Mbia Ins. Corp. v. Royal Indem. Co., CIV.A.02-1294 JJF.

Decision Date26 March 2004
Docket NumberNo. CIV.A.02-1361 JJF.,No. CIV.A.02-1294 JJF.,CIV.A.02-1294 JJF.,CIV.A.02-1361 JJF.
PartiesMBIA INSURANCE CORPORATION and Wells Fargo Bank Minnesota, N.A. as Trustee of SFC Grantor Trust, Series 2000-1, SFC Grantor Trust, Series 2000-2, SFC Grantor Trust, Series 2000-3, SFC Grantor Trust, Series 2000-4, SFC Grantor Trust, Series 2001-1, SFC Grantor Trust, Series 2001-2, SFC Grantor Trust, Series 2001-3, and SFC Grantor Trust Series 2001-I, Plaintiffs, v. ROYAL INDEMNITY COMPANY, Defendant. v. PNC Bank, N.A., et al., Third-Party Defendants PNC Bank, N.A., in its capacity as Deal Agent and Collateral Agent for itself, PNC Bank, Delaware and Fleet National Bank, as Lenders, Counterclaim Plaintiff v. Royal Indemnity Company, Counterclaim Defendant. Wilmington Trust of Pennsylvania Plaintiff, v. Royal Indemnity Company, Defendant.
CourtU.S. District Court — District of Delaware

Kevin R. Shannon, Esquire and John M. Seaman, Esquire of Potter Anderson & Corroon LLP, Wilmington, DE, Of Counsel: David H. Pittinsky, Esquire and Lawrence D. Berger, Esquire of Ballard Spahr Andrews & Ingersoll, LLP, Philadelphia, PA, for Third-Party Defendant and Counterclaim Plaintiff PNC Bank, N.A.

Joseph H. Huston, Jr., Esquire and Thomas G. Whalen, Jr., Esquire of Stevens & Lee, P.C., Wilmington, DE, Of Counsel: Joseph W. Fullem, Esquire and Joel Max Eads, Esquire of Kittredge, Donley, Elson Fullem & Embick, LLP, Philadelphia, PA, for Plaintiff Wilmington Trust of Pennsylvania.

Lawrence C. Ashby, Esquire, Philip Trainer, Jr., Esquire, and Tiffany L. Geyer, Esquire of Ashby & Geddes, Wilmington, DE, Of Counsel: Michael H. Barr, Esquire, Kenneth J. Pfaehler, Esquire, and Lisa A. MacVittie, Esquire of Sonnenschein Nath & Rosenthal, New York City, for Counterclaim Defendant and Defendant Royal Indemnity Company.

OPINION

FARNAN, District Judge.

Pending before the Court are Motions for Partial Summary Judgment filed by the Third-Party Defendant and Counterclaim Plaintiff PNC Bank, N.A. ("PNC") (D.I. 110 in C.A. No. 02-1294 JJF) and Plaintiff Wilmington Trust Of Pennsylvania ("Wilmington Trust"). (D.I. 29 in C.A. No. 02-1361 JJF.) For the reasons discussed, the Motions will be granted.

BACKGROUND

The background relevant to these actions has been set forth in more detail by the Court in its previous Memorandum Opinion in MBIA Insurance Corp. v. Royal Indemnity Co., 286 F.Supp.2d 347, 348-351 (D.Del.2003). By way of brief summary, this case involves an alleged breach of contract arising from insurance policies (the "Policies") issued by Defendant Royal Indemnity Company ("Royal") to PNC and Wilmington Trust1 in connection with the purchase and origination of student loans by Student Finance Corporation ("SFC"). By its Motion, PNC seeks Partial Summary Judgment on Counts I through III of its Counterclaims.2 Specifically, PNC seeks a declaratory judgment that its Policy is valid and enforceable and that PNC is a direct beneficiary of its Policy. PNC also alleges in Counts II and III that Royal breached the Policy it issued to PNC. As a result of these alleged breaches, PNC requests the Court to enter judgment in its favor in the amount of $110,449,275.3 By its Motion, Wilmington Trust requests the Court to grant 1) specific performance requiring Royal to perform its obligations under Wilmington Trust's Policies,4 and 2) a money judgment against Royal in the amount of $12,908,966.43 plus interest for breach of contract.

The Policies in the instant action insured the payment of principal and ninety days worth of interest in the event of defaults on the underlying student loans. The Policies provide that a default occurs whenever a student loan is delinquent more than ninety days. (D.I. 109; Ex. A at 3 in C.A. No. 02-1294 JJF; D.I. 30; Ex. A at 3; Ex. B at 3 in C.A. No. 02-1361 JJF). Further, the Policies contain broad waiver of defense clauses in the event of a "Loss." (D.I. 109; Ex. A at Art. I in C.A. No. 02-1294 JJF; D.I. 30 Ex. A at Art. I; Ex. B at Art. I in C.A. No. 02-1361 JJF.) The Policies define "Loss" as a claim that the Plaintiffs submit to Royal for a student loan in default. (D.I. 109; Ex. A at Art. 2 in C.A. No. 02-1294 JJF; D.I. 30 Ex. A at Art. 2; Ex. B at Art. 2 in C.A. No. 02-1361 JJF.)

STANDARD OF REVIEW

Pursuant to Rule 56(c) of the Federal Rules of Civil Procedure, a party is entitled to summary judgment if a court determines from its examination of "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any," that there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). In determining whether there is a triable dispute of material fact, a court must review all of the evidence and construe all inferences in the light most favorable to the non-moving party. Goodman v. Mead Johnson & Co., 534 F.2d 566, 573 (3d Cir.1976). However, a court should not make credibility determinations or weigh the evidence. Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 120 S.Ct. 2097, 2110, 147 L.Ed.2d 105 (2000).

To defeat a motion for summary judgment, Rule 56(c) requires the non-moving party to:

do more than simply show that there is some metaphysical doubt as to the material facts.... In the language of the Rule, the non-moving party must come forward with "specific facts showing that there is a genuine issue for trial." ... Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is "no genuine issue for trial."

Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986)(quoting Fed.R.Civ.P. 56). Accordingly, a mere scintilla of evidence in support of the non-moving party is insufficient for a court to deny summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

DISCUSSION

First, due to the voluminous briefing and oral argument on these Motions, the Court will outline what it finds to be the parties' positions.5 The Plaintiffs contend that under the clear language of their Policies, Royal has waived all defenses it may have, including fraud in the inducement, to avoid payment. The Plaintiffs also contend that they were not parties to SFC's fraudulent acts. Further, the Plaintiffs contend that any discovery is unnecessary and summary judgment is appropriate, because there is no circumstance in which Royal can avoid its payment obligation.

Through its presentation at oral argument and the briefs it relies upon,6 Royal contends that fraud in the inducement precludes the entry of summary judgment in the Plaintiffs' favor. Royal contends that the Policies contain no specific waiver of its fraud defense and that the broad waiver of defenses in the Policies does not provide for a waiver of fraud in the inducement. At most, Royal concedes that the Policies contain an ambiguity that prevents the entry of judgment in the Plaintiffs' favor.

Royal also contends that it is entitled to rescind the Policies because of SFC's fraudulent misrepresentations. Further, Royal contends that the "known loss" doctrine and the fact that the Policies are insurance policies and not guaranties precludes the entry of judgment.

As an initial matter, the Court concludes that the Plaintiffs are direct beneficiaries of their Policies. Royal has presented no case, and the Court has found none, which would negate the Policies' identification of the Plaintiffs as the beneficiaries. (D.I. 109; Ex. A at 1 in C.A. No. 02-1294 JJF); see also 4 Couch on Insurance § 59:1 (3rd ed.2003) (stating that the insured is generally unrestricted in its right to name a beneficiary of its policy).

Further, despite Royal's contentions, the Court concludes that Delaware law does not prohibit disclaimers of fraud claims. Although Delaware case law demonstrates a reluctance to honor such disclaimers where the parties are unsophisticated and where the disclaimers are boilerplate and contain language they did not bargain for, Delaware courts have honored disclaimers of fraud, and specifically fraud in the inducement, where the contract at issue involves sophisticated parties and negotiated disclaimer language. Compare Norton v. Poplos, 443 A.2d 1 (Del.1982) (finding that rescission of a real estate contract was not barred by a boilerplate clause which stated that title to the property in question is "subject to all existing encumbrances and restrictions of record."), with Great Lakes Chemical Corp. v. Pharmacia Corp., 788 A.2d 544, 555-56 (Del.Ch.2001) (finding a valid disclaimer of fraudulent inducement where highly sophisticated parties, "assisted by industry consultants and experienced legal counsel, entered into carefully negotiated disclaimer language after months of extensive due diligence" and where the parties explicitly allocated risks under a Purchase Agreement).

Also, as noted in the Court's previous Memorandum Opinion, the Court finds that case law involving guaranties and sureties is directly on point with regard to the instant Motions. Royal, 286 F.Supp.2d at 355. First, the Court observes that the Policies operate like guaranties. Specifically, the Policies define a "Default" as ninety days' delinquency on a student loan. (D.I. 109; Ex. A at Art. II: E in C.A. No. 02-1294 JJF; D.I. 30; Ex. A at Art. II: D; Ex. B at Art. II: E in C.A. No. 02-1361 JJF). The Policies identify the Plaintiffs as the beneficiaries entitled to claim any "Loss" from a Default, and a "Loss" is defined as the "Value" of the student loan, which in turn is defined as the principal balance outstanding under the loan, plus accrued interest up to the Default Date. (D.I. 109; Ex. A at Arts. I, II in C.A. No. 02-1294 JJF; D.I. 30; Ex. A at Arts. I, II; Ex. B at Arts. I, II in C.A. No. 02-1361 JJF.) In other words, the Policies provide that if a student defaults, Royal will pay the loan plus interest...

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  • Mbia Ins. Corp. v. Royal Indem. Co.
    • United States
    • U.S. Court of Appeals — Third Circuit
    • October 3, 2005
    ...this defense. In separate opinions, the District Court entered summary judgment for the beneficiaries. See MBIA Ins. Corp. v. Royal Indem. Co., 312 F.Supp.2d 583 (D.Del.2004); MBIA Ins. Corp. v. Royal Indem. Co., 286 F.Supp.2d 347 (D.Del.2003). It found that the ten policies unambiguously w......

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