Fiserv Solutions, Inc. v XL Specialty Ins. Co.
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Mazzarelli, J.P., Catterson, Moskowitz, Renwick, Abdus-Salaam, JJ.
Order, Supreme Court, New York County (Melvin L. Schweitzer, J.), entered March 23, 2011, which granted in part and denied in part plaintiffs Fiserv Solutions, Inc., Suntrust Bank, Compass Bank, Regions Bank, Altier Credit Union, Sovereign Bank, and ORNL Federal Credit Union's motion for summary judgment, and granted in part and denied in part defendant XL Specialty Insurance Co.'s motion for summary judgment, modified, on the law, to the extent of granting summary judgment to plaintiffs and declaring that the policy provides coverage where, solely by virtue of Fiserv's rounding up to the nearest dollar, the guaranteed insured value reflected in the remittance reports sent by Fiserv to XL exceeds the maximum value in the HVB range, and otherwise affirmed, with costs.
The motion court correctly determined that XL's policy insures the range of value generated by the Fiserv program called HomeValueBot (HVB), and not, as asserted by plaintiffs, any amount selected by the lender within the HVB range when that amount is later determined to be greater than the actual market value upon a retrospective appraisal. The purpose and intention of the policy is ascertained upon examination of the service provided by Fiserv to lenders, and the reason why insurance was required.
Plaintiff Fiserv is a financial services company that provides mortgage lenders with home value appraisal services by using computer programs to generate appraisals, thus eliminating the need for the lenders to hire human appraisers. Fiserv used a computer appraisal method known as the automated valuation model (AVM) which stated a single dollar appraisal figure, with a plus or minus percentage margin of error. The insurance policy, which provides property valuation insurance, is intended to insure the accuracy of the appraisals and to cover losses sustained by the lenders by virtue of faulty appraisals provided by Fiserv.
The named insured is Fiserv and the lenders are additional insureds, with insurance provided for "Faulty Original Appraised Value." The policy defines "Original Appraised Value" as the value set forth in the AVM, and a "Faulty Original Appraised Value" as when the appraisal generated by the AVM is greater than the actual market value of the property at the time of loan origination, the actual market value being determined by a certified (human) appraiser of the property after a loan goes into default.
Fiserv also used a computer program called a HomeValueBot (HVB) which, rather than providing a single number for an appraisal, gave a range within which lenders could choose an appraisal amount and determine how much to lend. Defendant agreed to insure those HVB appraisals and issued an endorsement to the policy, which expanded the definition of "Original Appraised Value" to include the value of the property as reported from an HVB where the insured appraised value does not exceed the HVB's indicated range.
When Fiserv was providing a specific dollar amount for its appraisals and the lenders chose that value, the lenders had insurance for a loss when that number was higher than the amount later assigned by a human appraiser after the loan had gone into default. When Fiserv began offering the HVB range of appraisals, the lenders were insured for a loss if the range was so wrong (so high) that the lenders could pick even the lowest number in the range and still be choosing a value higher than the retrospective human appraisal. It is Fiserv's HVB range that is at issue here.Fiserv's interpretation of the policy - - that any appraisal number within the range and chosen by the lender is covered by insurance in the event that the number is greater than the actual market value as later determined by a human appraiser - - is not, as the dissent argues, the only reasonable interpretation. To the contrary, common sense tells us that this is not a logical interpretation. Fiserv's service to lenders is to provide an appraisal range within which lenders can select a value and grant a loan, and Fiserv, the named insured, has no control over the amount that the lenders select within the range. If the dissent and Fiserv are correct, then XL was insuring the lender's conduct, not the failings of Fiserv. This is not a reasonable interpretation of the policy which was issued to insure the accuracy of Fiserv's appraisal methods, not the bad choices of the lenders. The policy is not default insurance. Both Fiserv and XL agree that the purpose of the policy is to insure the accuracy of Fiserv's appraisals, not the lender's underwriting decisions [*fn1]. Thus, when an appraisal value is based on an HVB range, there is no coverage if the retrospective human appraisal falls within that range.
Fiserv argues that under XL's interpretation, the only way that a lender could be fully protected under the policy would be for it to always identify only the lowest dollar amount of the HVB range of value as the appraised value when making a loan, and that using any higher dollar amount would reduce the possibility of coverage available to the lender if the value used by the lender later proved to be overstated. That is correct, but it does not mean that XL's interpretation of the policy is incorrect. It is the lender's choice to use the HVB range of value when appraising a property, and the lender's choice of what amount to choose within that range. If the lender chooses the high end of the range, it follows that there is more room for overvaluing the property than if it chooses the low end of the range. That is the lender's business decision, involving a calculated risk. Again, it is only the HVB range that is being insured, not the lender's choice of value within that range.
The dissent points to the definition of "Original Appraised Value" found in the policy endorsement covering HVBs, specifically language stating the Original Appraised Value means the value as set forth in an HVB where the insured appraised value does not exceed the HVB's indicated range of value. This, according to the dissent, confirms that the accuracy of a single value out of the range, and not the range, is being insured. However, this concedley inartful and somewhat superfluous language serves only to limit coverage as follows: if the lender assigns a value higher than the range provided by Fiserv, it won't be insured, even if the range was wrong because it was too high. Conversely, if the lender picks a number within the range, and the range was wrong in that even the lowest number in the range was too high, then the lender has insurance for Fiserv's miscalculation.
The dissent posits that XL's position directly conflicts with the loss calculation provisions of the policy and that under XL's interpretation, it would be impossible to calculate a loss if a range of values is being insured. Notably, Fiserv has not argued that XL's position makes it impossible to calculate a loss. In fact, Fiserv indicates in its memorandum of law that the formula used to determine the amount of insured loss is not at issue in this appeal. And, the record shows that the loss calculation provisions cited by the dissent can be, and have in fact been used to calculate a loss by applying XL's interpretation of the policy. An example of such a calculation was included in an e-mail sent by XL to Fiserv's assistant vice president, claims manager, in which specific provisions of the policy, including the loss calculation provisions, are set forth in explanation of the following calculation where the lender had sought coverage for a loss of $20,460.79 representing the outstanding balance of its loan: In this case, HomeValueBot estimated that the underlying property was worth between $99,929.31 and $122,135.83. The actual market value, according to the retrospective appraisal provided by [the lender], was $91,000. The difference between these values is $8,929.31 ($99,929.31 minus $91,000, equals $8,929.31). Since that amount is less than [the] amount due on [lender's] loan, [lender] is only entitled to recover that amount.
As noted by the dissent, for nearly four years after the policy was expanded to include the HVB range of appraisals, XL continued to (mistakenly, in our view), pay claims as it had when Fiserv had only been providing specific dollar appraisals, with XL covering any value that the lenders used from the HVB range if that amount was less than the retrospective human appraisal. However, when a new internal claims manager eventually reviewed the claims, she concluded that there had been erroneous payment in the many instances where the insured appraised value had been a number within the HVB range. XL's ...