The opinion of the court was delivered by: MIRIAM CEDARBAUM, Senior District Judge
WestRM-West Risk Markets, Ltd. ("WestRM") sues for payment under four
surety bonds issued by defendants Greenwich Insurance Company
("Greenwich") and XL Reinsurance America, Inc. ("XL Reinsurance").*fn1 After limited discovery, WestRM moved for
summary judgment. For the following reasons, the motion is granted.
The following facts are undisputed, except where specifically noted.
In late 2001, Willis Group, Inc. ("Willis"), an English insurance
broker, approached WestRM, a Swiss reinsurance company, with a proposal
for a series of transactions intended to provide professional liability
insurance to National Program Services, Inc. ("NPS"), a New Jersey-based
insurance management company.*fn2 The terms of the transactions that the
parties eventually negotiated were as follows. NPS would obtain an
insurance policy from Drummonds Insurance PCC Limited ("Drummonds"), an
insurance company wholly owned by Willis and located in the Guernsey
Islands. WestRM agreed in a series of three "premium finance agreements"
("PFAs"), to pay the premiums on the policies. This was accomplished by
means of a "Quota Share Reinsurance Policy," by which WestRM reinsured
the policies issued by Drummonds. NPS agreed, in return, to repay WestRM
in scheduled installments over a three-year period.
WestRM demanded that NPS obtain surety bonds to secure the amounts NPS
owed to WestRM under the PFAs. The first PFA, secured by a bond issued by
Lumbermens Mutual Casualty Company ("Lumbermens"), is not at issue here.
The second and third PFAs were each secured by two bonds issued by
defendants Greenwich and XL Reinsurance as joint and several sureties.
The third PFA named Apartment Investment Management Company, Inc.
("AIMCO") as a co-beneficiary of the agreement along with NPS, and the
two bonds securing that PFA named AIMCO as a co-principal.*fn3 The four
bonds secured a total of $25.1 million for the benefit of WestRM. Those
are the bonds at issue on this motion.
No evidence was presented of any contact between WestRM and defendants
during the negotiation and execution of the bonds. By their terms, the
bonds would remain in effect until NPS and AIMCO made all scheduled
payments under each related PFA. If the principals failed to make a
payment, the bonds required WestRM to send a formal written demand for
payment to defendants. Defendants would then be obligated to pay WestRM
the amount of the demand within thirty days. Each of the bonds contained
a New York choice-of-law provision. NPS paid the installments due under the first two PFAs, but, beginning
in April 2002, they failed to pay the installments due on any of the
PFAs. Neither NPS nor AIMCO made payments thereafter. WestRM demanded
payment from NPS pursuant to the second PFA and from NPS and AIMCO
pursuant to the third PFA, but received no further payments. WestRM then
demanded from defendants the amounts owed by NPS and AIMCO. Defendants
refused to pay. WestRM filed this action, and shortly thereafter moved
for summary judgment. That motion was denied to permit limited discovery
in connection with a disparity of dates on the first PFA and the
Lumbermens bond. After completion of that discovery, WestRM renewed its
motion for summary judgment.
A motion for summary judgment should be granted when "the pleadings,
depositions, answers to interrogatories, and admissions on file, together
with the affidavits, if any, show that there is no genuine issue as to
any material fact and that the moving party is entitled to a judgment as
a matter of law." Fed.R.Civ.P. 56(c); see also Celotex Corp. v.
Catrett, 477 U.S. 317, 322-23 (1986). The judge's role in summary
judgment is not "to weigh the evidence and determine the truth of the
matter but to determine whether there is a genuine issue for trial."
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). In deciding whether a genuine issue of fact exists, a court must
"examine the evidence in the light most favorable to the party opposing
the motion, and resolve ambiguities and draw reasonable inferences
against the moving party." In re Chateaugay Corp., 10 F.3d 944,
957 (2d Cir. 1993). Nonetheless, "Rule 56(c) mandates the entry of
summary judgment . . . against a party who fails to make a showing
sufficient to establish the existence of an element essential to that
party's case, and on which that party will bear the burden of proof at
trial." Celotex, 477 U.S. at 322.
In cases involving notes, guaranties, and surety bonds, an obligee
establishes its prima facie case by demonstrating the execution of the
obligation at issue, the underlying agreement, and the defendant's
failure to pay. See Orix Credit Alliance, Inc. v. Bell
Realty, Inc., No. 93 Civ. 4949 (LAP), 1995 WL 505891, at *3
(S.D.N.Y. Aug. 23, 1995); see also Valley Nat'l Bank v.
Greenwich Ins. Co., 254 F. Supp.2d 448, 453 (S.D.N.Y. 2003). The
party opposing summary judgment may defeat the motion only by asserting
defenses that raise genuine issues of material fact. See
id. at 454.
WestRM has demonstrated execution of the PFAs, insurance policies, and
surety bonds at issue. Defendants concede that they have not fulfilled
their payment obligations under the bonds. Defendants assert several
affirmative defenses which, they claim, defeat WestRM's prima facie case and preclude summary
judgment. First, defendants make a number of claims of fraudulent
concealment specifically: (1) that WestRM colluded with others to
conceal that the PFAs were really loans; (2) that WestRM knew but failed
to disclose NPS's unstable financial condition; and (3) that WestRM
suspected but did not inform defendants that AIMCO's signatures on the
documents were forged and that AIMCO may not have received consideration
for the obligations it incurred under the third PFA. Second, defendants
argue that irregularities in the transactions void their obligations
under the bonds.
Defendants also request additional discovery on these issues pursuant
to Fed.R.Civ.P. 56(f). The Second Circuit has established a four-part
test for assessing whether a party opposing summary judgment has made a
sufficient showing pursuant to Rule 56(f) to justify granting further
The affidavit must include the nature of the
uncompleted discovery; how the facts sought are
reasonably expected to create a genuine issue of
material fact; what efforts the affiant has made
to obtain those facts; and why those efforts were
Paddington Partners v. Bouchard, 34 F.3d 1132
, 1138 (2d Cir.
1994) (citing Hudson River Sloop Clearwater, Inc. v. Dep't of
Navy, 891 F.2d 414
, 422 (2d Cir. 1989)). In their Rule 56(f)
affidavit, defendants claim that further discovery will permit them to
gain information regarding how the PFAs were disguised as simple loans, whether AIMCO's signatures on the third PFA and
related bonds were forged, and when WestRM was aware of the alleged
forgeries. Defendants propose to propound interrogatories and seek
documents from WestRM, AIMCO, NFS, Willis, and others who, they claim,
possess specific knowledge of these facts. Defendants claim that they
have repeatedly attempted to gain information about the transactions from
WestRM and have been rebuffed.
I. Defendants' Fraud Defenses
Greenwich and XL Reinsurance make three claims of fraud. First, they
claim that WestRM knew about and participated in a scheme developed by
NFS and Willis to disguise as premium financing arrangements what were
really a series of loans intended to cover NPS's existing losses, in
order to induce defendants to bond the transactions. Unlike loans,
insurance premium payments would not appear as liabilities on NPS's
balance sheet. NFS could therefore erase those existing liabilities from
its books and create an illusion of financial health. According to
defendants, had they known the true nature of these agreements, they
never would have issued the bonds, since guaranteeing a loan is
inherently riskier than guaranteeing the repayment of insurance premiums
because of the increased risk of default. As evidence of WestRM's knowledge of or participation in this scheme,
defendants offer documents that, they claim, show that WestRM's lawyers
questioned whether the transactions involved were insurance premium
financing, or actually loans; that WestRM agreed during negotiations that
the full amount of the policy funds would be released immediately to NPS
(which is contrary to the terms of the PFA); and that WestRM and Willis
structured the third PFA to create an illusion of risk transfer.
Second, defendants contend that WestRM knew that NFS failed to disclose
$19.05 million in liabilities in financial statements that it released
pursuant to the transaction. Defendants offer as proof an e-mail exchange
among WestRM executives and Willis representatives that indicates a
concern that the absence of the liability in NPS's financial disclosures
might void the transactions. Defendants argue that NPS's weak financial
condition materially increased their risks and that WestRM had a duty to
disclose this information to them.
Third, defendants argue that WestRM questioned whether AIMCO's
signatures on the transaction documents were valid and whether AIMCO
received consideration for participating in the third PFA, but never
informed defendants of its concerns. WestRM requested that NPS obtain a
power of attorney from AIMCO, but ultimately accepted a letter of
authorization provided by NPS and purportedly signed by the chief
operating officer of AIMCO. AIMCO now claims that the signatures are forged. WestRM also expressed
a concern to Willis representatives that the third PFA could be void if
AIMCO did not receive consideration. According to defendants, instead of
investigating the problem, WestRM directed that language reciting AIMCO's
receipt of ...