Ocwen Loan Servicing, LLC v. Radian Guaranty, Inc.
| Decision Date | 31 January 2018 |
| Docket Number | CIVIL ACTION NO. 16-6586 |
| Parties | OCWEN LOAN SERVICING, LLC, et al. v. RADIAN GUARANTY, INC. |
| Court | U.S. District Court — Eastern District of Pennsylvania |
The effect of the residential home mortgage crisis beginning over ten years ago now involves two companies never meeting the homeowners who lost their homes. We today review an insurer's obligations in insurance policies on 30 defaulted mortgages. The loan servicer for the defaulted mortgages is now suing the insurer for coverage and damages. The parties chose these 30 defaulted mortgages as examples to guide us in resolving the scope of insurance coverage for over 7,000 other loan defaults. After studying both the loan servicer's and insurer's variety of arguments seeking judgment as a matter of law based on statute of limitations and contract interpretation, we enter the accompanying Order granting the parties' cross-motions for summary judgment in part but denying their cross-motions in part on issues either not developed or ripe for summary resolution.
While most of today's analysis arises in the microcosm of insurance policies of interest principally to trustees of mortgage investment vehicles and insurers, some brief context may be helpful to citizens. A home purchaser may borrow money from a bank to buy a home and provide her bank with a mortgage to secure the borrowing. The home purchaser provides information on, among other things, her finances, income, and type of residence. The lender studies this offered information and decides how much to lend the home purchaser secured by a mortgage on the home. If the homeowner defaults on her loan, the bank may foreclose on the home.
As occurred in the mid-2000s, the bank may sell the homeowner's mortgage into a pool of individual mortgages owned by an investment vehicle controlled by a trustee which, in turn, sells ownership interests in the pooled mortgages as securities. The trustee holding the thousands of pooled mortgages may also hire a mortgage loan "servicer" to collect the loan payments from the home purchaser and otherwise protect rights under the mortgage. The trustee may acquire insurance to cover losses for defaults in any of its pooled mortgages. The insurer describes its policy sold to the trustee as a "loan certificate" to cover an individual mortgage. If the homeowner defaults on her mortgage then held by the investment vehicle, the trustee through its loan servicer may seek to recover losses from the insurer.
Ocwen Loan Servicing, LLC and Homeward Residential, Inc. ("Ocwen") are residential mortgage loan servicers. Radian Guaranty, Inc. sells residential mortgage insurance.1 Before the housing bubble burst beginning in 2007-2008, Ocwen serviced and Radian insured mortgages where the lenders used alternative underwriting guidelines to verify the incomes of borrowers and approve loan amounts secured by mortgages. These mortgages are commonly called "stated income," "subprime", or "Alt-A" mortgages.2 Radian insured residential mortgages through three types of policies, "primary," "pool," and "modified pool" policies.3 Radian's primarypolicy is coverage for a single mortgage while its pool and modified pool policies cover a group or a "pool" of mortgages insured together.4
This case involves 7,095 mortgages serviced by Ocwen and insured by Radian.5 At its most basic, Ocwen alleges Radian insured these mortgages under "relax[ed]" guidelines and then after the housing crisis and while facing increasing mortgage defaults and fearing its financial exposure, Radian began re-underwriting the mortgages after Ocwen submitted a claim resulting in Radian denying, curtailing, or rescinding coverage for these mortgages based on new requirements or interpretations of its earlier guidelines.6 Ocwen sued alleging Radian breached their contract and acted in bad faith in denying coverage and seeks declaratory judgment and equitable indemnification. Radian responds Ocwen breached their contract by failing to cure defaults, modify mortgage terms, or mitigate losses when servicing the mortgages.7 Radian also alleges Ocwen committed insurance fraud under Pennsylvania law by knowingly submitting "meritless" policy claims and alleged it unjustly enriched Ocwen when it accepted payments for claims on the mortgage certificates it now includes in this case.8
While there are arguably 7,095 different claims for coverage, many of the issues focus on our contract interpretation of common policy language in thousands of loan certificates. The parties agree many claims could be dismissed through dispositive motions. Consistent with our obligation under Federal Rule of Civil Procedure 1, we ordered discovery to proceed in two phases. In the first phase, we ordered each party to select 20 loans (40 loans total) "intended to present a good faith representative sampling bellwether of most, if not all, legal issues to be resolved."9
During discovery, both parties agreed to cross-move for judgment on what they perceived to be common legal issues in 40 selected bellwether loans.10 Ocwen then withdrew its claims on10 of the bellwether loans.11 We will first address the cross-motions for summary judgment on Ocwen's breach of contract, bad faith, and equitable indemnification claims and then we will address Ocwen's motions for summary on Radian's counterclaims for statutory insurance fraud, breach of contract, and unjust enrichment. We address arguments on the remaining 30 bellwether loan certificates.12
Radian seeks judgment dismissing Ocwen's breach of contract, bad faith, and equitable indemnification claims. Ocwen moves for judgment on its breach of contract claims. Neither party moves on Ocwen's declaratory judgment claim.
Ocwen alleges Radian breached the terms of the loan certificate for 30 bellwether loan certificates. Radian raises a variety of arguments seeking judgment: on 3 loan certificates, Radian already paid the Aggregate Risk Amount13; on 9 loan certificates, Ocwen's breach of contract claim is barred by the suit limitations period defined in the loan certificate; on 14 loan certificates, the claims are barred by mutual rescission; on 6 loan certificates, the claims are barred by accord and satisfaction; and, on 3 loan certificates, Ocwen failed to timely submit the initial coverage claim to Radian.
Ocwen moves for summary judgment on its breach of contract claim on 4 of the loan certificates arguing Radian breached as a matter of law.
Radian moves for summary judgment on 3 loan certificates (53106980, 53108723, 53107616) arguing it paid the Aggregate Risk Amount under Pool Policy 06-103210 whichcovers all 3 loan certificates. Radian also moves for summary judgment on the other non-bellwether loan certificates covered under Pool Policy 06-103210 because it paid the Aggregate Risk Amount.
a. Relevant disputed facts.
Pool Policy 06-103210 covers 3 loan certificates. It has an Aggregate Risk Amount of $28,645,690.14 The policy also has an aggregate loss limit term so when Radian pays aggregate losses equaling the Aggregate Loss Limit of the policy, "the liability of [Radian] to pay any additional claims for loss ceases until the aggregate losses are reduced to an amount below the Aggregate Loss Limit."15
Radian's executive vice president for Mortgage Insurance and Services Operations declares Radian paid $28,650,559.89 in aggregate losses on Pool Policy 06-103210 which is $4,869.89 over the Aggregate Loss Limit.16 Radian argues because its payments on the policy exceed the Aggregate Risk Amount, it has no liability to pay more on these 3 loan certificates. In response, Ocwen's executive vice president and chief executive officer declares Radian paid $28,554,227.28 on Pool Policy 06-103210 which is $91,462.80 less than the Aggregate Risk Amount.17
We deny summary judgment for Radian on loan certificates 53106980, 53108723, and 53107616 because there is a genuine dispute of material fact whether Radian's payments under Pool Policy 06-103210 equaled the Aggregate Loss Amount.
Radian moves for summary judgment on 9 loan certificates arguing Ocwen's breach of contract claim is barred by the suit limitation provision under the specific policy for each certificate. The parties dispute which event triggers the contractual period of limitations. Radianargues the triggering event is the home foreclosure or other approved sale of the property but "solely for the purposes of this motion" argues the triggering event is the "insured's acquisition of the borrower's title to the property."18 Ocwen argues the triggering event is the date Radian denies, curtails, or rescinds its claim under the insurance policy. The parties also dispute whether the conformity clause if the policies requires us to conform the suit limitation provision to Florida's five-year statute of limitations on Florida homes.
Radian's master policy generally governs its relationship with the "Insured" when Radian issues primary coverage for flow or bulk mortgage transactions.19 Because Radian issues an additional policy when issuing coverage for the pool of mortgages (either flow or bulk), the pools (and individual mortgages) are often governed by both the master policy and the specific documents.20
Loan Certificate Policy type Suitlimitation Locatedin Florida Radian decision/last action date 53001043 Master 2 5/19/2014 64040480 Master 2 x 5/2/2013 65575723 Master 2 1/7/2015 65584131 Master 3 12/11/2013 65817890 Pool 2 x 2/3/2012 82618193 Master 2 11/11/2013...
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