2005 D e c i sion s O p inion s of the U nit e d S t at e s C our t of Appe al s for the Thir d C ir c uit

10-3-2005 

# MBIA Ins C orp v

. Royal Inde mnity C o
P r e c e de n t i al or N on-P r e c e de n t i al : P r e c e de nt i al D ocke t N o . 03-4382

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Thi s de c i sion i s br ou ght t o you for f r e e a nd ope n a c c e s s b y the O p inion s of the U nit e d S t at e s C our t of Appe al s for the Thir d C ir c uit at V i l l a no va U nive r sity S choo l of L a

w Di git al Reposit or y

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. F or mor e inform at ion, p le as e c ont a ct Be n j amin
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" MBIA In s C orp v

. Ro yal Inde mnity C o " (2005). 2005 D e cisio n s . P ape r 303. http://d i git alc ommon s .l a

w . vi l l a nova . e du/thir dc ir c uit_2005/303P RE CE DE NT I AL
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M BI A I NS UR ANC E CO RP OR AT I ON; WEL L S F AR GO BA NK M I N N E SO T A , N

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ON A P P EAL F ROM THE UNI TE D ST ATE S DI S TRI CT COURT F OR THE DI S TRI CT OF DEL AW ARE
D i s t r i ctC our tN os . 02- cv- 01294 and 02- cv- 01361 D istri ct C o u rtJu d g e: T h e H o n o rab le Jo sep h J. F arn an , Jr.

A r gued J anuary19, 2005
B efor e: A L I T O , M cK E E , and SM I T H , C i r cui tJ udges

( Fi l ed: O ct ober3, 2005)

LAWRENCE C. ASHBY3 P HI LI P TRAI NER, J R. A s hby& G eddes 222 D el aw ar e A venue W i l m i ngt on, D el aw ar e 19899
M I C H A E L H

. B A R R ( A r gued) KEN NETH J

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t he A m er i cas N ew Y or k, N ew Y or k 10020- 1089 C ouns el f orAppel l ant R O N A L D S. R A U C H B E R G ( A r gued) S T E VE N E

. OB US AND RE G. CAS TAYBER T F R A N K S C IB IL IA Pr o s k a u e rRos e LLP 1585 B r oadw ay N ew Y or k, N ew Y or k 10036 DAVI D C

. M c BR I DE J OHN W. S HAW You n g Con a waySt a r g a t t& Ta y l o r , LLP T he B r andyw i ne B ui l di ng 1000 W es tSt r eet P. O

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B I A I ns ur ance Corpor at i on a n d Wel l s Fa r g o Ba n k Mi n n e s o t a , N. A.
KE VI N R

. S HANNO N Po t t e rAnd e r s o n & Corr o o n LLP H er cul es Pl aza P. O

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. , r eac hed a 1 s et t l ement w i t h R oy al pr i ort o our deci s i on. T hi s opi ni on does not di s cus s i t s pol i cyw i t h R oy al ori t s cl ai m s ther eon. 4 Ba l l a r d Sp a h rAnd r e ws & I n g e r s o l l , LLP 1735 M arketSt r eet , 51s tFl oor Phi l adel phi a, Penns y l vani a 19103 Cou n s e lf

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. C. 1105 N or t h M arketSt r eet , 7t h Fl oor W i l m i ngt on, D el aw ar e 19801 C ou nself

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OPI NI ON O F THE COURT

A L I T O , C i r cui tJ udge:
In th e se c o n so lid a te d a p p e a ls, w e a re c a lled u p o n to c o n stru e a se rie s o f

c o n tra c ts. A p p e llan t R o y a l In d e m n ity C om pany( “R oy al ”) agr eed i n t hes e contr act s to i ns ur e the r epaym entof pr i nci pal and i nt er es ton sev era l hundr ed mi l l i on do l l ars of st ud ent l oan s. T he nam ed ben efi ci ari es of t he p oli ci es, W el l s Far go B ank M i nnes ot a, N

. A

. (“W el l s Far go”) and W i l m i ngt on T rus tof Penns y l vani a ( “W i l m i ngt on T rus t ”) , s ued 1 a f t e rt h e l o a n s we n ti n t o d e f a u l ta n d Ro y a l f

a i l e d t o p a y t h e c l a i ms t h ey su b m i t t ed. R oy al defe nded on the gr ound t hatt he l enderon t he under l y i ng obl i gat i ons fr audu lentlyi nduced i tt o i s s ue the pol i ci es and thatt hi s fr aud ent i t l ed i tt o r es ci s s i on.5 T he D i str i ctC our tent er ed s um m aryj udgm entfort he benef i ci ar i es , and t hi s appea l fol l ow ed. W e agr ee w i t h t he D i s t r i ct C our tt hatR oy al ’ s p o li ci es unambi guous l yand ef fec t i vel yw ai ve defe ns es t o i t s obl i gat i ons bas ed on fr aud, butw e c o n cl ude that R oy al has r ai s ed a t r i abl e i s s ue as t o w hether al l o f th e l os s es c l a i m e d b yt h e b e n e f

i c i a r i e s w e r e c o v e r e d u n d e r i t s p o l i c i e s . We th u s a f f irm in p a rt a n d re v e rse in p a rt. I. St udent Fi nance C orpor at i on ( “SFC ”) w as founded i n 1992 to c a ter to th e v o c a tio n a l s e g m e n t o f th e stu d e n t lo a n m a rk e t. Som e of the l oans i tor i gi nat ed i t s el f; ot her s i tacqui r ed fr om t he o rig in a l len d e rs. M a n yo f th e lo a n s w e re a p p a re n tlym a d e to s tuden ts att ruck- dr i vi ng s chool s . A tal l r el evantt i m es , SFC w as o w n ed an d co n tr o ll ed b yit s fo u n d er a n d ch ief e x ec u tive o ff icer, A ndr ew N

. Y ao. T he ca pi t al forSFC ’ s bus i nes s came fr om fi nancia l i ns t itu ti o ns l i ke W i l m i ngt on T rus tand W el l s Far go. I n 1999, W i l m i ngt on T rus ti s s ued SFC a $75 mi l l i on l oan, t aki ng a pool of s tudent l oans as s ecur i t y . W el l s Far go, bycontr as t , hel ped fi nance SFC bys ec u ri ti zi ng t he ol derl oans i n i t s por t fol i o. I n eac h securi t i z a t i on , s tud e ntl oa ns w e r e pa c ka ge d a nd s ol d t o a t rus t se ttl e d f o r th e sp e c if

ic p u rp o se o f h o ld in g tit le to th e lo a n s. W e lls Far go, as t rus t ee, funded t he pur chas e bys el l i ng cert i fi cat ed s har es in th e tru st to in stitu tio n a l in v e sto rs. T h e re c o rd re f lec ts th a t W e lls Far go r ai s ed appr oxi m at el y$450 m i l l i on forSFC i n ei ght s ecur i t i zat i ons fr om 1999 t o 2002.
T o e n c o u ra g e W ilm in g to n T ru st an d th e in v e sto rs in W e lls Far go’ s t rus t s t o par tw i t h t hei rcapi t al , SFC contr act ed w i t h R oy al t o i ns ur e t he r epaym ent of i nt er es t and pr i nci pal o n the student l oan s. A ti ssue i n thi s case are t en “C redi tR i sk Insur ance P oli ci es” iss u e d b yR o y a l. E ig h t o f th e m in su re d th e lo a n s h e ld b yth e W e lls Far go t rus t s ( one pertru st) , and tw o of them i ns ur ed the l oans pl edged a s col l at er al t o W i l m i ngt on T rus t
. E ac h p o l i cynamed ei t herW el l s Far go orW i l m i ngton T rus tas benef i ci ary . T he foll ow i ng t able s um m ari zes theirt erm s:6 Ta b l e 1

. S u mma r yo f

P o l i c yTe r ms
Pol i cy N um ber B e n e f

icia ry In c e p tio n L iab ili tyL im it

R ST 293334 W el l s Far go 1/ 22/ 99 $50, 000, 000. 00 R ST 293309 W el l s Far go 12/ 3/ 99 $53, 053, 642. 08 R ST 147522 W el l s Far go 4/ 30/ 00 $48, 459, 255. 76 R ST 147524 W el l s Far go 8/ 30/ 00 $29, 999, 999. 94 R ST 147525 W el l s Far go 11/ 27/ 00 $55, 616, 550. 00 R ST 147526 W el l s Far go 1/ 31/ 01 $48, 286, 713. 44 R S T 1 4 7 5 3 8 W e lls F a rg o 1 0 /1 9 /0 1 $ 1 2 0 ,0 0 0 ,0 0 0 .0 0 R ST 147536 W el l s Far go 11/ 15/ 01 $80, 000, 000. 00 R ST 321276 W i l m i ngt on

T rust 1/ 22/ 99 $75, 000, 000. 00

R ST 147533 W i l m i ngt on

T rust 8/ 17/ 01 $5, 518, 459. 00

Roy a l a l l e ge s , a nd t he be ne fi c i a r i e s do no tdi s pu t e , t ha tSFC p ro c u re d th is in su ra n c e th ro u g h a sp e c tac u lar f ra u d . A c c o rd in g to R oy al , SFC m i s r epr es ent ed the cr edi t w or t hi nes s and empl oym ent h isto ryo f

its s tu d e n t b o rro w e rs a n d c o n sp ire d w ith sc h o o ls to gener at e as m any loan s as pos s i bl e byal t er i ng orfor gi ng l oan d o c u me n t s . As l o a n s we n ti n t o d e f a u l t , S F C a l l e g e d l yp a i d s o me of t h e m do wn b ys u r r e p t i t i o u s l yd i v e r t i n g t h e p r o c e e d s o f l at er l oa ns . B y t hu s mas ki ng t he de fa ul tr a t e s of t he ol de rl oa ns , SFC al l egedl yi nduced Roy al t o i ns ur e st i l l m or e l oans , w hos e pr ocee ds t h e n h a d t o b e a p p l i e d i n Po n z i e s q u e f a s h i o n t o p a y dow n t he earl i er ones. A ccordi ng t o R oy al , som e of the proceeds w ere al so diver t ed to Y ao’s pers on al accou nts
. S F C ’s bus i nes s pr oved uns us t ai nabl e. I n a M ar ch 2002 t el ephone c al l t o R oy al , Y ao al l egedl y confe s s ed t hat SFC had bee n p a y in g d o w n d e f

a u lted lo a n s a n d e x p lain e d th a t th is p ra c tice c o u ldM B I A i s s u e d a “ C e r t i f i c a t e G u a r a n t y I n s u r a n c e P o l i c y” 2 guar anty i ng t he student l oans hel d by t he W el l s Far go t rus t s . R oy al an d M B IA di s agr ee a boutt he func t i on of thi s guar anty . M B IA char act er i zes i t as bac ks t op i ns ur ance fora r i s k pr i m ar i l yi ns ur ed byR oy al , w h il e R oy al char act er i zes i tas s uppl ement al cover age pr ot ect i ng t he trus t s fro m r i s ks notcover ed undert he R oy al pol i ci es . R oy al no l ongerdi s put es , how ever , t hatM B I A has contr actual s t andi ng t o s ue, s o w e as s um e thati t is a pr oper pl ai nt i ff- appel l ee. 7 no l ongerbe cont i nued. A n i nves t i gat i on l aunche d byR oy al r evea l ed that SFC ’ s l oans had been defa ul t i ng atr at es – over80% in th e c a se o f

o n e p o o l – w e ll i n e x c e ss o f re p o rte d f

ig u re s. W ith in t h r e e m o n t h s o f

Y a o ’ s c a l l , S F C w a s i n C h a p t e r7 b a n k ru p t c y, w her e i tappar en tl y remai ns t o t hi s day

. W i t h SFC no l onger pay i ng dow n s tudentl oans , t he def aul t s fel l on t he sh o u lde r s of W i l m i ngt on T rus t and W el l s Far go, w ho tur ned t o R oy al t o m ake g o o d o n its p o licie s. C laim s o n th o se p o licie s, w h ich to tale d o n ly $38. 6 m i l l i on betw een 1999 a nd the sp ri n g of 2002, had pi l ed up t o $380 m i l l i on byt he end of 2002.
A f lu rry o f law su its f

o llo w e d . R o y a l f

iled su it i n T e x a s s tate cour tt o r es ci nd t he pol i ci es , butt hi s cas e w as dism iss ed af t er l i m i t ed di s coveryforlack of per s onal j ur i s di ct i on. I n J ul y2002, W el l s Far go and M B I A I ns ur ance C orpor at i on (“M B I A ”) s ued 2 R o y a l in th e U S D istric t C o u rt f o r th e D istric t o f

D e law a re . T h e ir compl ai nt , w hi c h i n v o k e d th e Cou rt ’ s d i v e r s i t yj ur i s di ct i on, al l eged t hatR oy al had w r ongful l yr epudi at ed the trus t s ’ ei ghtpol ici es by f ili n g th e T e x a s ac tio n a n d so u g h t re lief in th e f o r m o f s p e c if ic p e rf o rm a n c e , a d e c lar a to ryju d g m e n t th a t th e p o licie s w e re in e f f e c t, an d d a m a g e s. W ilm in g to n T ru st f iled its o w n su it i n D el aw are federal cou rt , al l eging essent i al l yt he sam e cl ai m s. R oy al defe nded on t he gr ound t hat SFC ’s fr audul ent i nducementent i t l ed i tt o r es ci s s i on. T he bene fi ci ar i es count er ed th a t th e p o licie s u n a m b ig u o u slyw a iv e d th is d e f e n se . In se p a ra te opi ni ons , t he D i s t r i ctC our tent er ed s um m aryj u d gm entfort he be ne fi ci ar i e s . Se e M BI A I ns . Corp. v. Roy a l I nd e m. Co. , 31 2 F. S u p p . 2 d 5 8 3 ( D. De l

. 2 0 0 4 ) ; M BI A I ns . Co rp . v . Ro y a l I n d e m.8 C o. , 286 F. Supp

. 2 d 347 ( D

. D el

. 2003)

. I tfound thatt he t en po l i ci es unam biguou sl yw ai ved fraud in the induc em ent as a d ef en se to p ay m en t, an d itp red ict ed that D elaw are ’s hig h est co u rt w oul d enfor ce them. T he C our t acknow l edged thatD el aw ar e l aw w as re luctan t t o en fo rce b o il erp lat e w aive r s agai ns tuns ophi s t i cat ed par t i es , buti tbel i eved a cl earw ai vernegot i at ed bys ophi s t i cat ed pa r t i e s co uld b e e nf

or c e d. Se e 31 2 F. Sup p. 2d a t58 6; 28 6 F. Supp. 2d at355. S ince the C o u rtco n clud ed that R o y al’s w aive rs w ere enfor cea bl e, and thatt heycl ear l y cover ed t he defens e R oy al s ought t o p r e s e n t , i t f

o u n d f u r t h e r d i s c o v e r y o n t h a td e f e n s e u n n e c e s s a r y. I taw ar ded s um m ary j udgm entt o t he bene fi ci ar i es , or der i ng R oy al t o pay$269, 851, 527 pl u s int er es tt o W el l s Far go and $12, 908, 966. 43 pl us i nt er es tt o W i l m i ngt on T rus t , an d itfur t her or der ed R oy al t o pays ubs equentcl ai m s as t heycame due. R oy al tim e lya p p e a led to th is C o u rt. II.
W e r evi ew an aw ar d of s um m aryj u d g m en t de novo, a p p l y i ng t he sam e t eston revi ew t hat the D i stri ctC ou rtsh o u ld have a ppl i ed. I n r e I kon O ffi ce Sol ut i ons , I nc. , 277 F. 3d 658, 665 ( 3d C i r . 2002)

. Sum m aryj udgm ents houl d be aw ar ded w hen “the pl eadi ngs , depos i t i ons , ans w er s t o i nt err ogat or i es , and admi s s i ons on fi l e, t o g ethe r w i t h t he af fi davi t s , i f any , s how t hatt her e i s no g e n u in e iss u e a s to a n y m a ter ial f a c t an d th a t th e m o v in g p a rtyis en ti tle d to a ju d g m en t as a m att er o f law

. ” F ed

. R

. C iv. P. 56 (c). A l l r eas onabl e i nfer ence s fr om t he re cor d m us tbe dr aw n i n favor of the nonmovi ng par t y . B r ew erv. Q uakerSt at e O i l R efi ni ng C orp. , 72 F. 3d 326, 333 ( 3d C i r . 1995)

. T he C our tm aynotw ei gh t he evi dence oras s es s cr ed ibi l i t y . B oy l e v. C ount yof A l l egheny P a., 1 3 9 F

. 3 d 3 8 6 , 3 9 3 (3d C ir

. 1 9 9 8 ).
R o y al att ac k s the D istric t C o u rt ’s aw ard o f su m m ary ju d g m e n t o n se v e ra l g ro u n d s. It f irst a rg u e s th a t th e C o u rt e rre d in f in d in g th a t th e tex t o f its p o licie s u n a m b ig u o u slyw a iv e d its defe ns e t o paym entbas ed on SFC ’ s fr aud. I tfur t herar gues t hat w aive rs of

the b rea d th an d g e n e ra li tyfo u n d in it s p o li cies a re u n e n f o rc e a b le u n d e r D e law a re law . F in a lly , ita rg u e s th a t triab le9 i s s ues r emai n as t o w hethert he pol i ci es cover ed al l of the l os s es claim ed b ythe b en ef

ici aries. Sinc e itis un d ispu ted th at D elaw are p rov ides the s u b stan ti v e law fo r th is dispu te, w e turn to tha t st ate’s l aw o f co nt r actt o det erm i ne w hethers um m aryj udgm entw as pr oper l yaw ar ded.
III

. A.
D el aw ar e fol l ow s t he obj ect i ve theoryof cont r act
. See H aft v. H aft , 671 A

. 2d 413, 417 ( D el

. C h. 1995) ; Pr ogr es s i ve I nt ’ l C orp. v . E

. I

. D u P o n t d e Ne m o u r s & C o . , N o . C

. A

. 1 9 2 0 9 , 2 0 0 2 WL 1558382, at*7 ( D el

. C h. 2002) ( unpubl i s hed opi ni on)

. A l t hough th e law o f

c o n tra c t g e n e ra llystriv e s t o e n f o rc e a g re e m e n ts in ac co rd w ith their m ak ers’ inten t, the o b jecti v e the o ryco n side rs “obj ect i ve act s ( w or ds , act s and cont ext ) ” t he bes t evi dence of that in ten t. H a f

t, 67 1 A .2 d a t 4 1 7 . U n a m b ig u o u s w ritte n a g re e m e n ts sh o u ld b e e n f

o r c e d a c c o r d in g to th e ir te r m s , w it h o u t u s in g e x tr in s ic evi dence “t o i nt erpr et t he i nt entof the part i es , t o varyt he t erm s of t he contr actort o cr eat e an a m bi gui t y . ” Eagl e I ndus

. , Inc

. v. D eV i l bi s s H eal t h C ar e, I nc. , 702 A

. 2d 1228, 1232 ( D el

. 1997) ; s ee al s o C i t yI nves t i ng C o. L i qui dat i ng T rus tv. C o n t’ l Cas. C o. , 624 A

. 2 d 1 1 9 1 , 1 1 9 8 (D el. 1 9 9 3 ).
A contr acti s notamb i guous m er el ybeca us e the part i es d isa g re e a b o u t it s p ro p e r in ter p re tatio n . W h e th e r a c o n tra c t is ambi guous i s det erm i ned ac cording t o an obj ect i ve, r eas onabl eper s on s t andar d and i s a ques t i on of l aw . See Eagle Ind u s. , 702 A

. 2d at1233 n. 8 ( “The t rue t es ti s w hata r eas onabl e per s on i n t he p o sit ion o f th e p arti es w o u ld h av e tho u g h t i t m ea n t. ”). W o rds a re to be giv en their ord inarym ea n ing an d sh o u ld n o t be “ tortu re[ d ]” to im p a rt a m b ig u ityw h e re n o n e e x ists. R h o n e -P o u len c B a sic C h e m s. C o . v . A m . M o to rists In s. C o ., 6 1 6 A .2 d 1 1 9 2 , 1 1 9 6 (D e l. 1 9 9 2 ).
T h e lan g u a g e o f R o y a l’s w a iv e rs v a rie s f r o m p o licyto pol i cy , but w e agr ee w i t h t he D i s t r i ct C our t t hat each p o li cy sa tisf ie s th e s e sta n d a rd s o f

c lar ity . W e c o n sid e r th e c o n tra c ts in r ever s e chro n o logi cal or der , begi nni ng w i t h t he l as tt w o pol i ci esI n P o l i c yRS T 1 4 7 5 3 8 , c l a u s e ( C) a p p e a r s a s c l a u s e ( D) 3 a n d f o llo w s a n e w c lau se (C ), w h ich lea v e s R o y a l lia b le i r r es pect i ve of “ ANY F AI L UR E ON T HE P AR T OF T HE I NSURED, TH E S ERVI CER O R THE BENEFI CI ARY TO OB S E R V E O R P E R F O R M A N Y C O V E NA NT OR CO ND I T I ON

. ” A pp. at2254. 10 R oy al i s s ued and c ons i der i ng t he r emai ni ng ei ghti n su bs ect i on 2 b e l o w. 1.
P o licie s R S T 1 4 7 5 3 6 a n d R S T 1 4 7 5 3 8 a re th e c lea re st. P oli cyR S T 14 75 36 st at es i n b old capi t al l et t ers : THE RI GH T OF THE BEN EFI CI ARY TO R ECEI VE PAYM ENT FOR LOSS ES UND ER THI S POLI CY SHALL BE ABS OLUTE, CONT I N U I N G , I RRE VOCAB L E AND UNCONDI TI ONAL I RRE S P EC TI VE OF ( A) AN Y F RA UD W I T H R E S P E CT T O T HE STU D EN T L O A N S, ( B) TH E G EN U I N EN ESS, VA L I D I T Y O R E N F O R C E A B I L I T Y OF ANY . . . STUD ENT L OAN OR T HE B RE ACH OF ANY S UCH CONT RACT O R ANY CO VE NA NT OR RE P RE S E NT AT I ON OR W ARRAN TY M ADE THE RE I N, OR ( C) ANY OTHE R RI GHTS OR DE F EN S ES THAT M AY BE AVAI LABLE TO THE I N S URER TO AV OI D P AY M E NT OF I TS OB L I GA T I ON UNDE R T HI S P OLI CY ( ALL O F W HI CH RI GH TS AND DEFENS ES ARE H EREBY E X P R E S S L Y W A I V E D B Y T H E I N S U R E R ) . . . . A p p . at 2 2 2 1 . T h e lan g u a g e o f P o licyR S T 1 4 7 5 3 8 is v irtu a lly i dent i cal

. See A pp. at2253- 54. T he pol i ci es pl ai nl ys t r i p R oy al 3 o f a d e f e n se to p a ym e n t b a se d o n f ra u d , f irst b yd e c lar in g th a t it s l i abi l i t yw i l l be unaf

fec t ed by“fr aud w i t h r es pectt o t he s tudent11 l oan s” and then by “exp res sl y w ai v[ing]” any otherri gh tor defen se it co u ld m a rsh a l to a v o id p a ym e n t.
I n t he fa ce of

t hi s cl ar i on l anguage , R oy al cont ends t hatt he phr as e “w i t h r es pectt o t he s tudentl oans ” cont emplat es onl yt he m i cr ofr aud of i ndi vi dual s chool s or s tudent s , not t he macr ofr aud of SFC

. T h e w aive r s w er e des i gned, ar gues R oy al , onl yt o pr ot ect W e l l s Fa r g o f

r o m o b s t r e p e r o u s l i t i g a t i o n o v e r t h e v a l i di t y of i ndi vi dual l oan d o cu m ent s . I n s uppor tof thi s pos i t i on, R oy al p o in ts to c lau se (B ), w h ich h o m e s in o n “ th e g e n u in e n e ss , v a lid ity o r e n f o rc e a b ili tyo f a n y . . . stu d e n t lo a n .” In v o k in g th e e x p re ss io uni us and ej us dem gene r i s canons , i t ar gues t hatcl aus e ( B ) w ai ves onl ya defe ns e bas ed on t he “val i di t yorenfor cea bi l i t y ” of a s tudent l oan and thatcl aus e (A ) s houl d be gi ven a c om m ens ur at el ynarr ow m eani ng. A s ide from com pl et el yi gnor i ng t he bl anketl anguage of cl aus e ( C ) ( cl aus e ( D ) i n Pol i cy R ST 147538) , R oy al ’s arg um ent renders cl ause (A ) s urpl usage. I f cl ause (A ) w ere l i m i t ed to i ndi vi dual cas es of fr aud by s chool s ors tudent s , i tw oul d s w eep no fur t hert han clau s e ( B )

. T he fr audul enti nducementof a l oan agr eementbya s tudentors chool w oul d r endert he def r auded par t y ’ s obl i gat i ons undert hatagr eemen tvoi dabl e. See R es t at ement ( Second) of C ont rac ts § 1 64( 1) ( 1981)

. I n s uch a cas e, t he “ge nui nenes s , val i di t yorenfor cea bi l i t y ” of the l oan w oul d be af

fec t ed. W hi l e the val i di t yof the l oans w o ul d notbe a f f e c ted b y S F C ’s ( o r th e sc h o o ls’) f ra u d o n R o y a l, th is is p re c ise ly t he type o f fraud thatR oy al no w cl ai m s i s not cove red b ycl ause ( A ) , des pi t e th e fa ct t hati tcl ear l yoccur s “w i t h r es pectt o” the s tudentl oans w i t hi n t he or di narym ean i ng of thos e w or ds

. See W e b ste r’s T h ird N e w In ter n a tio n a l D ictio n a r y1 9 3 4 (P h ili p B ab co ck G o v e e d

. in ch ief, un a b r. e d

. 1 9 7 1 ). S ince R o y al’s i n t e rp r e t a t i o n ma k e s c l a u s e ( A) s u rp l u s a g e a n d r e a d s o u tc l a u s e ( C) ( cl aus e ( D ) i n Pol i cyR ST 147538) , i tm us tbe r ej ect ed.
R oy al ar gues t hat t he defi ni t i on of “Student L oans ” cr eat es a t r i abl e i s s ue as t o w hethert he def ens e of f r audul enti nducement w as i nt ended t o be w ai ved i n a ca s e such as t hi s . T he def i ni t i on of “StudentL oans ” i s r es t r i ct ed byeac h pol i cyt o t he l oans cover ed t her ei n and does noti ncl ude anyear l i erl oans SFC m ay have12 i s s ued. Si nce t he defi ni t i on i s s o r es t r i ct ed, cl aus e ( A ) coul d notbe r ead , R o y al a rgu es, a s w aivin g defe ns es bas ed on m i s r epr es ent at i ons aboutt he ea r l i erl oans on w hi ch R oy al r el i ed.
E ven i f thi s pol i cyw r i nkl e cr eat ed a t r i abl e i s s ue as t o t he s cop e o f claus e ( A ) , i tw oul d notfol l ow t hats um m aryj udgm ent w as unw arr anted. T o est abli sh fraudu l ent i nd ucem ent, R oy al m ust s how r eas onabl e and de t r i m ent al r el i ance on a mi s r epr es ent at i on i nt ent i onal l yorr eckl es s l ym ade t o i nduce a ct i on or i nact i on. See K ron en b erg v . K atz, 87 2 A

. 2 d 5 6 8 , 5 8 5 n . 2 5 (D e l. C h

. 2 0 0 4 ); G l ouces t erH ol di ng C orp. v. U

. S. T ape & St i ckyPr ods

. , L L C , 832 A

. 2d 116, 124 ( D el

. C h. 2003)

. E ven i f cl aus e (A ) di d notw ai ve a defe nse based on m i sr epresent at i on s w i t h respectt o earl i er l oan s, R oy al coul d notes t abl i s h r el i ance on t hos e r epr es ent at i ons i n l i ght o f th e c le a r “ a n ti-re lian c e ” lan g u a g e o f c lau se (C ) (c lau se (D ) in P o licyR S T 1 4 7 5 3 8 ). S e e K ro n e n b e rg , 8 7 2 A .2 d a t 5 9 3 . It i s unfathom abl e thatan i n sur ert hati nt ended t o r el yon ex tr ac o n tr ac tual r epr es ent at i ons w oul d agree tha t i ts ob li g ati o n s are “abs ol ut e, cont i nui ng, i r r evoca bl e and unc ondi t i onal i r r es pect i ve of .

. . anyot herr i ght s ordefe ns es t hatm aybe av ail ab le t o t he in su re r . . . (a ll o f

w h ich rig h ts a n d d e f

e n se s a re h e re b ye x p re ss ly w aive d b ythe in su rer). ” A p p . at 22 2 1 , 2 2 5 4 (em p h a sis om itted). R oy al cann ot po ss i blycl ai m t hat i t s r el i ance o n those r epr es ent at i ons w as r eas onabl e w hen i t w ai ved al l defe ns es bas ed o n re a so n a b le re lian c e . S in c e R o y a l’s relia n c e w a s u n re a so n a b le h o w e v e r “ S tud en t L o an s” is d ef ined , the d ef

init ion o f th at t erm d o es n o t create a n am b igu ityin the p o li cies, an d the D istri ct C o u rt did not err i n findi ng R oy al ’s w ai ver una m biguou s. 2.
E ach of t he r emai ni ng ei ght pol i ci es cont ai ns s om e var i ant of the fol l ow i ng l anguage : N O T W I THSTANDI N G ANY OTH E R P RO VI S I ON OF T HI S P OLI CY T O T HE C O N T R A R Y , T H E R I GHT OF T H E B E NEFI CI ARY T O R E CE I VE P AY M E NT F OR LOSS U N DER TH I S POLI CY A FTE R PAYM ENT OF THE I NI TI AL PREM I UM BY13 TH E I NS URE D S HALL BE AB S OLUT E A ND UNCON DI T I ON AL , AN D N O F AI L UR E ON T HE P AR T OF T HE I NS UR E D O R T HE BE NE F I CI ARY T O OBS ER VE OR P ER F ORM A N Y C O VENA N T OR CO N D I T I O N CONT AI NE D I N T HI S P OLI CY ( I NCL UDI NG W I T H O U T L I M I T A T I O N TH O S E C O N T A IN E D IN A R T IC L E III , A R T IC L E IV AN D A RT I CL E V) S HA L L E NT I T L E T HE I NSU RE R TO AN Y RI G H T OF SET- O FF, C O U N TE R C LA I M O R D EF EN SE A G A I N ST THE B E NE F I CI ARY OR ANY OTH ER P AR T I E S OR OT HE RWI S E RE L I E VE T HE I NS UR E R O F AN Y L I AB I LI T Y T O MAKE AN Y S UC H P AY M E NT F OR L OS S T O T HE BEN EFI CI AR Y UN DE R TH I S P OLI CY, S UB J ECT ON LY TO THE LI M I T OF LI AB I LI TY . E

. g. , A pp. at5485 ( or i gi nal emph asis). I n addi t i on, s even of t he pol i ci es cont ai n s om e var i antof the fol l ow i ng l anguage : T he I ns ur er ’ s obl i gat i on t o payanyC l ai m m ade undert hi s Pol i cyi s abs ol ut e, uncondi t i onal and i r r evoca bl e and s hal l noti n anyw aybe af fec t ed, m i t i gat ed orel i m i nat ed by( y ) a breac h of any r epr es ent at i on orw arr antym ade by t he Ins ur ed, t he Ser vi cer , St udentFi nance C orpor at i on ort he B enef i ci ary , or( z) t he fa il u r e of the I ns ur ed or St udent Fi nance C orpor at i on t o compl y w i th the U nd erw ri t i ng P oli ci es. E .g ., A p p . at 2 0 2 1

. T h e e ig h th p o licy , R S T 3 2 1 2 7 6 , ref e rs o n lyto “the I ns ur ed, ” omi t t i ng m ent i on o f “the Servi cer , ” “Student Fi nance C orpor at i on, ” and “ t he B enef i ci ary . ” A pp. at5499- 500.
T hough none of t he ei ghtpol i ci es us es t he w or d “fr aud, ” no r eas onabl e i nt erpr et at i on can be t eas ed fr om t hi s l anguage t hat w oul d pr es er ve R oy al ’ s defe ns e. T he pol i ci es al l decl ar e that , aft er paym ent of t he pr emi um , R oy al ’ s l i abi l i t yw i l l become “abs ol ut e”14 a n d “ u n c o n d itio n a l” a n d “ s u bje c t o n ly to th e lim it o f lia b ility.” T hough s uch l anguage m i ghtnotcont empl at e a f r aud t hati nduced the p o li cies in the first p lace , the p o li cies also p rov ide th at R o y al’s lia b ility w ill b e u n a f

f e c te d b y“ a b re a c h o f

a n yre p re s e n ta tio n .” S in c e a m isre p re se n tatio n is a n e ss e n tial e lem e n t o f a f ra u d , it fol l ow s that fra u d cannotaff ectR oy al ’ s l i abi l i t y . Fi nal l y , t he p o l i c i e s p r o v i d e t h a tR o ya l ’ s l i a b i l i t y i s u n a f f e c t e d b y a “fai l ure . . . t o c o m p lyw i t h the U nd erw ri t i ng P oli ci es. ” T his i s a sig n if ica n t re c ital b e c a u se th e a lleg e d f ra u d h a d it s g e n e sis in m isre p re se n tatio n s th a t S F C ’s le n d in g c o m p lie d w ith c e rta in u n d e rw riting p o licie s . R o ya l c a n n o t cla im th a t itw a s e n tit led to r e lyo n S F C ’s r e p re se n tatio n s a b o u t it s le n d in g w h e n it ag re e d to l i abil i t yregar dles s of w hether th e l end i ng con form ed to tho se repr esent at i on s. R oy al ar gues t hata “br eac h of .

. . r epr es ent at i on” i s nott he sam e th ing as a “m isr ep rese n tat ion ” b u t r ef ers instea d to the fa il u re o f a c o n d iti o n se t f

o rth “ in th e c o n tra c t o r pe rh a p s in s p e c if ic acc om pany i ng contr act s . ” R oy al’ s B r . , N o. 03- 4382, at41. A l t hough t he pol i ci es do notl i s tany“r ep res ent at i ons and w arr ant i es ” on w hi ch t he part i es m ayr el y , R oy al obs erves t hatt he ter m sh e e t f

o r e a c h p o licyd e c lar e s th a t “th e sta te m e n ts in th is Pol i cy. . . ar e t he agr eement s and r epr es ent at i ons of the I ns ur ed” and that“thi s Pol i cyembodi es al l agr eement s exi s t i ng betw een the I ns ur ed and the I ns ur eroranyof i t s r epr es ent at i ves . ” E. g. , A pp. at 5525. Acc o r d i n g t o Roy a l , t h e p h r a s e “ b r e a c h o f a ny r epr es ent at i on” mustr efe r t o r epr es ent at i ons i n t he pol i ci es , s i nce th o s e a re th e o n ly “ a g re e m e n ts a n d re p re s e n ta tio n s o f th e In s u re d .”
Iti s i roni c t hat R oy al shou l d look to a n int egrat i on cl ause forevi dence t hat i t w as ent i t l ed t o r el yon SFC ’ s extr acontr actual re p r e se n tatio n s. S u c h a n in ter p re tatio n sta n d s th a t cla u se o n its head

. E ven un der R oy al ’s con t ort ed readi ng , ho w ever, t he clause m akes no m ent i on of SFC ’ s r epr es ent at i ons . SFC and the Ser vi cer w e re n o t e v e n p a rties to th e p o licie s, so th e ir re p re se n tatio n s w o u ld h av e to b e f

o u n d o u tsi d e the fo u r co rne rs of the a g re e m e n ts. In s hor t , t he phr as e “br eac h of anyr epr es ent at i on . . . [b y ] St udent F inan ce C o rpo rati o n ” m u s t r efe r t o ext r acont r act ual r epr es ent at ions

. U ndert he onl yr eas onabl e i nt erpr et at i on of the pol i ci es , R oy al has agr eed thati t s l i abi l i t yw i l l be unaf fec t ed by15 rel i ance o n S F C ’s extr acon t ractual r epresent at i on s. R oy al ar gues t hat even i f t he anal y s i s above i s corr ecti thas no tw a i ve d i t s de fe ns e of fr a udul e nti nd uc e menti n Po l i c yRST 321276 beca us e thatpol i cyr efe r s onl y t o a br eac h of r epr es ent at i on by“the I ns ur ed. ” The I ns ur ed on thatpol i cyw as “SFC Fi nanci al I , L L C , ” a s peci al purpos e ent i t yaff i l i at ed w i t h SFC

. A pp. at 5477. R oy al ar gues t hats i nce i tr el i ed on the m i s r epr es ent at i ons of SFC r athert han thats peci al purpose en t i t y , i t s comm on l aw d e f e n s e o f f r a u d i n t h e i n d u c e m e n ti s u n a f f e c t e d b y t h e p o l i c y. A s w e not ed ea r l i er , an agr eementm ayfor ecl os e a f r aud d e f e n s e n o t o n l y b ywa i v i n g “ f r a u d ” b u ta l s o b ys e t t i n g f o r t h t e r ms c l e a r l yi n c o n s i s t e n twi t h r e a s o n a b l e r e l i a n c e o n e x t r a c o n t r a c t ual r epr es ent at i ons . R oy al her e has eff ect i vel ydi s cl ai m ed r el i ance on S F C’ s r e p r e s e n t a t i o n s n o l e s s t h a n t h o s e o f S F C F i n a n c i a l I , LL C, even though t he form eri s not m ent i oned i n t he agr eement
. R oy al admi t s t hatbot h ent i t i es w er e under t he ow ner s hi p and contr ol of A n d re w Y a o . S e e , e.g ., R o y a l’s M e m o ra n d u m in S u p p o rt o f Its M ot i on foran O r der A ppoi nt i ng a C hapt er 11 T rus t ee at5, A pp. at 4395 ( “Y ao . . . ow ned and contr ol l ed [SF C ] and al l of i t s aff i l i at es a ta l l t i me s p e r t i n e n tt o t h i s c a s e . ” )

. S i n c e S F C F i n a n c i a l I , LL C, w as an al t er ego of SF C separat ed only by corporat e f o rm al i t i es, R oy al ’ s di s cl ai m erof r el i ance o n th e f o rme r ’ s r e p r e s e n t at i ons m ade i tunr eas onabl e as a mat t erof l aw fori tto r el yon t he rep rese n tat ion s o f th e latt er. Fi nal l y , Roy a l a r g u e s t h a te v e n i f t h e p o l i c i e s wai ve defe ns es bas ed on fr aud, t hey do notw ai ve a de fens e bas ed on the i nval i di t yof the pol i ci es t hemsel ves. T hi s ar gum entdoes not i den t i fya reas on able al t erna ti ve co nst ruct i on of the po l i ci es so m uch as an al t ernat i ve cha r act er i zat i on of R oy al ’ s defe ns e. R oy al su pp oses t hat the p oli ci es ar e i nv al i d b ecause itw as fr aud ulent ly i nd uced t o is sue t h e m . H ow ever r echaract eri zed, this rem ai ns a defe ns e bas ed on fr aud and i s w ai ved no l es s t han a d ef en se t hat i nvoked SFC ’ s “fr aud w i t h r es pectt o t he stud ent l oans ” or“a b re a c h o f

[ its ] r e p re s e n ta tio n .”R o y a l as se rts, c iti n g se v e ra l T h ird C irc u it ca se s, th a t th is 4 C our tal w ay s cons i der s extr i ns i c evi dence i n det erm i ni ng w hether an agr eementi s unambi guous . T hes e ca s es , how ever , w ere not deci ded underD el aw ar e l aw . See, e. g. , I n r e N ew V al l eyC orp. , 89 F. 3d 143, 149 ( 3d C i r . 1996) ( “[a ] ppl y i ng t he fe der al comm on l aw of contr act ”) ; M el l on B ank, N

. A

. v. A et n a B us . C r edi t , I nc. , 619 F. 2d 1001, 1005 ( 3d C i r . 1980) ( Penns y l vani a l aw )

. A l t hough no tex t ca n b e re a d in a v a c u u m , th e D e law a re S u p re m e C o u rt h a s h e ld that i n det erm i ni ng w hetheran ambi gui t yexi s t s a courtm ay cons i deronl y“und is put ed bac kgr ound fac t s t o pl ace t he contr actual pr ovi s i on i n i t s hi s t or i cal s et t i ng. ” E agl e I ndus

. , I nc. v. D eV il b iss H ea lth C are , Inc

. , 7 0 2 A

. 2 d 1 2 2 8 , 1 2 3 2 n . 7 (D el. 1 9 9 7 ). “[U ] ndi s put ed bac kgr ound fac t s ” do noti ncl ude the s el f- s ervi ng p a ro l ev id e n c e su b m itt e d b yth e p a rties , w h o se re c o llec tio n s a s to the in tend ed m ea n ing o f th e a g ree m en ts pred ict ab lyd iffe r. E v en if w e c o n s idere d the s w o rn a ff idav ito f R o y al’s empl oy ee , W il l i am H i bber d, i tw oul d notl end ambi gui t yt o t he pl ai n l anguage of the R oy al pol i ci es . H i bber d coul d s t at e onl yt hat i tw as hi s “under s t andi ng” thatt he pol i cy lang uage w as not i nt ended t o l eave R oy al l i abl e i n t he ca s e of a “w i des pr ead f r aud li k e th e o n e tha t occ u rred h ere . ” E

. g . , A p p . at 53 4 5

. H ibb erd ’s su b jecti v e im p ression o f w h at th e p arti es m ea n t, rec o ll ec ted y ea rs aft ert he eve nt s i n ques t i on, i s at very bes ta “s ci nt i l l a” of evi dence i n s u p p o r to f

t h e o b j e c t i v e r e a s o n a b l e n e s s o f Roy a l ’ s a l t e r n a t i ve con struct i on of the po l i ci es. 16 3.
B eca us e w e conc l ude thatt he agr ee m ent s on t hei rfac e w ai ve R oy al ’ s fr aud def ens e i n unambi guous t erm s , w e nee d not con si der t he extr i nsi c evidence subm i t t ed b yt he p art i es. W e al so 4 needn o tdi s cus s t he doctr i ne of c ont r a pr ofer ent em, w hi ch oper at es agai ns t the i ns ur eronl yw hen pol i cyt erm s ar e ambi guous . See T w i n C i t yFi r e I ns . C o. v. D el

. R aci ng A s s ’ n, 840 A

. 2d 624, 630 (D el

. 20 03 ). F in a lly , w e need no tdecide w hethert he p art i es’ agr eement s ar e pr op erly char act er i zed a s i ns ur ance pol i ci es or g u a ra n ties , sin c e th e in ter p re tiv e p rin c ip les d isc u ss e d a b o v e a p p ly t o bot h and w oul d y i el d t he s ame r es ul ti n ei t hercas e. See W e stf ield In s. G ro u p v . J .P .’s W h a rf , L td ., 8 5 9 A .2 d 7 4 , 7 6 (D e l.17 2004) ; U ni ver s al S tud ios I nc. v. V i acom I nc. , 705 A

. 2d 579, 589 ( D el

. C h. 1997) ; s ee a l so R es t at ement( T hi r d) of the Law of Sur ety s hi p and G uar anty§§ 1- 2 ( 1996) ( expl ai ni ng t hata fi ndi ng o f su re ty sh ip sta tu s d e p e n d s o n th e rig h ts a n d o b lig a tio n s s e t f o rth i n t he agr eement , notthe o therw ayar ound)

. H ow ever c h a ra c ter ize d , the p o licie s o n th e ir f a c e w a iv e R o y a l’s d e f

e n se to p ay m en t of it s o b li g ati o n s b ase d o n fra u d , an d the D istri ct C o u rt di d noterri n s o fi ndi ng. B.
W e next c ons i derw hethert hes e w ai ver s ar e enf or cea bl e. T he D el aw ar e Supr eme C our thas notaddr es s ed the s t andar ds for effecti ve w ai ver of a d efen se based o n fraud i n the i nd ucem ent, so w e m u st pred icth o w itw o u ld d ec ide th is qu e s tio n . S ee K o p p ers C o . v . A etna C as. & S u r. C o . , 9 8 F

. 3 d 1 4 4 0 , 1 4 4 5 (3d C ir

. 1 9 9 6 ). T he D i s t r i ct C our t r ecogni zed t hat s om e author i t y h ad looked as kance atbr oad w ai ver s i n adhes i ve form ag ree m ent s but pr edi ct ed thatt he D el aw ar e Supr eme C our tw oul d enfor ce a n u n a m b i g u o u s w a i v e rn e g o t i a t e d b ys o p h i s t i c a t e d p a r t i e s . We agr ee. T h e D e law a re S u p re m e C o u rt’s c lo se st p re c e d e n t o n th is q u e stio n is i ts d e c isio n in N o rto n v . P o p lo s, 4 4 3 A .2 d 1 (D e l. 1 9 8 2 ). In th a t ca se , th e p la in ti f f so u g h t to re sc in d a re a l es tate tra n sa c tio n b ya lleg in g th a t th e se lle r h a d n e g lig e n tly m i s r epr es ent ed t he l and’ s zoni ng. T he C our t decl i ned t o fi nd t he cl ai m barr ed by a st and ard i ntegr at i on cl ause i n the p u rc h a se agr eementr eci t i ng t hatt he pur chas er h ad n otr el i ed on extr acontr actual r epr es ent at i ons . I d. at3. T he C our tnot ed that D el aw are case l aw gen eral l ydid not consi der an i ntegr at i on cl ause a r el i abl e i ndi ci um of i nt entt o w ai ve a f r aud u l enti nducement defe ns e. See i d. at6. I tconcl uded, aft er a sur veyof ca s es fr om o th e r ju risd ictio n s, th a t th e b e tter a u th o rities e x ten d e d th is ru le to n e g lig e n t m isre p re se n tatio n s, al l ow i ng the c laim to p ro c e e d d e sp ite t he i nt egr at i on cl aus e. See i d.
T he boi l erpl at e natur e of t h e p art i es ’ agr eementw ei ghed heavi l yi n the N o rt o n C our t ’ s cal cul us . See i d. at7 ( “W e s ee no r eas on w hya cou r tof equi t ys houl d enfor ce a s t andar d ‘ boi l er18 pl at e’ pr ovi s ion t hatw oul d perm i tone w ho m akes a mat er i al m i s r epr es ent at i on t o r et ai n t he bene fi tr es ul t i ng fr om t hat m i s r epr es ent at i on att he expe ns e of a n i nnocentpar t y . ”)

. Si nce the s c o p e o f Roy a l ’ s o b l i g a t i o n s tu r n s n o to n a b o i l e rp l a t e m er ger cl aus e buton w ai ver s s cul pt ed bypar t i es of exqui sit e legal and fi nan ci al soph i st i cat i on , w e do no tbeli eve N o rt on provides a r el i abl e gui depos t for ourdeci s i on. See G r eatL akes C hem. C orp. v. Phar m aci a C orp. , 788 A

. 2d 544, 55 5 (D el. C h. 2001) ( di s t i ngui s hi ng t he agr eement s i n N o rt on and i t s pr ogenyas “s i m pl e r eal es t at e co nt r act s havi ng boi l erpl at e, unnegot i at ed d iscl aim er lan g u ag e” ).
M o re reli ab le gu idan ce m ayb e f o u n d in the C h an ce ry C o u rt’s r e c e n t d e c isio n in K ro n e n b e rg v . K a tz, 8 7 2 A .2 d 5 6 8 (D e l. C h. 2004)

. I n a t hought ful opi ni on by V i ce C hance l l or St r i ne, t he C our tr eas oned thatan enf or cea bl e w ai verof fr aud s houl d have “l anguage t hat , w hen re ad t ogether , can be s ai d t o add up t o a cl ear a n ti-re lian c e c lau se b yw h ich th e p lain tiff h a s c o n tra c tu a lly p rom ised that it d id n o t rely u p o n stat em en ts ou tsi d e the co n tr ac t’ s fourcorner s i n deci di ng t o s i gn t he contr act
. ” K ronenbe r g, 872 A

. 2d at59 3. T he C ou rtackn ow l edg ed thatan int egrat i on cl ause coul d be r ead a s a pr om i s e of nonr el i ance , s i nce t he cl aus e r eci t ed th a t th e c o n tra c t w a s the “ e n tire ag re e m e n t” a n d su p e rse d e d a ll p rio r “ u n d e rsta n d in g s” a n d “ in d u c e m e n ts.” S e e id . at 5 9 1 . B u t it found the i nt egr at i on cl aus e al s o s us cept i bl e t o a “mor e tr adi t i onal in ter p re tatio n ,” a c c o rd in g to w h ich th e c lau se “ sim p lyo p e ra tes to pol i ce the var i ance of the agr eementbypar ol evi den ce . ” Id. at 591- 92. Si nce t hes e com pet i ng i nt erpr et at i ons of t he cl aus e l eftt he p arti es’ inten t i n d o u b t, the C o u rtd ec li n ed to en fo rce itto b ar a f r a u d c l a i m. R oy al pr ot es t s t hat t he s i ne qua non of enf or cea bi l i t yi s not cl ar i t y but s peci fi ci t y . A w ai ver , ar gues R oy al , i s not hi ng butt he vol unt aryr el i nqui s hm entof a know n r i ght

. See K al l op v. M cA l l i st er, 67 8 A

. 2d 5 26 , 53 2 (D el

. 19 96 ). S i nce a w ai ver m ust b e v o l un t ary , cl ear evi den ce of t he p arty ’s i ntentt o w ai ve is re q u ire d f

o r e n f o rc e m e n t. S e e R e a lty G ro w th In v e sto rs v . C o u n c il of U ni tO w ner s , 453 A

. 2d 450, 456 ( D el

. 1982) ; G eor ge v. Fr ank A

. R obi no, I nc. , 334 A

. 2d 223, 224 ( D el

. 1975)

. A r equi r ementof s peci fi ci t ys er ves t hi s end by en su r i ng t hatpar t i es do not , by19 pr om i s i ng t he m oon, uni nt ent i onal l yw ai ve r i ght s t heyhad not rea ll yco n tem p lat ed

. A cc o rdin g ly , R o y al co n clud es, D elaw are c o u rts w ill re f

u se to e n f

o rc e e v e n a c lea r w a iv e r o f f ra u d u n les s it se ts f o rth th e p a rticu lar re p re se n tatio n s o n w h ich th e in d u c e d p a rty a g r e e d n o tt o r e l y. T hough t hi s ar gum ent has s om e for ce, i t s concl us i on fi nds vi r tual l yno s uppor ti n D el aw ar e l aw . C as es have fo cused on the funct i on of the t erm s at i s s ue, s ee D R R , L

. L

. C

. v. Sear s , R oebuck & C o. , 949 F. Supp. 1132, 1137 ( D

. D el

. 1996) ( hol di ng t hatan “a s i s ” cl aus e does not“i ns ul at e a s el l erfrom s ui tfori t s fr audul ent m i s r epr es ent at i ons ”) ; T r ay l orE ng’ g & M fg. C o. v. N at ’ l C ont ai ner C orp. , 70 A

. 2d 9, 13 ( D el

. 1949) ( hol di ng t hata w arran t ycannot s erve t o d iscl ai m r el i ance on extr acontr actual r epr es ent at i ons for p u rp o s e s o f

a f ra u d c la im ); D C V H o ld in g s , In c . v . C o n a g ra , In c ., N o. 02- 550, 2003 W L 200 8 1 99, at*3 ( D el

. A pr . 29, 2003) (u n p u b lish e d tab le d e c isio n ) (f in d in g a n a ll-inc lu siv e w a rra n ty ambi guous w i t h r es pect t o w ai ver of fr aud cl ai m s ) ; K ron enber g, 872 A

. 2d at 592 ( “[M ] any l earned author i t i es s t at e that t ypi cal i nt egr at i on cl aus es do notoper at e t o barfr aud cl aim s . ”) , ort he c irc u m sta n c e s o f

th e ir n e g o tiatio n . S e e N o rto n , 4 4 3 A .2 d a t 7 ( di s count i ng “‘ boi l erpl at e’ found i n t he mer gercl au se”) ; G r eat L akes , 7 8 8 A. 2 d a t5 5 5 ( o b s e r v i n g t h e “ c a r e f u l l yn e g o t i a t ed dis cl ai m er l a n g uag e” craft ed b y“highl ysoph i st i cat ed p art i es, assisted b yind u stryco n su lt an ts an d ex p e rien ce d lega l cou n sel”). A lth o u g h sp ec ifi cit y a n d clarityo ften g o h an d in h an d , w e a re u n a w a r e o f

a n y D e l a w a r e c a s e t h a th a s m a d e s p e c i f i c i t y a p rereq u isi te t o ef

fe cti v e w aive r. In fa ct, a re ce n t un p u b li sh ed o p inion o f th e C h an ce ryC o u rt appea r s t o have r ej ect ed the s peci fi ci t yr equi r ement
. See Pr ogr es s i ve I nt ’l C orp. v. E

. I

. D u Pontde N emours & C o. , N o. C

. A

. 1 9 2 0 9 , 2 0 0 2 W L 1 5 5 8 3 8 2 (D el. C h

. Ju ly 9 , 2 0 0 2 ). T h e C o u rt th e re h e ld th a t an in teg ra tio n c lau se re c iti n g th a t n e ith e r p a rty w oul d r el yon extr acontr actual pr om i s es orr epresent at i ons for e c l o s e d r e s c i s s i o n b a s e d o n f r a u d

. Th e a l l e g e d l yd e f r a u d ed p a rtyp ro tes ted th a t th e c la u s e d id n o t id e n tifyth e u n re liab le r epr es en t at i ons orpr om i s es , butt he C our tfound thi s om i s s i on in sig n if ica n t:20 If a d o p ted a s la w , P ro g re ss iv e ’s a rg u m e n t w o u ld im p ed e c o m m erc e. Itis no t eff ici en t fo r ne g o ti ators t o i dent i fyal l t he mat er i al i s s ues t hatar e notpar tof t he foundat i on of t hei r r el at i ons hi p, and t o l i s tt hem i n a co ntr actual s ched ule. Indeed , t hat exerci se w ou l d b e w ast eful and si l l y , as the i ntegr at i on cl ause i n t he Li cense A g ree m ents how s . B ys i m pl e and unambi guous m eans , t he part i es t o t hatA gr eement i dent i fi ed al l t he r epr es ent at i ons and s t at ement s t hat coul d nothave i nduced the e x ecut i on of the A gr eement : al l r epr es ent at i ons and s t at ement s not i ncl uded i n t he t extof the A gr eementi t s el f.
I d. at*10; s ee a l s o D ebake yC orp. v. R ayt heon Ser v. C o. , N o. 14947 , 2000 W L 1273317, at*27 ( D el

. C h. A ug. 25, 2000) (re jec tin g a f

ra u d c o u n ter c laim b e c a u se th e a g g rie v e d p a rtyc o u ld have i ncl uded the as s ur ance s on w hi ch i t r el i ed as r epr es ent at i ons and w arr ant i es i n t he agr eement )

. A l t hough t he Pr ogr es s i ve deci s i on w as not publ i s hed, w e bel i eve i t s per s uas i v e re as oni ng p r o v i d e s a g o o d mo d e l f o rt h e De l a wa r e S u p r e me Co u r t ’ s o wn deci s i on i n t hi s ar ea. T h e p u tativ e re q u ire m e n t o f sp e c if icityse e m s ro o ted n o t in D elaw are ca se law b u t in a line o f N ew Y o rk c ase s, an d ev en there it h a s b e e n a p p lied in c o n sis ten tly

. A lth o u g h th e S e c o n d C irc u it i n M anufa ctur er s H anover T rus tC o. v. Y anaka s , 7 F. 3d 310, 316 ( 2d C i r . 1 9 9 3 ) , d e c l a r e d s p e c i f i c i t y t h e “ t o u c h s t o n e ” o f e n f o r c e a b i l i t y, ot herauthor i t yhas focus ed on the cl ar i t yof t he w ai verr athert han i t s de t a i l

. Se e V a l l e yN a t ’ l Bank v. G r e e nwi c h I ns . C o. , 254 F. Supp. 2d 448 ( S. D

. N

. Y

. 2003) ; C i t i bank, N

. A

. v. Pl api nger , 485 N

. E

. 2d 974 ( N

. Y

. 1985)

. T he Pl api nger C our tfound the omi s s i on of det ai l uni m por t ant , deemi ng i t“ u n r e a l i s t i c i n s uch ci r cumst ance s t o expec tan expr es s s t i pul at i on t hatdefe ndant s w er e not r el y i ng on a se p a ra te o ra l ag re e m e n t.” 4 8 5 N .E .2 d a t 9 7 7 . T h e C o u rt in V al l eyN at i onal B ank re ache d a si m i l ar concl us i on, di s t i ngui s hi ng Y an ak as a s “less a p p li ca b le .

. . w h ere the d raf ter an d m o re s ophi s t i cat ed part yi n t he tr ans ac t i o n n o w cl ai m s t hatt he di s cl ai m er i s t oo br oad. ” 254 F. Supp. 2d at458.
R o y a l re lies h e a v ilyo n JP M o rg a n C h a se B a n k v . L ib e rty21 M utual Insur ance C o. , 18 9 F

. S up p. 2d 24 (S. D

. N

. Y

. 20 02 ), a case br ought over a natur al gas forw ar d contr act betw een Enr on and one of i t s aff i l i at es . T he af

fi l i at e borr ow ed moneyfr om pl ai nt i ff ba nk to p u rc h a se th e g a s. D e f e n d a n t s u re tyg u a ra n tied th a t E n ro n w o u ld d e liv e r i t. U n b e k n o w n st t o th e su re ty , th e b a n k h a d a g r e e d w ith E n ro n th a t th e a f

f ili a te w o u ld su b se q u e n tly re p u rc h a se th e g a s at a h igh er price. T h is sec ret side ag ree m en t tran sfo rm ed the f o rw ard contr acti nt o a s i m pl e l oan. See i d. at 26. T he Sout hern D i s t r i ctof N ew Y o r k concl uded thatt he s ur etycoul d avoi d paym enton t he bond, r ej ect i ng t he ar gum entt hat“a ge ner al s w eepi n g di s cl ai m er can s erve t o di s cl ai m anyand al l extr i ns i c fraud bet w een so p h istica ted p a rties .” Id . a t 2 7

. It re a d P lap in g e r a n d Y a n a k a s to re q u ire “ a c lea r in d ica tio n th a t th e d isc laim in g p a rty h a s k n o w in g ly di s c l a i me d r e l i a n c e o n t h e s p e c i f i c r e p r e s e n t a t i o n s t h a t f o r m t he bas i s of the fr aud cl ai m . ” I d.
W e re JP M o rg a n C h a se a c a se o f g a rd e n -v a ri e ty f

ra u d , it s an aly sis w o u ld b e in ten sion w ith b o th Y an ak as a n d P lap in g er. See, e. g. , Y anaka s , 7 F. 3d at 317 ( fi ndi ng the d i s cl ai m er i ns uffi ci enti n partbeca us e i t cont ai ned “no bl anket di s cl ai m erof t he t ype found i n Pl api nger as t o ‘ any ot her ci r cumst ance w h ic h m i ghtot herw i s e cons t i tut e a de fens e’ t o t he G uar ant ee” )

. W e agr ee w i t h t he D i s t r i ctC our t , how ever , t hat JP M or gan C has e i s “an unus ual and extr eme cas e [that ]

. . . pr ovi des l i t t l e gui dance

. ” 312 F. Supp. 2d at589; 286 F. Supp. 2d at358.
T hough char act er i zed a s a fr audul enti nducement , t he t r ans act i on i n J PM or gan C has e bor der ed on a f r aud i n t he fa ctum – “the s or tof fr aud thatp roc u r es a part y ’ s s i gnatur e t o an in s t r u m e n t w ith o u t k n o w le d g e o f its tru e n a tu re o r c o n te n ts .” L angl eyv. Fed. D epos i t I ns . C orp. , 484 U

. S. 86, 93 ( 1987) ( ci t i ng U

. C. C. § 3

- 3 0 5 ( 2) ( c) cmt
. 7 ( 1977) ) ; s ee a l s o R es t at ement( Second) of C ont r act s § 163 ( 1981) ( r efe r r i ng t o a fr aud w i t h r es pectt o t he

“ c h a ra c ter o r e ss e n tial te rm s o f a p ro p o se d c o n tra c t”) . T h e su re ty w a s a sk e d to in su re th e d e liv e ryo f a c o m m o d ity , w h e n in f a c t it w as guar anty i ng a l oan. See J PM or gan C has e, 189 F. Supp. 2d at 28. I n s uch a cas e, w her e the part ydoes noteven know t he “true natur e” of

w hat i t i s s i gni ng, i t i s uns urpr i s i ng t hatt he s t andar ds for eff ect i ve w ai verw oul d be s t r i ct er , i f w ai veri s pos s i bl e atal l

. C f. R e sta tem e n t § § 1 6 3 -1 6 4 (e x p lain in g th a t a c o n tra c t f ra u d u len tly22 i nduced i s voi dabl e, w her eas a “contr act ” pr ocur ed thr ough fr aud in the fa ctum is no co n tr ac t atall ).
U nl i ke Li ber t yM utual , R oy al does nots er i o u slyques t i on the n ature o f th e tran sac ti o n s co v ere d b yit s p o li cies

. It char act er i zes S F C ’s bus i nes s as a s ham, buti tdoes notdenyt hat SFC w as i s s ui ng stud en t l oans and thatt he r epaym entof the interest an d p ri n cipa l on tho se lo an s w a s in su red b yR o y al’s pol i ci es . A fai r l y obvi ous r i s k of thi s i ns ur ance deci s i on w as t hat SFC w oul d m i s r epr es ent t he qual i t y of the l oans . For t he r eas ons gi ven above , t he pol i ci es cl ear l yas s i gn t hi s r i s k of fr aud t o R oy al w hen theydecl ar e that i t s l i abi l i t yw i l l be unaf fec t ed bya “br eac h o f a n yre p re s e n ta tio n ” o r “ f ra u d w ith re s p e c t to th e s tu d e n t lo a n s .” B e c a u se th e risk o f f

ra u d w a s so o b v io u s, it is u n im a g in a b le th a t a par t yw i t h R oy al ’ s exper i ence and know ledg e w oul d nothave r eal i zed i tw as as s um i ng t hatr i s k w hen i tagr eed t o t hatl anguage . M any of t he r emai ni ng cas es ci t ed by R oy al i nvol ved a lleg e d v io latio n s o f

th e f e d e ra l se c u rities law s. S e e , e.g ., C a io la v. C i t i bank, N

. A

. , 295 F. 3d 312 ( 2d C i r . 2002) ; C P K el co U

. S. , I nc. v . P h a r ma c i a Co rp . , No

. CI V. A. 0 1

- 2 4 0 , 2 0 0 2 WL 3 1 2 3 0 8 1 6 ( D. De l

. Oc t
. 2 , 2 0 0 2 )

. I t i s we l l k n o wn th a tt h e f e d e r a l s e c u r i t i e s l a ws pr ovi de br oaderfr aud pr ot ect i on t han t h e comm on l aw , havi ng been e nact ed i n r es pons e t o t he comm on l aw ’ s per cei ved fai l ur e at s t ampi ng outfr aud i n t he sec ur i t i es m arket s . See, e. g. , H erm an & M a c L e a n v . H u d d les to n , 4 5 9 U .S . 3 7 5 , 3 8 8 -8 9 (1 9 8 3 ); In re D a ta Sy s . Sec. L i t i g. , 843 F. 2d 1537, 1544 ( 3d C i r . 1988 ). S ince t he anal y s is of ca s es l i ke C P K el co appe ar s t o have be en col or ed by fede r al s e c u r i t i e s l a w, we d o n o tb e l i e v e t h o s e c a s e s p r o v i de r el i abl e gui dance on t hi s ques t i on of D el aw ar e’ s comm on l aw of c o n tra c t.
T he lack of spe ci fi ci t yi n R oy al ’ s w ai ver s does notm ake t hem anyl es s cl ear . A s t he P r ogr es s i ve C our tputi t , a “met hod of id e n tif ic a tio n d o e s n o t b e c o m e u n c le a r si m p ly b e c a u s e it is te rs e .” 2002 W L 1558382, at*10

. T h is is al l t he more t rue w hen the m ethod of i dent i fi cat i on i s hamm er ed outbys ophi s t i cat ed part i es a id e d b y c o n su m m a te leg a l p ro f e ss io n a ls, w h o c a n b e e x p e c ted to ant i ci pat e the s ubj ect s i tw i l l i dent i fy

. A ccor di ngl y , w e pr edi ctt hat w hen s ophi s t i cat ed part i es have i ns er t ed cl earant i

- r el i ance23 l anguage i n t hei r n egot i at ed agr eement , and w hen thatl anguage , t ho ug h b road, un am biguou sl y cov ers t he fr aud t hat actuall yoccu rs , D el aw ar e’ s hi ghes tcour tw i l l enfor ce i tt o bar a s ubs equentfr aud c l a i m. R oy al as s er t s t hatt hi s pr edi ct ion r i s ks gi vi ng pr ot ect ed par t i es a “l i cens e t o comm i t fr aud, ” C P K el co, 2002 W L 31230816, at*5, butt he al t ernat i ve pos es i t s ow n danger

. T he dange ri s t hat a con t ract i ng part ym ayaccep t add i t i on al com pen sat i on for a ri sk t hati thas no i nt ent i on of actual l y bear i ng. T hi s pr evar i cat i on m ay a m o u n tt o a f

r a u d a l l i t s o w n . S e e P r o g r e s s i v e I n t ’ l , 2 0 0 2 WL 1 5 5 8 3 8 2 , at * 1 0 (“ In e ss e n c e , P ro g re ss iv e is s a y in g to th e c o u rt, ‘B e liev e u s n o w w h e n w e tell y o u w e m a d e a f a lse p ro m ise to D uPont t hen. ’ ”) ; D anann Real t yC orp. v. H arr i s , 157 N

. E

. 2d 597, 600 ( N

. Y

. 1959) ( “[T] he pl ai nt i ff made a rep res ent at i on i n t he contr actt hati tw as notr el y i ng on s peci fi c r epr esen tat ions not embodi ed i n t he contr act , w hi l e, i tnow as s er t s , it w as i n fac t re ly in g o n su c h o ra l re p re se n tatio n s. P lain tiff a d m its th e n th a t itis gui l t yo f

d e l i b e r a t e l ymi s r e p r e s e n t i n g t o t h e s e l l e ri t s t rue inten ti o n . ”). G i ven the pot ent i al for m i s r epr es ent at i on fr om eac h s i de of t he agr eement , t he s afe rr out e i s t o l eave par t i es t hatcan pr ot ect t hemsel ves t o t hei row n devi ce s, en for ci ng t he agr eementt hey ac tuallyfa sh ion

. T h is ru le w ill m a k e f o r l ess p roli x d iscl aim ers and re duce t he l i kel i hood t hatan i nt ended a l l ocat i on of the r i s k of fr aud w i l l be frus t r at ed byan uni nt ent i onal om i s s i on fr om a l ong and t edi ous l i s t of r epr es ent at i ons . Such conce r ns h av e fi gur ed pr om i n e n t l yi n r e c e n tDel a war e c a s e l a w. Se e Kr o n e n b e r g , 872 A

. 2d at593 ( acc om m odat i ng “contr actual fr eedom and eff i ci ency co n ce rn s ” as w ell as a “p u b li c p o li cy. . . intoleran t of fra u d ”); Pr ogr es s i ve I nt ’ l , 2002 W L 1558382, at*10. W hen s ophi s t i cat ed p a rties in c lu d e a b ro a d b u t u n a m b ig u o u s a n ti-re lian c e c lau se in t hei ragr eement , t h e D el aw ar e Supr eme C our tw i l l l i kel yi ndul ge t he ass um pt i on t hatt heys ai d w hatt heym eantand meantw hatt hey s ai d.
I tfol l ow s fr om t he for egoi ng di s cu ssion t hatt he R oy al w a iv e rs a re in f

u ll fo rc e a n d e f

f e c t. F o r th e re a so n s g iv e n in Sect i on A of thi s opi ni on, t hos e w ai v e r s unambi guous l ys t r i p R oy al24 of t he defens e of fr aud i n t he i nducement

. T he D i s t r i ctC our tt hus di d noterri n aw arding the bene fi ci ar i es s um m aryj udgm enton th e m , an d it also d id n o t er r in d e n y in g R o y a l f u rth e r d isc o v e ryin to th e b e n e f

icia rie s’ k n o w le d g e o f th e f ra u d . T h e a g re e m e n ts unambi guous l yw aive Roy al ’ s fr aud def ens e w hetherornott he benef i ci ar i es had an i nkl ing o f the fr aud bef or e R oy al , l eavi ng R o y a l w ith n o re m a in in g d e f e n se to p a ym e n t th a t d isc o v e ra b le evi dence coul d s uppor t
. T o t he ext ents etfor t h above, t he j udgm entof the D i s t r i ctC our ti s acc or di ngl yaff i r m ed. C.
W e tur n now t o cons i dert he s cope of R oy al ’ s obl i gat i ons u n d e rt h e p o l i c i e s . Th e Di s t r i c tCo u r to r d e r e d i tt o p a ya l l c l a i ms s u b mi t t e d b yW e l l s F a r g o a n d W i l mi n g t o n Tru s t , i n c l u d i n g c l a i ms t hat had been fi l ed s i nce t he comm ence m entof the l aw s ui t
. R oy al ar gues t hatt he C our tover l ooked tr i abl e i s s ues r egar di ng w hether al l o f t h e c l a i me d l o s s e s wer e c o v e r e d u n d e r t h e p o l i ci es and w hethert he bene fi ci ar i es ’ cl ai m s had been prope r l ydocument ed. T h e b e n e f

icia rie s c o u n ter th a t th e ya re e n tit led to im m e d iate paym entundert he pol i cies and t hatR oy al ’ s defe ns e bas ed on SFC ’ s al l eged mi sappr opr i at i on i s w ai ved al ong w i t h i t s ot her fraud d efen ses. T he s cope of

cover age i s s etfor t h i n t he fi r s t s ect i on of ea ch poli cy . T h e l anguage di ffe r s fr om pol i cyt o pol i cy , butt he s ubs tanc e is t he s ame: R oy al agr ees t o r ei m bur s e the i ns ur ed or benef i ci aryundert he pol i cyfora “Loss ” thatoccurs d u ri ng t he p o licyp e rio d . E .g ., A p p . at 2 2 4 7 , 5 4 7 9 . C ritica ll y, “ L o ss ” is d e f in e d a s “ f

o r a n y S tu d e n t L o a n a s to w h ich a C laim is m a d e in acc or dance her ew i t h t he V al ue as of t he D efa ul tD at e w i t h r es pect t o s uch StudentL oan. ” E

. g. , A pp. at 2017, 5527. T he “V al ue” of a StudentL oan i s s i m pl yt he “pr i nci pal bal ance out s t andi ng . . . as of the D efa ul tD at e pl us acc rued i nt er es tt her eon. ” E. g. , A p p . at 2 0 1 8 , 5 5 2 8 . T h e “ D e f

a u l t D a t e ” is th e f

ir s t d a te o f

a “ D e f a u lt,” e. g. , A pp . at20 16 , 55 26 , w hich i n turn is defined as: ( i ) a Stu d e n tLo a n b e c o mi n g n i n e t y( 9 0 ) d a y s or m o r e d e l i n q u e n t( t r e a t i n g p a ym e n t s m a d e b y a St udentbutpai d overt o a bankruptcycour thavi ngW e r ecogni ze t hat by t hei r t erm s t he pol i ci es al s o ex t end 5 cover age t o l os s es r es ul t i ng fr om t he i m pai r m ento f the b e n e f icia rie s’ rig h ts in b a n k ru p tcy. S F C e n ter e d b a n k ru p tcy i n Ju n e 2 0 0 2 , b u t th e p a rties h a v e n o t d isc u ss e d h o w th is e v e n t af f e c ts th e ir rig h ts a n d o b li g a tio n s u n d e r th e p o licie s. W e lea v e th is in ter e stin g q u e stio n to th e D istric t C o u rt. 25 j ur i s di ct i on over t he S tudent as a pre fer ence i t em as n o t h a v in g b e e n p a id b y th e S tu d e n t), w ith p a ym e n ts m ade af t e ra de l i nq ue nc ya pp l i e d t o the e a r l i e st del i nquency , or( i i ) any i m pai r m ent or avoi dance of t he r i ghts o f the B enef i ci aryort he I ns ur ed i n a St udentL oan ar i s i ng out of t he bankrupt cyors i m i l ar eventorpr ocee di ngs w i t h r es pect t o St udentFi nance C orpor at i on ort he I ns ured, i ncl udi ng w i t hout l i m i t a t i o n p u r s u a n tt o Se c t i o n 3 6 2 o f t h e Uni t ed St at es B ankrupt cyC ode.
E

. g. , A pp. at2032- 33; s ee a l s o, e. g. , A pp. at2016, 5479.
T hes e pr ovi s i ons gi ve r i s e t o a r eas onabl e i nfer ence , i f not an i r r es i s t i bl e conc l us i on, t hat t he “L os s ” for w hi ch R oy al agr eed t o r ei m bur s e the bene fi ci ar i es w as t he nonpaym entof i nt er es tand pr i nci pal on t he s tudent l oans . I f a l os s m aybe tr ace d t o s om ethi ng o th e r th a n a “ D e f

a u lt” – th a t is, “a S tu d e n t L o a n b e c o m in g n in e ty ( 90) day s orm or e d el i nquent ” – i ti s notcover ed undert he pol i ci es . U nder t hi s hi ghl y r eas onabl e i nt erpr et at i on, R oy al need

5 notr ei m bur s e the bene fi ci ar i es fornonr ece i ptof l oan procee ds mi s a p p r o p r i a t e d b yS F C.
W el l s Fargo a rgues t hat SF C ’s m i sap p ropri at i on i s j ust a n o th e r f o rm o f f ra u d th a t R o y a l w a iv e d a s a d e f e n se to p a ym e n t. T hi s ar gum entm i s s es t he poi nt
. R oy al ’ s defe ns e i s n o t bas ed on SFC ’ s fr aud pers e buton t he ext entof cove r age a ff o rded byt he p o li cies. T h e w aiv e rs t h em selv es m ak e this d ist inction clea r. In t he fi r s tei ghtpol i ci es , R oy al agr eed thati t s “obl i gat i on t o payany C la im ” w o u l d b e u n a f

f e c te d b ya “ b re a c h o f

a n yre p re s e n ta tio n .” In th e las t tw o p o licie s, it a g re e d to w a iv e a n yd e f e n se th a t w o u ld a llo w it “ to a v o id p a ym e n t o f its o b lig a tio n u n d e r t h i s p o lic y .”26 W e lls F a rg o ’s a rg u m e n t b e g s th e q u e stio n o f w h e th e r a lo ss d u e to S F C ’s c o n v e rs io n is o n e o f R o y a l’ s “ o b lig a tio n [ s ].”
W e al s o r e

j ectW i l m i ngt on T rus t ’ s ar gum entt hati t s pol i ci es “r equi r e R oy al t o payeveryC l ai m su b m it te d t o i tupon t he s ubm i s s i on of a conform i ng ‘ N ot i ce, ’ w i t houtm or e. ” W i l m i ngt on T rus t ’ s B r . at40 ( emphasi s om i t t ed)

. A l t hough s ect i on I I I ( A ) of th e W ilm in g to n T ru st p o licie s p ro v id e s th a t “ [ a ]n y C laim

. . . sh a ll be pai d byt he I ns ur erw i t hi n s i xt y( 60) day s , ” A pp. at5481, 5528, ot herl anguage appears to c ont empl at e thatR oy al m aychal l enge cl ai m s pr i ort o paym ent
. Sect i on I I I ( C ) ( 1) r equi r es t he i ns ur ed or benef i ci aryt o del i verw i t h not i ce of i t s cl ai m s a “w r i t t en pr oof of l os s for m . . . i d e n t i f

y i n g t h e a p p l i c a b l e Stu d e n tLo a n s ” a n d t he un paid bal ance o n them

. A pp . at54 81 , 55 2 8

. T h e po l i ci es al so r equi r e the i ns ur ed t o pr ovi de, upon R oy al ’ s req u est , “evi dence r eas onabl yavai l abl e w i t h r es pectt o ci r cumst ance s su rroundi ng a L os s . ” I d. R equi r i ng s uch evi dence pr i or t o paym ent w oul d s erve n o p u rp o se if

R o y a l w e re o b lig a ted to p a y a n yc laim u p o n re c e ip t. A r guabl y , s ect i on I I I ( A ) s i m pl yl ay s outa t i m e fr ame forpaym ent of a c l ai m t hatt he part i es have a l r eadyagr eed i s val i d.
T o w hatext entSFC ’ s m i s appr opr i at i on contr i but ed t o t he benef i ci ar i es ’ l os s es r emai ns uncl ea r . Roy al poi nt s t o evi dence t hat A ndr ew Y ao w as rec ei vi ng di s t r i but i ons fr om SFC att he r at e of ap p rox im ately$ 1 m il li o n p er m o n th w h il e s erv ing as it s d ir ec tor, t r eas ur er , and chi ef e xecut i ve off i cer . See A pp. at4405- 07. Ac c o r d i n g t o Ro y a l , S F C’ s t o t t e r i n g f i n a n c i a l p o s i t i o n a tt h e t i me m akes i tl i kel yt hats om e of thi s m oneyw as di ver t ed fr om t he i ncome str eams due t he bene fi ci ar i es . T he bene fi ci ar i es have not di s put ed thi s evi dence on appea l , r el y i ng i ns t ead on the i nt erpr et i ve ar gum ent s r ej ect ed above

. H av ing f ound t he t en pol i ci es r eas onabl ys us cep ti b le t o an i nt erpr et at i on underw hi ch R oy al wo u l d n o tb e l i a b l e f

o rl o s s e s d u e t o S F C’ s mi s a p p r o p r i a t i o n , we c o n c lu d e th a t f

u rth e r d e v e lo p m e n t o f

th e re c o rd is n e c e ss a ryto det er m i ne the ext ent of t hi s m i s appr opr i at i on befor e R oy al m aybe ordered t o p ayt he b enef i ci ari es’ cl ai m s. O n r emand, t he D i s t r i ct C our t m us t fi r s t deci de w hetheror nott he pol i ci es coverl os s es at t r i but able to SF C ’ s al l eged conver s i on. I f not , i tm us tt hen det erm i ne the ext entt o w hi ch27 SFC ’ s m i s appr opr i at i on contr i but ed t o t hos e l os s es . Fur t her di s coverym aybe nec es s ary , butw e ca ut i on t hatt hi s r emand i s not an oppor tuni t yforR oy al t o r evi ve i t s r ej ect ed fr audul ent in d u c e m e n t d e f

e n se . T h e p ro c e e d in g s s h o u ld b e lim ited to d ec iding w h ich o f th e los ses c lai m ed b y th e b en ef ici aries are cov ered un der t he p oli ci es. I V.
A ft ercar eful cons i der at i on of th e par t i es ’ ar gum ent s and s ub m is s i ons , w e conc l ude thateac h of the t en R oy al pol i ci es u n a m b ig u o u slya n d e f

f e c tiv e ly w a iv e d its d e f

e n se to p a ym e n t o f

its o b lig a tio n s b a se d o n S F C ’s f ra u d . T h e D is tr ic t C o u rt c o rre c tly deni ed R oy al r es ci s s i on, corr ect l ydecl ar ed the pol i ci es i n ful l for ce and effec t , and corr ect l yor der ed R oy al t o per for m i t s obl i gat i ons under t hem. T hatpar tof the D i s t r i ctC our t ’ s deci s i on i s aff i r m ed.
T he r emai nderof the dec i s i on i s vaca t ed. T r i abl e i s s ues r egar di ng t he scope of t he pol i ci es ’ cover age and t he natur e of t he benef i ci ar i es ’ l os s es pr ecl ude s um m ary j udgm ent
. O n r emand, t he D i s t r i ctC our tm us t det erm i ne w hether t he pol i ci es cover al l of the l os s es cl ai m ed byt he bene fi ci ar i es befor e or der i ng R o y al t o pay t h e m.