IOF Combo 100 claims not underwritten with DU |
| UG's collection of premiums after denial | Continuing to bill and collect premiums for non-covered loans breached the duty of good faith and fair dealing | Policy silent on collection after determination; tolling prevented waiver concerns | UG breached the implied duty of good faith and fair dealing by collecting premiums on non-covered loans |
| Severability of the insurance contract | Policy is indivisible; a loan-level breach cannot unravel the entire contract | Policy is severable on a loan-by-loan basis; breaches should be limited to affected loans | Policy is not severable; contract is entire and indivisible |
Key Cases Cited
- ADC Fairways Corp. v. Johnmark Construction, Inc., 343 S.E.2d 90 (Va. 1986) (offsets not allowed when contract breach authorized otherwise)
- A & E Supply Co. v. Nationwide Mutual Fire Ins. Co., 798 F.2d 669 (4th Cir. 1986) (implied duty of good faith in first-party insurance contracts; contract law governs damages)
- Ward's Equipment, Inc. v. New Holland North America, 493 S.E.2d 520 (Va. 1997) (implied covenant depends on contract terms and relevance of good faith)
- Horton v. Horton, 487 S.E.2d 204 (Va. 1997) (material breach defined by essential contract purpose; multiple factors considered)
- Countryside Orthopaedics v. Peyton, 541 S.E.2d 279 (Va. 2001) (first material breach doctrine; waiver/recission considerations)
- East Augusta Mutual Fire Insurance Co. of Virginia v. Hite, 250 S.E.2d 348 (Va. 1979) (severability of insurance contracts; risk interdependence)
- Countrywide Mortgage Indemnity Co. v. Countrywide Financial Corp., 660 F. Supp. 2d 1163 (C.D. Cal. 2009) ( severability analysis; policy structure considerations)
- Florists' Mutual Ins. Co. v. Tatterson, 802 F. Supp. 1426 (E.D. Va. 1992) (bad faith in insurance context; implied covenant under Virginia law)
- American Chlorophyll, Inc. v. Schertz, 176 Va. 362 (Va. 1940) (waiver and contract termination under prior breach contexts)