Washington Mutual MortgageMutual Mortgage (Washington Mortgage)
v. Arch Ins. Co., No. CV C14-0545RSL, 2017 WL 5289547 (W. D. Wash. Nov. 13, 2017) dealt with the question of "direct" versus "indirect" loss in a litigation involving a loan given by a bank to Washington Mutual Bank (WaMu) by Arch Insurance Company (Arch).
However, the Tribunal found that WaMu's loss from the acquisition of defrauded credits was "direct" and that WaMu's sales and contract commitment to buy back the defrauded credits did not transform its loss from directly to indirectly. At the beginning of the 2000s, WaMu acquired a number of mortgage mortgages on properties from third parties.
Among these undertakings was one, namely Mortgage Corporation (CIP). WaMu, after finding discrepancies in some of the credits, informed the KVP of the problems and the KVP allegedly took corrective action, which included the dismissal of the creditor. Later WaMu found that KVP's net assets in 2003 were less than one-tenth of those of the previous year, largely due to a significant dividend payout to stockholders.
Later WaMu stopped its KVP operations. WaMu was informed three years later by a suspect in a crime that she had been the subject of a perpetuation of cheating by Clean Intellectual Institutions (CIP), and after an inquiry, WaMu came to the conclusion that she had bought about 124 mortgage bonds for a total of $53,344,641.16. They had " drawn up deceptive papers, comprising credit requests, mortgage claims, promissory note claims and security interests, to make it look as if a third person was lending cash backed by properties held or under the control of CIP'sEO.
" Then, the chief executive officer and others implicated in the scam provided just enough cash to get through the arrangement, selling the credit to WaMu and keeping the revenue to themselves without ever taking the mortgage, tax or insuring. They were disbursed each month so that they seemed legitimately.
While WaMu had divested the credits to CeitiMortgage, it had a contractual obligation to buy back the credits if WaMu's significant assurances and guarantees regarding the credits were found to be incorrect. Warmu has informed its porters of the losses. By borrowing from the bank, the insurer was obliged to compensate WaMu for'[l]oss arising directly from an employee's dishonesty or fraud', with the intention of causing WaMu a personal loss and obtaining a pecuniary advantage.
Bonds contained an exemption for "indirect or incidental damages of any kind". "After the airlines refused cover and WaMu crashed in 2008, the FDIC brought an action against Ar. Arch requested a fast-track procedure and argued in part that WaMu's actual profits were not'directly' due to CIP's frauds, but resulted from WaMu's contract commitments to buy back the frauds.
" Nevertheless, the Tribunal found that'a good grasp of politics and the relationships between the companies involved' showed that WaMu incurred a financial deficit as soon as it provided funding to it [ ] and in exchange obtained valueless documents. That'?s how the losing was "direct". "While WaMu "may have been able to mitigate its casualties over the course of times when the fraudsters made payment and/or WaMu resold the credit to third party, it still incurred an early deficit equal to the amount it had incurred for the credit frauds resulting directly from the lenders' con.
" In addition, the Tribunal found that "Arch does not cite any political jargon that would substantiate the allegation that a sudden extinction of the species the insurance should have covered becomes indirectly because at a later stage efforts to mitigate it were fruitless. In many cases, the difference between "direct" and "indirect" losses results.
Given that many polices and loans do not delineate either kind of losses, freight forwarders often claim, as Arch has done here, that the resulting pecuniary losses are merely an "indirect" consequence of deceit.