Lenning v. Commercial Union Ins

Opinion

5(&200(1'(' )25 )8//7(;7 38%/,&$7,21 3XUVXDQW WR 6L[WK &LUFXLW 5XOH 

(/(&7521,& &,7$7,21  )(' $SS 3 WK &LU )LOH 1DPH DS

81,7('67$7(6&28572)$33($/6 )257+(6,;7+&,5&8,7 BBBBBBBBBBBBBBBBB

6$1'5$ . /(11,1* ; 3ODLQWLII$SSHOODQW    1R Y  !  &200(5&,$/ 81,21  ,1685$1&( &203$1<   'HIHQGDQW$SSHOOHH   1 $SSHDOIURPWKH8QLWHG6WDWHV'LVWULFW&RXUW IRUWKH:HVWHUQ'LVWULFWRI.HQWXFN\DW/RXLVYLOOH 1RnsHQQLIHU%&RIIPDQ'LVWULFWsXGJH $UJXHG$SULO 'HFLGHGDQG)LOHG$XJXVW %HIRUH%2**6DQG&/$<&LUFXLWsXGJHV*:,1 'LVWULFWsXGJH

7KH +RQRUDEOH sDPHV 6 *ZLQ 8QLWHG 6WDWHV 'LVWULFW sXGJH IRU WKH 1RUWKHUQ 'LVWULFW RI 2KLR VLWWLQJ E\ GHVLJQDWLRQ

  /HQQLQJY&RPPHUFLDO8QLRQ,QV&R 1R

BBBBBBBBBBBBBBBBB &2816(/ $5*8('  &KDUOHV * 0LGGOHWRQ ,,, 0,''/(721 5(87/,1*(5/RXLVYLOOH.HQWXFN\IRU$SSHOODQW5REHUW 3 sRKQVRQ 7+203621 +,1(  )/25< &LQFLQQDWL 2KLRIRU$SSHOOHH21%5,()&KDUOHV*0LGGOHWRQ,,, 0,''/(721 5(87/,1*(5/RXLVYLOOH.HQWXFN\IRU $SSHOODQW  5REHUW 3 sRKQVRQ 7+203621 +,1( )/25<&LQFLQQDWL2KLRIRU$SSHOOHH BBBBBBBBBBBBBBBBB 23,1,21 BBBBBBBBBBBBBBBBB &/$<&LUFXLWsXGJH3ODLQWLII6DQGUD/HQQLQJDSSHDOV WKHGLVWULFWFRXUWjVRUGHUJUDQWLQJVXPPDU\MXGJPHQWLQIDYRU RI'HIHQGDQW&RPPHUFLDO8QLRQ,QVXUDQFH&RPSDQ\LQWKLV GLYHUVLW\DFWLRQDOOHJLQJEUHDFKRIDKRPHRZQHUj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jV ILDQFp (G *DWWHUGDP KDV ZRUNHG DV D JHQHUDO FRQWUDFWRU IRU UHVLGHQWLDO KRPHV  +LV RZQ FRQVWUXFWLRQ EXVLQHVV HQGHG ZLWK KLV SHUVRQDO EDQNUXSWF\ LQ   ,Q  3ODLQWLII DQG *DWWHUGDP DJUHHG WR EXLOG VL[ KRPHV XVLQJ WKH SURILWV IURP WKH VDOH RI HDFK KRPH WR ILQDQFH 1R /HQQLQJY&RPPHUFLDO8QLRQ,QV&R 

FRQVWUXFWLRQ RI WKH QH[W KRPH  $FFRUGLQJ WR WKHLU SODQ 3ODLQWLII ZRXOG REWDLQ D FRQVWUXFWLRQ ORDQ WR ILQDQFH WKH EXLOGLQJ RI HDFK KRXVH  *DWWHUGDP ZRXOG WKHQ VHUYH DV FRQVWUXFWLRQPDQDJHUDQGUHFHLYHDIHHSDLGE\3ODLQWLII7KH FRXSOHKRSHGWKDWWKHLUSODQZRXOGJHQHUDWHHQRXJKPRQH\VR WKDW WKH\ FRXOG UHWLUH WR )ORULGD  +RZHYHU 3ODLQWLII QRZ FODLPVWKDWZKHQVKHSXUFKDVHGWKHILUVWORWLQsXQHRI VKH LQWHQGHG WR EXLOG D KRPH IRU XVH DV KHU SHUVRQDO UHVLGHQFH 6DOHRIWKH+RPH 7KH ILUVW KRXVH RQ ZKLFK 3ODLQWLII DQG *DWWHUGDP FROODERUDWHG ZDV EXLOW DW  7LPEHU 5LGJH LQ 3URVSHFW .HQWXFN\  :KHQ *DWWHUGDP EHJDQ FOHDULQJ WKH ORW DQG SRXULQJWKHKRXVHjVFRQFUHWHIRXQGDWLRQ KHHUHFWHGDVLJQ WKDWUHDGm( *$VVRFLDWHVZLOOEXLOGWRVXLWl7KHVLJQ DOVR LQFOXGHG *DWWHUGDPjV KRPH WHOHSKRQH QXPEHU ZKLFK ZDV DVVLJQHG WR WKH DSDUWPHQW KH VKDUHG ZLWK 3ODLQWLII 6KRUWO\DIWHU*DWWHUGDPSRXUHGWKHIRXQGDWLRQ'HQQLV7DSS DQLQWHULRUGHFRUDWRUZKROLYHGQHDUE\FRQWDFWHG3ODLQWLIIDQG *DWWHUGDP E\ WHOHSKRQH DQG H[SUHVVHG KLV LQWHUHVW LQ SXUFKDVLQJWKHDV\HWXQEXLOWKRXVH3ODLQWLIIEHOLHYHVWKDW 7DSSFRQWDFWHGWKHPDIWHUVHHLQJWKHSKRQHQXPEHURQWKH VLJQ7DSSPHWZLWK3ODLQWLIIDQG*DWWHUGDPRQD6DWXUGD\ PRUQLQJWRUHYLHZWKHKRXVHjVSODQVDQGWRVXJJHVWGHVLJQ FKDQJHV2Q$XJXVW3ODLQWLII*DWWHUGDPDQG7DSS VLJQHGDGRFXPHQWWLWOHGm7UL3DUW\&RQVWUXFWLRQ&RQWUDFWl XQGHUZKLFK7DSSDJUHHGWRSXUFKDVHWKHKRPHIURP3ODLQWLII IRUXSRQFRPSOHWLRQ

 3ODLQWLII DQG *DWWHUGDP DUH QRZ EXLOGLQJ D IRXUWK KRPH 7KH VHFRQG KRPH ZDV FRQVWUXFWHG RQ D ORW SXUFKDVHG E\ 3ODLQWLII DURXQG WKH WLPH VKH SXUFKDVHG WKH 7LPEHU 5LGJH ORW 3ODLQWLII VWDWHV WKDW KHU SURILW RQ WKH WKUHH FRPSOHWHG KRPHV WRWDOV EHWZHHQ  DQG  3ODLQWLII DQG *DWWHUGDP FXUUHQWO\ OLYH LQ DQ DSDUWPHQW DQG WKH\ VWLOO SODQ RQ EXLOGLQJ D WRWDO RI VL[ KRPHV  7KH VLJQ ZDV DSSDUHQWO\ XVHG LQ *DWWHUGDPjV FRQVWUXFWLRQ EXVLQHVV SULRU WR KLV EDQNUXSWF\  /HQQLQJY&RPPHUFLDO8QLRQ,QV&R 1R 1R /HQQLQJY&RPPHUFLDO8QLRQ,QV&R 

$OWKRXJK7DSSZDVWKHKRPHEX\HU3ODLQWLIIREWDLQHGWKH IXOO\GHYHORSHG%XWWKHYHU\QDWXUHRI7DSSjVFRPSODLQW FRQVWUXFWLRQ ORDQ QHFHVVDU\ WR ILQDQFH WKH EXLOGLQJ RI WKH FRPELQHG ZLWK 3ODLQWLIIjV RZQ VWDWHPHQWV GXULQJ WKH KRXVH6KHSHUVRQDOO\SDLGVXEFRQWUDFWRUVDQGREWDLQHGDOO LQWHUYLHZ LQGLFDWLQJ WKDW VKH ZDV HQJDJHG LQ D EXVLQHVV QHFHVVDU\ EXLOGLQJ OLFHQVHV DQG SHUPLWV  3ODLQWLII DQG SXUVXLW PDGH IXUWKHU LQYHVWLJDWLRQ XQQHFHVVDU\ LQVRIDU DV *DWWHUGDPMRLQWO\VHQWDOHWWHUWRRQHVXEFRQWUDFWRUH[SUHVVLQJ WKH\GHPRQVWUDWHGWKDWWKHUHZDVQRSRWHQWLDOFRYHUDJH,Q WKHLU GLVSOHDVXUH ZLWK WKH LQVWDOODWLRQ RI WKH KRPHjV OLJKW RI WKHVH IDFWV 3ODLQWLIIjV FODLP WKDW WKHUH UHPDLQHG m'5<9,7lRXWHUFRYHULQJ,QDGGLWLRQWKHWZRMRLQWO\VLJQHG XQUHVROYHG TXHVWLRQV UHJDUGLQJ WKH QDWXUH RI 7DSSjV DOO FKDQJH RUGHUV  $OWKRXJK WKH WHUP m6HOOHUl DSSHDUHG mQHJOLJHQFHlFODLPDQGZKHWKHU3ODLQWLIIZDVLQYROYHGLQD EHQHDWK3ODLQWLIIjVVLJQDWXUHRQWKHFKDQJHRUGHUVWKHIRUPV EXVLQHVV SXUVXLW PXVW IDLO  &8,& KDG QR GXW\ WR IXUWKHU ERUH WKH KHDGLQJ m6 /HQQLQJ( *DWWHUGDP %OGUl  7KH LQYHVWLJDWH RU ZDLW WR VHH LI WKH DOOHJDWLRQV LQ 7DSSjV SDUWLHV FORVHG RQ WKH FRQWUDFW RQ sDQXDU\   ZLWK FRPSODLQW VRPHKRZ PRUSKHG WKURXJK DPHQGPHQW RU 3ODLQWLIIFRQYH\LQJWKHSURSHUW\WR7DSSE\DJHQHUDOZDUUDQW\ RWKHUZLVHIURPHFRQRPLFFODLPVDJDLQVW3ODLQWLIIDVDSURILW GHHGDWDSURILWRIRYHU3ODLQWLIIQHYHUPRYHGLQWR GULYHQEXLOGHULQWRFODLPVIDOOLQJZLWKLQWKHFRYHUDJHRIWKH RUVSHQWDQLJKWDWWKHKRXVH SROLF\)RUWKHVHUHDVRQVZHGRQRWEHOLHYHWKDW3ODLQWLIIFDQ SURYH WKDW &8,& YLRODWHG WKH 8QIDLU &ODLPV 6HWWOHPHQW 7KH+RPHRZQHUjV,QVXUDQFH3ROLF\ 3UDFWLFHV$FW,QDGGLWLRQLQOLJKWRIRXUILQGLQJWKDW&8,& GLG QRW EUHDFK LWV GXWLHV WR GHIHQG RU DFW LQ JRRG IDLWK $IWHUSXUFKDVLQJWKHORWEXWEHIRUHHQWHULQJWKHFRQWUDFW 3ODLQWLIIFDQQRWGHPRQVWUDWHWKDWWKHFRPSDQ\HQJDJHGLQDQ\ ZLWK 7DSS 3ODLQWLII REWDLQHG D FXVWRP KRPHRZQHUjV XQFRQVFLRQDEOH EXVLQHVV SUDFWLFHV WKDW ZRXOG YLRODWH WKH LQVXUDQFH SROLF\ WKH mSROLF\l ZULWWHQ E\ WKH &RPPHUFLDO &RQVXPHU3URWHFWLRQ$FW 8QLRQ,QVXUDQFH&RPSDQ\m&8,&lWKURXJKDQLQGHSHQGHQW DJHQW WKH /DQJDQ &RPSDQ\ m/DQJDQl  7KH SROLF\ 9 SXUFKDVHGE\3ODLQWLIILQFOXGHVDVHFWLRQHQWLWOHGm6(&7,21 ,,o/,$%,/,7<&29(5$*(6lZKLFKVHWVIRUWKWKHWHUPV 7KH IDFWV RI WKLV FDVH PDNH FOHDU WKDW WKHUH ZDV QR IRUFRYHUDJHLQFOXGLQJDOHJDOGHIHQVHIRUSHUVRQDOOLDELOLW\ SRVVLELOLW\RIFRYHUDJHXQGHUWKHSROLF\ZLWKUHVSHFWWRWKH ODZVXLWV 7DSS ODZVXLW  $V D UHVXOW &8,& GLG QRW KDYH D GXW\ WR GHIHQG3ODLQWLIIDJDLQVWWKDWVXLW,QDGGLWLRQQRHYLGHQFHLQ &29(5$*((o3HUVRQDO/LDELOLW\ WKHUHFRUGVXSSRUWV3ODLQWLIIjVFODLPWKDW&8,&YLRODWHGWKH .HQWXFN\ FRQVXPHU SURWHFWLRQ DQG LQVXUDQFH FRGHV  :H ,I D FODLP LV PDGH RU D VXLW LV EURXJKW DJDLQVW DQ WKHUHIRUHKROGWKDWWKHGLVWULFWFRXUWFRUUHFWO\GHWHUPLQHGWKDW mLQVXUHGlIRUGDPDJHVEHFDXVHRImERGLO\LQMXU\lRU QRJHQXLQHLVVXHRIPDWHULDOIDFWUHPDLQHGDQGWKDW&8,&ZDV mSURSHUW\ GDPDJHl FDXVHG E\ DQ mRFFXUUHQFHl WR HQWLWOHGWRVXPPDU\MXGJPHQW$FFRUGLQJO\ZH$)),50 ZKLFKWKLVFRYHUDJHDSSOLHVZHZLOO WKHGLVWULFWFRXUWjVMXGJPHQW  3D\XSWRRXUOLPLWRIOLDELOLW\IRUWKHGDPDJHVIRU ZKLFK WKH mLQVXUHGl LV OHJDOO\ OLDEOH  'DPDJHV LQFOXGH SUHMXGJPHQW LQWHUHVW DZDUGHG DJDLQVW WKH mLQVXUHGlDQG  3URYLGHDGHIHQVHDWRXUH[SHQVHE\FRXQVHORIRXU FKRLFH HYHQ LI WKH VXLW LV JURXQGOHVV IDOVH RU  /HQQLQJY&RPPHUFLDO8QLRQ,QV&R 1R 1R /HQQLQJY&RPPHUFLDO8QLRQ,QV&R 

D ZULWWHQ FODLPV PDQXDO LQVWUXFWLQJ LWV DJHQWV RQ FODLPV IUDXGXOHQW:HPD\LQYHVWLJDWHDQGVHWWOHDQ\FODLP LQYHVWLJDWLRQ RUVXLWWKDWZHGHFLGHLVDSSURSULDWH2XUGXW\WR VHWWOHRUGHIHQGHQGVZKHQWKHDPRXQWZHSD\IRU $V WKH GLVWULFW FRXUW QRWHG .HQWXFN\jV 8QIDLU &ODLPV GDPDJHV UHVXOWLQJ IURP WKH mRFFXUUHQFHl HTXDOV 6HWWOHPHQW $FW GRHV QRW UHTXLUH LQVXUHUV WR DGRSW ZULWWHQ RXUOLPLWRIOLDELOLW\ PDQXDOV  ,Q DGGLWLRQ 3ODLQWLII GRHV QRW SRLQW WR DQ\ SURFHGXUHVWKDWVKRXOGEHFRQWDLQHGLQVXFKDPDQXDOQRU 3ROLF\ S  s$ DW   $FFRUGLQJ WR WKH GRHV VKH GHPRQVWUDWH KRZ &8,&jV LQYHVWLJDWLRQ ZDV m'(),1,7,216lVHFWLRQRIWKHSROLF\ VXEVWDQWLYHO\LQDGHTXDWHLQWKHFDVHDWEDU/DVFKWHVWLILHG WKDWLQLQYHVWLJDWLQJFODLPV  m2FFXUUHQFHl PHDQV DQ DFFLGHQW LQFOXGLQJ FRQWLQXRXVRUUHSHDWHGH[SRVXUHWRVXEVWDQWLDOO\WKH >W@KHUHDUHQRVSHFLILFV:HKDYHZKHQ\RXILUVWVWDUW VDPH JHQHUDO KDUPIXO FRQGLWLRQV ZKLFK UHVXOWV WKLVEXVLQHVVVRPHERG\PLJKWKDQG\RXDW\SHGOLVWRI GXULQJWKHSROLF\SHULRGLQ TXHVWLRQV\RXFDQDVNLQDQLQMXU\FDVHWKDWVRUWRIWKLQJ EXWEDVLFDOO\\RXDUHDVNLQJTXHVWLRQVWKDW\RXIHOWDUH D m%RGLO\LQMXU\lRU JHUPDQHWRWKHLVVXHDQGWKHUHjVQRVHWJXLGHOLQHVRWKHU WKDQ QDPH DGGUHVV WHOO WKHP \RXjUH UHFRUGLQJ WU\ WR E m3URSHUW\GDPDJHl PHQWLRQ WKH GDWH DQG WLPH    , MXVW DVN ZKDWHYHU TXHVWLRQFRPHVWRPLQG 3ROLF\ S  s$ DW   $QRWKHU VHFWLRQ RI WKH SROLF\ m6(&7,21,,(;&/86,216lH[FOXGHVFHUWDLQW\SHVRI s$DW$OWKRXJKVKHKDGQRZULWWHQPDQXDOWRJXLGH FODLPVIURPSHUVRQDOOLDELOLW\FRYHUDJH KHU LQYHVWLJDWLRQ RI 3ODLQWLIIjV FODLP /DVFK GLG KDYH WKH EHQHILWRI\HDUVZRUWKRIH[SHULHQFHLQWKHILHOG,QWHUPV  &RYHUDJH(o3HUVRQDO/LDELOLW\DQG&RYHUDJH) RISURFHGXUHLWLVFOHDUWKDW&8,&UHVSRQGHGSURPSWO\ZKHQ o 0HGLFDO 3D\PHQWV WR 2WKHUV GR QRW DSSO\ WR QRWLILHG RI WKH FODLP UHFHLYHG DQG UHYLHZHG WKH 7DSS mERGLO\LQMXU\lRUmSURSHUW\GDPDJHl FRPSODLQWLQWHUYLHZHG3ODLQWLIIDQGUHIHUUHGWKHPDWWHUWRLQ KRXVHFRXQVHOIRUDUHFRPPHQGDWLRQDVWRZKHWKHUDGHIHQVH D :KLFK LV H[SHFWHG RU LQWHQGHG E\ WKH ZRXOGEHSURYLGHG3ODLQWLIIGRHVQRWHWKDW&8,&jVLQLWLDO mLQVXUHGl UHVSRQVHWRKHUZDVWRVXJJHVWWKDWVKHUHWDLQKHURZQFRXQVHO E $ULVLQJ RXW RI RU LQ FRQQHFWLRQ ZLWK D XQWLODGHWHUPLQDWLRQZDVPDGHUHJDUGLQJZKHWKHUDGHIHQVH mEXVLQHVVl HQJDJHG LQ E\ DQ mLQVXUHGl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mEXVLQHVVl &8,& FRQGXFWHG QR IXUWKHU LQYHVWLJDWLRQ  ,Q WKLV ZD\ VKH FRQWHQGV WKDW &8,& ZDV SUHSDUHG WR GHQ\ KHU GHIHQVH SURWHFWLRQ HYHQ WKRXJK LW GLG QRW NQRZ IRU FHUWDLQ WKDW QR FRYHUDJHZDVSRVVLEOH3ODLQWLIIDUJXHVWKDWWKHIDFWVZHUHQRW  7KH ODQJXDJH LQ EROG LQ WKLV DQG DOO RWKHU FLWDWLRQV WR WKH LQVXUDQFH SROLF\ LV LQFOXGHG LQ WKH RULJLQDO GRFXPHQW  /HQQLQJY&RPPHUFLDO8QLRQ,QV&R 1R 1R /HQQLQJY&RPPHUFLDO8QLRQ,QV&R 

 FODLPDQGOLWLJDWHLWLIWKHFODLPLVGHEDWDEOHRQWKHODZRU WKHIDFWV G $ULVLQJRXWRIWKHUHQGHULQJRIRUIDLOXUHWR UHQGHUSURIHVVLRQDOVHUYLFHV :LWWPHUYsRQHV6:G.\TXRWLQJ )HGHUDO.HPSHU,QV&RY+RUQEDFN6:G H $ULVLQJRXWRIDSUHPLVHV  .\  /HLEVRQ s GLVVHQWLQJ VWDWLQJ YLHZV RZQHGE\DQmLQVXUHGl LQFRUSRUDWHGE\UHIHUHQFHLQ&XUU\Y)LUHPDQjV)XQG,QV  &R  6:G   .\    $V RXU SUHYLRXV GLVFXVVLRQUHIOHFWVLWLVFOHDUWKDW&8,&ZDVQRWREOLJDWHGWR  &RYHUDJH(o3HUVRQDO/LDELOLW\GRHVQRWDSSO\WR GHIHQG3ODLQWLIIDJDLQVWWKH7DSSODZVXLW7KHUHIRUHZHQHHG QRWDGGUHVVWKHUHPDLQGHURI3ODLQWLIIjVEDGIDLWKFODLP  ,9 E m3URSHUW\ GDPDJHl WR SURSHUW\ RZQHG E\ WKHmLQVXUHGl )LQDOO\3ODLQWLIIFRQWHQGVWKDW'HIHQGDQW&8,&YLRODWHG WZR .HQWXFN\ VWDWXWHV E\ IDLOLQJ WR UHDVRQDEO\ DQG 3ROLF\Ss$DW VXIILFLHQWO\ LQYHVWLJDWH KHU FODLP  7KH 8QIDLU &ODLPV 6HWWOHPHQW3UDFWLFH$FW.56 †KROGVLQVXUHUV 7KH SROLF\ QDPHV RQO\ 3ODLQWLII DV DQ LQVXUHG SDUW\ OLDEOH IRU LQWHU DOLD m>I@DLOLQJ WR DFNQRZOHGJH DQG DFW /DQJDQDJHQW7RP%DUUHWWWHVWLILHGDWKLVGHSRVLWLRQWKDWDW UHDVRQDEO\ SURPSWO\XSRQFRPPXQLFDWLRQVZLWKUHVSHFWWR WKH WLPH 3ODLQWLII SXUFKDVHG WKH SROLF\ KH EHOLHYHG VKH FODLPVDULVLQJXQGHULQVXUDQFHSROLFLHV>DQGI@DLOLQJWRDGRSW LQWHQGHG WR XVH WKH 7LPEHU 5LGJH KRPH DV KHU SHUVRQDO DQG LPSOHPHQW UHDVRQDEOH VWDQGDUGV IRU WKH SURPSW UHVLGHQFH  X@QIDLU IDOVH PLVOHDGLQJ RU GHFHSWLYH LQFOXGHG D EXLOGHUjV ULVN HQGRUVHPHQW ZKLFK ZRXOG H[SLUH DFWV RU SUDFWLFHV LQ WKH FRQGXFW RI DQ\ WUDGH RU FRPPHUFH XSRQ WKH FRPSOHWLRQ RI FRQVWUXFWLRQ /DQJDQ DJHQWV l.56†7KHVWDWXWHGHILQHVmXQIDLUlDV SHULRGLFDOO\FRQWDFWHG3ODLQWLIIRU*DWWHUGDPWRDVFHUWDLQWKH mXQFRQVFLRQDEOHl,G EXLOGLQJjV SURJUHVV  /DQJDQjV DFWLYLW\ ORJ IRU 3ODLQWLIIjV DFFRXQWLQGLFDWHVWKDWRQsDQXDU\ILYHPRQWKVDIWHU 7KHUH LV QR GLVSXWH DV WR ZKHWKHU &8,&jV DFWLRQ ZDV WKHWULSDUW\FRQWUDFWZDVH[HFXWHGDQGWZRZHHNVSULRUWR WLPHO\  &8,&jV VHQLRU FODLPV DGMXVWHU /DVFK DWWHPSWHG WR FORVLQJ 3ODLQWLII LQIRUPHG D /DQJDQ DJHQW WKDW VKH ZRXOG FRQWDFW 3ODLQWLII RQO\ RQH GD\ DIWHU UHFHLYLQJ QRWLFH RI WKH FORVHRQWKHKRPHZLWKLQDIHZZHHNVDQGZRXOGDGYLVHWKH 7DSSFRPSODLQWIURP3ODLQWLIIjVDJHQWDW/DQJDQ7KHYHU\ FRPSDQ\ZKHQVKHPRYHGLQWRWKHKRXVH QH[WGD\/DVFKLQWHUYLHZHG3ODLQWLII%XW3ODLQWLIIIDXOWVWKH FRXUW IRU SODFLQJ WRR PXFK HPSKDVLV RQ WKH WLPHOLQHVV RI &8,&jVUHVSRQVHLQVWHDGRIWKHVXIILFLHQF\RIWKHUHVSRQVH 7R WKLV HQG VKH DUJXHV WKDW &8,&jV LQYHVWLJDWLRQ ZDV XQUHDVRQDEOH EHFDXVH LW HQGHG ZLWK /DVFKjV WHOHSKRQH  LQWHUYLHZRI3ODLQWLIIDQGDOVREHFDXVH&8,&KDVQRWDGRSWHG 7KH SROLF\ GHILQHV mEXVLQHVVl DV D mWUDGH SURIHVVLRQ RU RFFXSDWLRQl 3ROLF\ S  s$ DW   /HQQLQJY&RPPHUFLDO8QLRQ,QV&R 1R 1R /HQQLQJY&RPPHUFLDO8QLRQ,QV&R 

KHU  %DVHG XSRQ WKHVH IDFWV ZH EHOLHYH WKDW 3ODLQWLII ZDV 7KH7DSS/DZVXLW HQJDJHG LQ D FRQWLQXRXV DQG SURILWPRWLYDWHG EXVLQHVV DFWLYLW\  7KXV LW ZDV DSSDUHQW IURP WKH RXWVHW RI WKH 2Q)HEUXDU\7DSSVXHG3ODLQWLIIDQG*DWWHUGDPLQ OLWLJDWLRQWKDW7DSSjVFRPSODLQWFRQFHUQHGDEXVLQHVVYHQWXUH sHIIHUVRQ &RXQW\ .HQWXFN\ &LUFXLW &RXUW  3ODLQWLII WKDWZDVH[FOXGHGIURPFRYHUDJHXQGHUWKHSROLF\ VXEPLWWHG D FRS\ RI 7DSSjV FRPSODLQW DQG WKH WULSDUW\ FRQWUDFW WR /DQJDQ IRU IRUZDUGLQJ WR &8,&  $OWKRXJK KH  3URSHUW\2ZQHU([FOXVLRQ IRUZDUGHGWKHGRFXPHQWVWR&8,&/DQJDQDJHQW7RP%DUUHWW DGYLVHG3ODLQWLIIWKDWWKHSROLF\GLGQRWDSSHDUWRFRYHUKHU &RYHUDJHZDVDOVRSUHFOXGHGE\WKHSROLF\jVH[FOXVLRQIRU FODLP  2Q )HEUXDU\   D &8,& VXSHUYLVRU .HQ GDPDJH WR SURSHUW\ WKDW LV RZQHG E\ WKH mLQVXUHGl  ,Q DQ 6FKZDUW] VHQW D KDQGZULWWHQ QRWH WR VHQLRU FODLPV HIIRUWWRFLUFXPYHQWWKLVH[FOXVLRQ3ODLQWLIIDUJXHVWKDW7DSS UHSUHVHQWDWLYH.DUHQ/DVFK7KHQRWHLQIRUPHG/DVFKRIWKH WRRNSRVVHVVLRQRIWKHSURSHUW\RQsDQXDU\DQGWKDW 7DSS ODZVXLW DQG DOHUWHG KHU WR D mSRVVLEOH H[FOXVLRQ IRU VKHGLGQRWFDQFHOWKHLQVXUDQFHSROLF\XQWLOLPPHGLDWHO\DIWHU EXVLQHVV RSHUDWLRQ XQOHVV WKLV LV DQ RFFDVLRQDO WKHFORVLQJ6KHWKHUHIRUHFRQWHQGVWKDWWKHGDPDJHVDOOHJHG RSHUDWLRQRFFXSDWLRQl/DVFKDWWHPSWHGWRWHOHSKRQH3ODLQWLII E\ 7DSS DURVH GXULQJ WKH SROLF\ SHULRG \HW QRW ZKLOH WKH WKDW GD\ EXW UHDFKHG RQO\ *DWWHUGDP  7KH IROORZLQJ SURSHUW\ ZDV RZQHG E\ 3ODLQWLII EXW UDWKHU ZKHQ LW ZDV PRUQLQJ/DVFKDJDLQWHOHSKRQHG3ODLQWLIIDQGREWDLQHGKHU RZQHGE\7DSS+RZHYHUDQ\DOOHJHGSRRUFUDIWVPDQVKLSRU SHUPLVVLRQ WR UHFRUG WKHLU FRQYHUVDWLRQ  'XULQJ WKH QHJOLJHQFH DFWXDOO\ DURVH ZKLOH WKH KRXVH ZDV VWLOO XQGHU FRQYHUVDWLRQ 3ODLQWLII YROXQWHHUHG WKH IDFW WKDW VKH DQG FRQVWUXFWLRQ  ,QDVPXFK DV 3ODLQWLII RZQHG WKH SURSHUW\ *DWWHUGDPKDGRULJLQDOO\LQWHQGHGWREXLOGDKRXVHDQGWKHQ GXULQJWKHHQWLUHFRQVWUXFWLRQSHULRGDQGXSXQWLOWKHFORVLQJ VHOOLW VKHZDVWKHRZQHUDWWKHWLPHWKHDOOHJHGGDPDJHRFFXUUHG ,Q DGGLWLRQ DQ\ RFFXUUHQFH WKDW DURVH DIWHU 7DSS WRRN SRVVHVVLRQ FRXOG QRW EH FRYHUHG E\ WKH SROLF\ HYHQ LI  7KH UHFRUGHG FRQYHUVDWLRQ EHWZHHQ 3ODLQWLII DQG /DVFK LQFOXGHG WKH 3ODLQWLII KDG \HW WR FDQFHO LW EHFDXVH WKH SROLF\ ZDV YRLG IROORZLQJ H[FKDQJH

XSRQWKHFRPSOHWLRQRIWKHWUDQVDFWLRQDWWKDWSRLQW3ODLQWLII ZDVQRORQJHUWKHRZQHURIWKHLQVXUHGSURSHUW\ 4    $QG 6DQGUD ZKDW    \RX ZRUN IRU 31&"

% %DG)DLWK $ &RUUHFW

4 $QG ZKDW GR \RX GR WKHUH" 3ODLQWLIIDOVRFRQWHQGV&8,&KDVYLRODWHGLWVGXW\RIJRRG IDLWK,QRUGHUWRSURYHDFODLPRIEDGIDLWKIRUUHIXVDOWRSD\ $ ,jP YLFHSUHVLGHQW LQ WKH SULYDWH EDQN

DFODLPRUFRQVHTXHQWO\WRGHIHQGDFODLPDQLQVXUHGSDUW\ PXVWGHPRQVWUDWHWKHH[LVWHQFHRIWKHIROORZLQJIDFWRUV 4 2ND\ $QG WKHQ GR \RX DOVR KDYH D VLGH EXVLQHVV RU    ,WjV JRW \RX    \RX DV D VHOOHU 'LG \RX RZQ VRPH SURSHUW\ RXW

WKHLQVXUHUPXVWEHREOLJDWHGWRSD\WKHFODLPXQGHU LQ WKLV 7LPEHU 5LGJH GHYHORSPHQW"

WKH WHUPV RI WKH SROLF\  WKH LQVXUHU PXVW ODFN D $

ZDVQRUHDVRQDEOHEDVLVIRUGHQ\LQJWKHFODLPRUDFWHG ZLWK UHFNOHVV GLVUHJDUG IRU ZKHWKHU VXFK D EDVLV $    DQG WKHQ (G *DWWHUGDP ILDQF>p@ DQG D EXLOGHU       MXVW KDSSHQV WR EH P\

H[LVWHG>$@QLQVXUHULVHQWLWOHGWRFKDOOHQJHD  /HQQLQJY&RPPHUFLDO8QLRQ,QV&R 1R 1R /HQQLQJY&RPPHUFLDO8QLRQ,QV&R 

2Q0DUFK&8,&LQIRUPHG3ODLQWLIIWKDWLWUHVHUYHG DFWLYHO\SDUWLFLSDWHGLQWKHKRPHEXLOGLQJSODQE\DFTXLULQJ DOOULJKWVDQGGHIHQVHVXQGHUWKHSROLF\LQFOXGLQJLWVULJKWWR WKH SURSHUW\ XSRQ ZKLFK WKH KRPH ZDV EXLOW REWDLQLQJ SXUVXHDMXGLFLDOGHWHUPLQDWLRQWKDWQRFRYHUDJHH[LVWHGXQGHU ILQDQFLQJIRUWKHFRQVWUXFWLRQWKURXJKKHUMREDVDOHQGHUIRU WKHSROLF\2Q0DUFK3ODLQWLIIjVDWWRUQH\PDLOHGWR 31&EDQNHQWHULQJLQWRWKHWULSDUW\FRQWUDFWVLJQLQJFKDQJH /DVFK VHYHUDO GRFXPHQWV UHODWLQJ WR 7DSSjV ODZVXLW RUGHUIRUPVDQGHYHQFRZULWLQJDOHWWHURIFRPSODLQWWRD 3ODLQWLIIj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jVFODLPDURVHRXW E\ \RX SULPDULO\    RIDEXVLQHVVSXUVXLW6KHDWWHPSWVWRGRZQSOD\KHUUROHE\ FODLPLQJWKDWLWZDVPDLQO\KHUILDQFp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s$ DW  3ODLQWLII ODWHU DFNQRZOHGJHG WKDW WKH WUDQVFULSW RI KHU QRQH H[LVWHG ZKHQ 7DSS ILOHG KLV ODZVXLW  3ODLQWLII WKXV UHFRUGHG VWDWHPHQW WR /DVFK UHSUHVHQWHG mSUREDEO\ H[DFWO\ ZKDW , VDLGl DWWHPSWVWRFKDUDFWHUL]HKHULQYROYHPHQWDVDQmRFFDVLRQDO 'HSRVLWLRQ RI 6DQGUD /HQQLQJ s$ DW  1HLWKHU SDUW\ FRQWHVWV WKH EXVLQHVV SXUVXLWl  +RZHYHU ZH ILQG WKHVH DUJXPHQWV DGPLVVLELOLW\ RI WKLV WUDQVFULSW LQ IDFW WKH\ ERWK UHO\ XSRQ LW WR VXSSRUW XQSHUVXDVLYH,QKHULQWHUYLHZZLWK/DVFKRI&8,&3ODLQWLII WKHLU DUJXPHQWV RQ DSSHDO LQGLFDWHGWKDWVKHDQG*DWWHUGDPLQWHQGHGWRDEXLOGKRPH  7KHVH GRFXPHQWV LQFOXGHG WKH IROORZLQJ *DWWHUGDPjV DQVZHU DQG DQGWKHQWU\WRVHOOLW$OWKRXJKWKHKRPHEXLOGLQJVFKHPH FRXQWHUFODLP 3ODLQWLIIjV DPHQGHG FRXQWHUFODLP QRWLFH RI 7DSSjV PD\KDYHRQO\EHHQLQLWVLQIDQF\ZKHQ3ODLQWLIIVHFXUHGWKH GHSRVLWLRQ 3ODLQWLIIjV UHTXHVW IRU SURGXFWLRQ RI GRFXPHQWV *DWWHUGDPjV SROLF\ LW ZDV ZHOO XQGHUZD\ DW WKH WLPH VKH GHOLYHUHG ILUVW VHW RI LQWHUURJDWRULHV DQG *DWWHUGDPjV ILUVW UHTXHVW IRU SURGXFWLRQ RI SRVVHVVLRQWR7DSSDQGDOVRVXEVHTXHQWO\ZKHQ7DSSVXHG GRFXPHQWV  /HQQLQJY&RPPHUFLDO8QLRQ,QV&R 1R 1R /HQQLQJY&RPPHUFLDO8QLRQ,QV&R 

HQJDJHPHQWRUDVWDWHGRFFXSDWLRQDQGDVWRWKHODWWHU &8,& ZRXOG GHQ\ D GHIHQVH IRU WKH 7DSS ODZVXLW IRU WZR WKHUHPXVWEHVKRZQWREHVXFKDFWLYLW\DVDPHDQVRI UHDVRQV)LUVW&8,&FKDUDFWHUL]HG7DSSjVFODLPVDVEDVHG OLYHOLKRRG D JDLQIXO HPSOR\PHQW PHDQV RI HDUQLQJ D XSRQ EUHDFK RI FRQWUDFW EUHDFK RI H[SUHVV DQG LPSOLHG OLYLQJ SURFXULQJ VXEVLVWHQFH RU SURILW FRPPHUFLDO ZDUUDQWLHVDQGVODQGHURIWLWOH&8,&GHWHUPLQHGWKDWQRQH WUDQVDFWLRQVRUHQJDJHPHQWV RIWKHVHFODLPVTXDOLILHGDVDQmRFFXUUHQFHlDVGHILQHGLQWKH SROLF\ EXW UDWKHU WKH\ ZHUH EXVLQHVV ULVNV DVVXPHG E\ ,GDWTXRWLQJ.ULQJVY6DIHFR,QV&R3G 3ODLQWLII  6HFRQG &8,& H[SODLQHG WKDW HYHQ LI 7DSSjV .DQ&W$SS )LQGLQJQREXVLQHVVSXUVXLWWKH FRPSODLQWVWDWHGDQHJOLJHQFHFODLPIRUSURSHUW\GDPDJHWKH (\OHUFRXUWQRWHGWKDWWKHLQVXUHGjVSDUWLFLSDWLRQZDVOLPLWHG SROLF\H[FOXGHGFRYHUDJHGXHWRWKHEXVLQHVVULVNH[FOXVLRQ WRLQYHVWLQJPRQH\DQGSURWHFWLQJKLVLQYHVWPHQW3ODLQWLII DUJXHVWKDWKHULQYROYHPHQWLQWKHKRPHEXLOGLQJVFKHPHZDV /DZVXLW$JDLQVW&8,& DQDORJRXVWRWKHOLPLWHGLQYROYHPHQWRIWKHLQVXUHGSDUW\LQ (\OHU%XWZHEHOLHYH(\OHUVXSSRUWVWKHDSSOLFDELOLW\RIWKH 2Q)HEUXDU\WHQPRQWKVDIWHU&8,&LVVXHGLWV EXVLQHVVSXUVXLWH[FOXVLRQLQWKHLQVWDQWFDVH OHWWHU GHQ\LQJ D GHIHQVH 3ODLQWLII ILOHG D m3HWLWLRQ IRU 'HFODUDWLRQ RI 5LJKWVl LQ WKH sHIIHUVRQ &RXQW\ .HQWXFN\ )LUVWWKHUHLVDVXIILFLHQWGHJUHHRIFRQWLQXLW\3ODLQWLIIDQG &LUFXLW&RXUW3ODLQWLIIDOOHJHGWKHUHLQWKDW&8,&jVGHQLDORI *DWWHUGDP KHOG WKHPVHOYHV RXW DV EXLOGHUV DQG 3ODLQWLII D OHJDO GHIHQVH EUHDFKHG WKH WHUPV RI KHU KRPHRZQHUjV FRQWUDFWHG ZLWK 7DSS WR EXLOG D KRPH WR PHHW KLV LQVXUDQFH SROLF\ DQG FRQVWLWXWHG EDG IDLWK DV ZHOO DV D VSHFLILFDWLRQV7KHORJRRQWKHFKDQJHRUGHUIRUPVUHDGm6 YLRODWLRQ RI .HQWXFN\ FRQVXPHU SURWHFWLRQ DQG LQVXUDQFH /HQQLQJ( *DWWHUGDP %OGUl  ,Q DGGLWLRQ 7DSSjV ODZVXLW VWDWXWHV  $IWHU UHPRYDO WR IHGHUDO FRXUW RQ WKH EDVLV RI VXHVERWKRIWKHPLQWKHLUFDSDFLW\DVEXLOGHUV7KHVHIDFWV GLYHUVLW\MXULVGLFWLRQERWKSDUWLHVILOHGPRWLRQVIRUVXPPDU\ DORQHZHUHVXIILFLHQWWRLPPHGLDWHO\DOHUW&8,&WKDW7DSSjV MXGJPHQW2Q)HEUXDU\WKHGLVWULFWFRXUWLVVXHGD FODLPLVRQHmDULVLQJRXWRIRULQFRQQHFWLRQZLWKlDEXVLQHVV 0HPRUDQGXP2SLQLRQDQG2UGHUJUDQWLQJ'HIHQGDQW&8,&jV HQJDJHG LQ E\ 3ODLQWLII 7KH IDFWV RI WKH LQVWDQW FDVH DUH PRWLRQIRUVXPPDU\MXGJPHQWDQGGLVPLVVLQJWKHDFWLRQZLWK GLVWLQJXLVKDEOHIURP(\OHU,QWKDWFDVHWKHFRXUWIRXQGWKDW SUHMXGLFH7KHGLVWULFWFRXUWGHWHUPLQHGWKDW&8,&KDGQR WKH LQVXUHG SDUW\ KDG QRW DFWLYHO\ SDUWLFLSDWHG LQ WKH GXW\WRGHIHQG3ODLQWLIIDJDLQVWWKH7DSSODZVXLWEHFDXVHWKH WUDQVDFWLRQ EHFDXVH KH GLG QRW DFTXLUH WKH PHUFKDQGLVH RU 7DSS FRPSODLQW GLG QRW DOOHJH DQ mRFFXUUHQFHl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jV DVVHWV ZHUH VXPPDU\ MXGJPHQW WR &8,& ZLWK UHVSHFW WR 3ODLQWLIIjV LQVXIILFLHQW FROODWHUDO IRU WKH ORDQ WKH IDUP>HU@ FRQYH\HG WKH WLUHVWRUDJH SURSHUW\ WR WKH LQVXUHG ZKR WKHQ REWDLQHG WKH ORDQ E\ HQFXPEHULQJ WKH SURSHUW\ DQG KLV SHUVRQDO GZHOOLQJ  s$ DW  8QGHU WKHVH FLUFXPVWDQFHV WKH (\OHU FRXUW IRXQG WKDW WKH /DVFKjV OHWWHU LQGLFDWHG WKDW &8,& UHVHUYHG LWV ULJKW WR UHO\ XSRQ LQVXUHG ZDV PHUHO\ DQ LQYHVWRU LQ WKH WLUH YHQWXUH (\OHU  6:G DW RWKHU IDFWV DQG JURXQGV IRU GHQLDO ZKLFK PLJKW VXEVHTXHQWO\ EH  GLVFRYHUHG  /HQQLQJY&RPPHUFLDO8QLRQ,QV&R 1R 1R /HQQLQJY&RPPHUFLDO8QLRQ,QV&R 

.HQWXFN\VWDWXWRU\FODLPV3ODLQWLIIILOHGDWLPHO\QRWLFHRI SDUW\,GDW+RZHYHUDOWKRXJKWKH%URZQ)RXQGDWLRQ DSSHDO FRXUWGLGKROGWKDWmWKHWHUPµRFFXUUHQFHjLVWREHEURDGO\DQG OLEHUDOO\ FRQVWUXHG LQ IDYRU RI H[WHQGLQJ FRYHUDJH WR WKH ,, LQVXUHGlLGFLWDWLRQRPLWWHGLWLVFOHDUWKDWLQGHFLGLQJWKDW FDVH WKH .HQWXFN\ 6XSUHPH &RXUW KDG LQ PLQG WKH EURDG 7KLV&RXUWUHYLHZVDJUDQWRIVXPPDU\MXGJPHQWGHQRYR QDWXUH RI UHOLHI EHVWRZHG XSRQ SDUWLHV LQVXUHG XQGHU &*/ XVLQJWKHVDPHOHJDOVWDQGDUGDSSOLHGE\WKHGLVWULFWFRXUW SROLFLHV KRZHYHU ZH UHYLHZ WKH GHQLDO RI D VXPPDU\ MXGJPHQW PRWLRQRQO\IRUDEXVHRIGLVFUHWLRQ:LOH\Y8QLWHG6WDWHV :HPXVWQRZFRQVLGHUWKHGHILQLWLRQRImRFFXUUHQFHlDQG  )G   WK &LU   6XPPDU\ MXGJPHQW LV LWVUHODWLRQWRSROLF\H[FOXVLRQV8QGHUWKHGHILQLWLRQRI DSSURSULDWH ZKHUH mWKH SOHDGLQJV GHSRVLWLRQV DQVZHUV WR mRFFXUUHQFHlRQO\GDPDJHVH[SHFWHGRULQWHQGHGIURP LQWHUURJDWRULHV DQG DGPLVVLRQV RQ ILOH WRJHWKHU ZLWK WKH WKH VWDQGSRLQW RI WKH LQVXUHG DUH H[FOXGHG  7KH DIILGDYLWVLIDQ\VKRZWKDWWKHUHLVQRJHQXLQHLVVXHDVWRDQ\ LQWHUSUHWDWLRQSODFHGRQWKLVODQJXDJHE\WKHFLUFXLWFRXUW PDWHULDO IDFW DQG WKDW WKH PRYLQJ SDUW\ LV HQWLWOHG WR D DQGWKH&RXUWRI$SSHDOVLVFOHDUO\DWYDULDQFHZLWKWKH MXGJPHQWDVDPDWWHURIODZl)(' 5 &,9 3F&HORWH[ SODLQODQJXDJHRIWKHSROLF\7KHSULPDU\SXUSRVHRID &RUSY&DWUHWW86%RRNHUY%URZQ FRPSUHKHQVLYH JHQHUDO OLDELOLW\ SROLF\ LV WR SURYLGH :LOOLDPVRQ7REDFFR&R,QF)GWK EURDG FRPSUHKHQVLYH LQVXUDQFH  2EYLRXVO\ WKH YHU\ &LU1RWDOOIDFWVDUHFRQVLGHUHGPDWHULDODIDFWLVRQO\ QDPHRIWKHSROLF\VXJJHVWVWKHH[SHFWDWLRQRIPD[LPXP PDWHULDO LI LWV UHVROXWLRQ ZLOO DIIHFW WKH RXWFRPH RI WKH FRYHUDJH&RQVHTXHQWO\WKHFRPSUHKHQVLYHSROLF\KDV ODZVXLW$QGHUVRQY/LEHUW\/REE\,QF86 EHHQ RQH RI WKH PRVW SUHIHUUHG E\ EXVLQHVVHV DQG   :KHQ UHYLHZLQJ FURVVPRWLRQV IRU VXPPDU\ JRYHUQPHQWDOHQWLWLHVRYHUWKH\HDUVEHFDXVHWKDWSROLF\ MXGJPHQWWKHFRXUWPXVWHYDOXDWHHDFKPRWLRQ RQ LWVRZQ KDVSURYLGHGWKHEURDGHVWFRYHUDJHDYDLODEOH$OOULVNV PHULWV DQG YLHZ DOO IDFWV DQG LQIHUHQFHV LQ WKH OLJKW PRVW QRWH[SUHVVO\H[FOXGHGDUHFRYHUHGLQFOXGLQJWKRVHQRW IDYRUDEOHWRWKHQRQPRYLQJSDUW\0DWVXVKLWD(OHF,QG&R FRQWHPSODWHGE\HLWKHUSDUW\ Y=HQLWK5DGLR&RUS867DIW%URDG &RY8QLWHG6WDWHV)GWK&LU ,GHPSKDVLVDGGHG,QWKHLQVWDQWFDVH3ODLQWLIIGLGQRW SXUFKDVHDEURDG&*/SROLF\EXWDKRPHRZQHUjVLQVXUDQFH ,,, SROLF\6KHLVQRWWKHUHIRUHHQWLWOHGWRVXFKEURDGSURWHFWLRQV $ 'XW\WR'HIHQG  %XVLQHVV3XUVXLW([FOXVLRQ 8QGHU .HQWXFN\ ODZ LQ RUGHU WR UHFRYHU LQ DQ\ DFWLRQ 7KHGLVWULFWFRXUWDOVRKHOGWKDW&8,&jVGXW\WRGHIHQGZDV EDVHG RQ EUHDFK RI D FRQWUDFW D SODLQWLII PXVW VKRZ WKH DEURJDWHGE\WKHIDFWWKDW7DSSjVFODLPDURVHDVDUHVXOWRI H[LVWHQFH DQG WKH EUHDFK RI D FRQWUDFWXDOO\ LPSRVHG GXW\ 3ODLQWLIIjVEXVLQHVVSXUVXLWV,Q(\OHUY1DWLRQZLGH0XW)LUH 6WURQJY/RXLVYLOOH 1DVKYLOOH5&R6:G ,QV&R6:G.\WKH.HQWXFN\6XSUHPH .\   7KH WHUPV RI 3ODLQWLIIj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

m&*/lSROLFLHVZKLFKDUHRIWHQXVHGWRLQVXUHODUJHVFDOH .HQWXFN\FRXUWVKDYHUHFRJQL]HGWKDWWKHGXW\WRGHIHQGLV EXVLQHVV YHQWXUHV  6HH HJ 3XUVHOO &RQVW ,QF Y EURDGHU WKDQ WKH GXW\ WR LQGHPQLI\  6HH sDPHV *UDKDP +DZNH\H6HF ,QV &R  1:G   ,RZD  %URZQ)RXQG,QFY6W3DXO)LUH 0DULQH,QV&R m>'@HIHFWLYHZRUNPDQVKLSVWDQGLQJDORQHWKDWLVUHVXOWLQJ 6:G.\,QVXUHUVKDYHDQREOLJDWLRQWR LQ GDPDJHV RQO\ WR WKH ZRUN SURGXFW LWVHOI LV QRW DQ GHIHQGLIWKHUHLVDQDOOHJDWLRQmZKLFKSRWHQWLDOO\SRVVLEO\RU RFFXUUHQFHXQGHUD&*/SROLF\l+HLOHY+HUUPDQQ PLJKW FRPH ZLWKLQ WKH FRYHUDJH RI WKH SROLF\l  %URZQ 1(G2KLR&W$SSm>&@RXUWVLQ2KLRDV )RXQG6:GDWFLWLQJ2j%DQQRQY$HWQD&DV ZHOODVWKHPDMRULW\RIFRXUWVLQMXULVGLFWLRQVWKURXJKRXWWKH DQG6XU&R6:G.\ FI0DWKHQ\Y FRXQWU\KDYHFRQFOXGHGWKDWGHIHFWLYHZRUNPDQVKLSGRHVQRW /XGZLJ6RG/D&W$SSKROGLQJWKDW FRQVWLWXWHDQµRFFXUUHQFHjLQSROLFLHVVXFKDVWKHRQHKHUH WKH LQVXUHU LV REOLJDWHG WR GHIHQG XQOHVV WKH FRPSODLQW 7KHFRXUWVJHQHUDOO\FRQFOXGHWKDWGHIHFWLYHZRUNPDQVKLSLV XQDPELJXRXVO\ H[FOXGHV FRYHUDJH  7KHUHIRUH HYHQ LI DQ QRWZKDWLVPHDQWE\WKHWHUPµDFFLGHQWjXQGHUWKHGHILQLWLRQ LQVXUDQFHFRPSDQ\GHQLHVFRYHUDJHEDVHGRQWKHPLVWDNHQ RIµRFFXUUHQFHjl0F$OOLVWHUY3HHUOHVV,QV&R1+ EHOLHIWKDWLWLVMXVWLILHGLQGRLQJVRWKHFRPSDQ\PD\VWLOO  1+  m7KH IRUWXLW\ LPSOLHG E\ UHIHUHQFH WR EUHDFKLWVFRQWUDFWZLWKWKHLQVXUHG6HH(VNULGJHY(GXFDWRU DFFLGHQW RU H[SRVXUH LV QRW ZKDW LV FRPPRQO\ PHDQW E\ ([HFXWLYH,QVXUHUV,QF6:G.\ IDLOXUHRIZRUNPDQVKLSl +RZHYHU LQ WKH LQVWDQW FDVH WKHUH ZDV QR SRWHQWLDO IRU FRYHUDJHXQGHUWKHSROLF\m7KHGHWHUPLQDWLRQRIZKHWKHUD 3ODLQWLIIDUJXHVWKDWKHUSROLF\FRYHUVIDXOW\FUDIWVPDQVKLS GHIHQVH LV UHTXLUHG PXVW EH PDGH DW WKH RXWVHW RI WKH FODLPVFDXVHGE\DFRQWUDFWRUEHFDXVHDQLQVXUHGZRXOGQRW OLWLJDWLRQl E\ UHIHUHQFH WR WKH FRPSODLQW DQG NQRZQ IDFWV QRUPDOO\ H[SHFW VXFK D SRRU SHUIRUPDQFH WR RFFXU  ,Q %URZQ)RXQG6:GDWFLWLQJ.QDSSY&KHYURQ VXSSRUWRIWKLVFODLPVKHFLWHV%URZQ)RXQGDWLRQLQZKLFK 86$,QF)GWK&LU 7DSSjVFRPSODLQW WKH.HQWXFN\6XSUHPH&RXUWKHOGWKDWRQO\WKRVHGDPDJHV GLGQRWDOOHJHWKHW\SHRIFODLPVWKDWZRXOGEHFRYHUHGE\WKH WKDW DUH H[SHFWHG RU LQWHQGHG IURP WKH VWDQGSRLQW RI WKH SROLF\,QDGGLWLRQWKHODQJXDJHRIWKHFRPSODLQWUHYHDOVWKDW LQVXUHG DUH H[FOXGHG IURP WKH GHILQLWLRQ RI WKH WHUP DQ\ SRWHQWLDO FRYHUDJH ZDV DEURJDWHG E\ WZR H[SOLFLW mRFFXUUHQFHl6:GDW,QWKHFDVHVXEMXGLFHWKH FRYHUDJHH[FOXVLRQV GLVWULFWFRXUWGLVWLQJXLVKHG%URZQ)RXQGDWLRQQRWLQJWKDWLQ WKDWFDVHWKHFRXUWGHILQHGmRFFXUUHQFHlLQWKHFRQWH[WRID  7KHm2FFXUUHQFHl5HTXLUHPHQW &*/ SROLF\ LQVWHDG RI D KRPHRZQHUVj SROLF\  3ODLQWLII FRQWHQGVWKDWE\GLVWLQJXLVKLQJ.HQWXFN\ODZRQWKLVJURXQG  7DSSjVFRPSODLQWDOOHJHGWKDWWKH7LPEHU5LGJHKRPHZDV WKHGLVWULFWFRXUWPDGHDGLVWLQFWLRQZLWKRXWDGLIIHUHQFH6KH EXLOWZLWKSRRUZRUNPDQVKLSDQGWKDWKHZDVIRUFHGWRILQLVK DUJXHVWKDWWKHGLVWULFWFRXUWHUUHGE\QRWIROORZLQJZKDWVKH FRQVWUXFWLRQDWKLVRZQH[SHQVH6SHFLILFDOO\7DSSDOOHJHG FRQVLGHUVFOHDU.HQWXFN\SUHFHGHQWWKDWOLEHUDOO\FRQVWUXHV WKDW WKH WHUP mRFFXUUHQFHl DV EHLQJ PRUH H[SDQVLYH WKDQ mDFFLGHQWlDQGLQFOXGLQJDOOULVNVQRWFRQWHPSODWHGE\HLWKHU 7KH 'HIHQGDQWV EUHDFKHG WKH &RQWUDFW E\ QHJOLJHQWO\ FRQVWUXFWLQJDKRXVHIRUWKH3ODLQWLIIZKLFKZDVQRWLQ

 2QH RI WKH FRYHUDJH H[FOXVLRQV SURYLGHV WKDW DQ\ RFFXUUHQFH WKDW LV H[SHFWHG RU LQWHQGHG E\ WKH LQVXUHG LV QRW FRYHUHG +RZHYHU WKLV GRHV  QRW PHDQ WKDW DQ\ RFFXUUHQFH WKDW LV QRW H[SHFWHG LV DXWRPDWLFDOO\ 3ULRU WR ILOLQJ WKH ODZVXLW 7DSS SRVWHG RXWVLGH KLV LQWHULRU GHVLJQ FRYHUHG )XUWKHUPRUH DQ LQFLGHQW PXVW ILUVW EH FRQVLGHUHG DQ VWRUH DQG QHZ KRPH ODUJH VLJQV VWDWLQJ m(G *DWWHUGDP DQG 6DQG\ mRFFXUUHQFHl EHIRUH ZH HYHQ UHDFK WKH VFRSH RI WKLV H[FOXVLRQ /HQQLQJ %XLOGHUV" 7KH\ QHYHU ILQLVK D MREl  /HQQLQJY&RPPHUFLDO8QLRQ,QV&R 1R 1R /HQQLQJY&RPPHUFLDO8QLRQ,QV&R 

FRQIRUPLW\ ZLWK WKH &RQWUDFW DQG DSSOLFDEOH SODQV EXLOGHUjV SHUIRUPDQFH LQ FRQVWUXFWLQJ UHVLGHQFH QRW VSHFLILFDWLRQVDQGVWDQGDUGV FRQVLGHUHGmSURSHUW\GDPDJHlVHHDOVR$OOVWDWH,QV&RY 0RUJDQ  ) 6XSS   1' &DO  D 7DSS &RPSODLQW s$ DW   7DSS DOVR FODLPHG WKDW FODLPIRUQHJOLJHQWPLVUHSUHVHQWDWLRQVDQGRPLVVLRQVGRHVQRW 3ODLQWLIIDQG*DWWHUGDPLPSURSHUO\ILOHGDPHFKDQLFjVOLHQ FRQVWLWXWH SURSHUW\ GDPDJH DQG WKHUHIRUH LPSOLFDWHV QR DJDLQVW WKH SURSHUW\ DQG IUDXGXOHQWO\ PLVUHSUHVHQWHG WKHLU mRFFXUUHQFHl$OOVWDWH,QV&RY+DQVWHQ)6XSS FRQVWUXFWLRQSUDFWLFHV3ODLQWLIIGLVSXWHV&8,&jVFRQFOXVLRQ 1'&DOKROGLQJWKDWQRFRYHUDJHH[LVWHGIRU WKDW WKH FRPSODLQW DOOHJHG D QHJOLJHQW EUHDFK RI FRQWUDFW DOOHJDWLRQV UHVXOWLQJ IURP ODUJHO\ LQWHQWLRQDO FRQGXFW ,QVWHDG VKH FKDUDFWHUL]HV WKH FRPSODLQW DV DOOHJLQJ VWHPPLQJIURPDUHVLGHQWLDOVDOHVFRQWUDFW QHJOLJHQFHDSDUWIURPEUHDFKRIFRQWUDFW3ODLQWLIIFRQWHQGV WKDW &8,& GUHZ DQ XQZDUUDQWHG FRQFOXVLRQ WKDW WKH 6HFRQGWRWKHH[WHQWWKDWWKHFRPSODLQWDOOHJHVDEUHDFKRI DOOHJDWLRQV LQ WKH FRPSODLQW XQDPELJXRXVO\ H[FOXGHG FRQWUDFWWKHUHLVVLPLODUO\QRmRFFXUUHQFHlFRXUWVKDYHKHOG FRYHUDJHVKHDUJXHVWKDWWKHFRPSODLQWUHYHDOHGDSRVVLELOLW\ WKDW D EUHDFK RI FRQWUDFW FODLP FDQQRW FRQVWLWXWH DQ RIOLDELOLW\XQGHUWKHSROLF\,QVXSSRUWRIWKLVFRQWHQWLRQ mRFFXUUHQFHlXQGHUOLDELOLW\SROLFLHVWULJJHUHGE\DQDFFLGHQW 3ODLQWLIIFODLPVWKDW&8,&DGPLWWHGWKURXJKLWVVHQLRUFODLPV RUDQRFFXUUHQFH6HHHJsDNREVRQ6KLS\DUG,QFY$HWQD DGMXVWHU /DVFK WKDW WKH 7DSS FRPSODLQW ZDV mYDJXHl DQG &DV 6XU&R)GG&LUILQGLQJQR mSRRUO\ ZRUGHGl DQG WKDW LW LV SRVVLEOH WKDW WKH 7DSS VXLW DFFLGHQW ZKHUH LQVXUHG VKLSEXLOGHU SURYLGHG WXJ ERDW ZLWK FRXOGKDYHFRPHZLWKLQWKHWHUPVRIWKHSROLF\7KHUHIRUH GHIHFWLYH VWHHULQJ PHFKDQLVP FRQWUDU\ WR FRQWUDFW VKHFRQWHQGV&8,&VKRXOGKDYHFRQGXFWHGDPRUHWKRURXJK VSHFLILFDWLRQV 3DFH &RQVWU &R Y 8QLWHG 6WDWHV )LG LQYHVWLJDWLRQ WR GHWHUPLQH LI VXFK FRYHUDJH ZDV SRVVLEOH *XDU,QV&R)GWK&LUQRDFFLGHQW +RZHYHUHYHQDOLEHUDOFRQVWUXFWLRQRIWKHFRPSODLQWZRXOG ZKHUH LQVXUHG VXEFRQWUDFWRU EUHDFKHG FRQWUDFWXDO GXW\ WR QRWVXSSRUW3ODLQWLIIjVDUJXPHQWV SURFXUH LQVXUDQFH IRU FRQWUDFWRU VHH DOVR 0DJLF 9DOOH\ 3RWDWR6KLSSHUVY&RQWjO,QV3G,GDKR )LUVW LQVRIDU DV WKH FRPSODLQW DVVHUWHG OLDELOLW\ IRU %XWVHH$XWR2ZQHUV,QV&RY7RROH)6XSS QHJOLJHQFHLWFDQQRWEHVDLGWRDOOHJHDQmRFFXUUHQFHlXQGHU   0' $OD  GHFOLQLQJ WR DGRSW D EURDG WKH SROLF\  3ODLQWLIIjV SROLF\ FRYHUV mERGLO\ LQMXU\l DQG KROGLQJWKDWFRQWUDFWFODLPVDUHQRWRFFXUUHQFHVDQGLQVWHDG mSURSHUW\GDPDJHlWKHODWWHURIZKLFKLVGHILQHGDVmSK\VLFDO ORRNLQJWRWKHmVSHFLILFµNLQGRIFODLPjEHLQJDVVHUWHG LQMXU\WRGHVWUXFWLRQRIRUORVVRIXVHRIWDQJLEOHSURSHUW\l UHJDUGOHVVDVWRZKHWKHULWLVODEHOHGDFRQWUDFWFODLPDWRUW 3ODLQWLIIFRQWHQGVWKDWWKLVGHILQLWLRQHQFRPSDVVHVSK\VLFDO FODLPRUZKDWHYHUDQGWKHµSXUSRVHRIWKHJHQHUDOOLDELOLW\ GDPDJHWRWKHKRPHDVZHOODVDVVRFLDWHGORVVRIWKHGDPDJHG SROLF\j IURP ZKLFK FRYHUDJH LV VRXJKWl TXRWLQJ &LW\ RI SRUWLRQVRIWKHKRPHWKDWPD\EHLQFOXGHGLQ7DSSjVODZVXLW %XUOLQJWRQY1DWjO8QLRQ)LUH,QV&R$G