Owens Corning v. Natl Union Fire

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 2:(16 &251,1* ; 3ODLQWLII$SSHOOHH    1R Y  !  1$7,21$/ 81,21 ),5(  ,1685$1&( &2 2)  3,776%85*+ 3(116GLG QRW@ UHTXLUH>@l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jV,QGHP&R)G WK DQGFRXQWHUFODLPLQZKLFKLWVRXJKWWRUHIRUPWKHFRQWUDFWWR &LU  UHIOHFWWKHLQWHQWRIWKHSDUWLHV1DWLRQDO8QLRQFODLPHGWKDW DOWKRXJKSXUVXDQWWR2ZHQV&RUQLQJ,WKHDVEHVWRVH[FOXVLRQ 7KHILUVWSURSRVHGDPHQGPHQWRQmJRRGIDLWKlVLQFHLWLV FRXOGQRWEHUHDGDVDSSO\LQJWRVKDUHKROGHUVXLWVWKHSDUWLHV SDUWRImDOOFRQWUDFWVlDVWKHLQVXUDQFHFRPSDQ\LQVLVWVZDV KDGLQWHQGHGWKDWLWZRXOG7KHGLVWULFWFRXUWUHMHFWHGWKHVH DPHQGPHQWV DV XQWLPHO\ DQG SUHMXGLFLDO DQG DV WR WKH FRQWUDFWUHIRUPDWLRQLQYLRODWLRQRIWKHPDQGDWHRI2ZHQV  7KH GLVWULFW FRXUW FLWHV WR †  E  ZKLFK UHODWHV WR VXLWV EURXJKW RQ &RUQLQJ,2ZHQV&RUQLQJPRYHGWRHQWHUILQDOMXGJPHQW EHKDOI RI WKH FRUSRUDWLRQ RU GHULYDWLYH DFWLRQV /DYDOOH ZDV D WKLUG SDUW\ +RZHYHU1DWLRQDO8QLRQREMHFWHGWRHQWU\RIILQDOMXGJPHQW DFWLRQ E\ VKDUHKROGHUV IRU WKHLU RZQ ORVV DQG WKXV IDOOV XQGHU †  D   2ZHQV&RUQLQJY1DWjO 1R 1R 2ZHQV&RUQLQJY1DWjO  8QLRQ)LUH,QV&R 8QLRQ)LUH,QV&R FODLPLQJ WKDW WKH RULJLQDO /DYDOOH VHWWOHPHQW ZDV 9RQ)HOGW  :/  DW    7KHUHIRUH ZKHUH D XQUHDVRQDEOH DQG WKDW 1DWLRQDO 8QLRQ VKRXOG QRW EH FRUSRUDWLRQKDVH[WHQGHGLQGHPQLILFDWLRQWRWKHPD[LPXP UHVSRQVLEOH IRU LW  7KH FRXUW UHMHFWHG WKLV DUJXPHQW DQG SHUPLVVLEOH H[WHQW DV 2ZHQV &RUQLQJ KDV GRQH VXFK D MXGJPHQWZDVHQWHUHGIRU2ZHQV&RUQLQJIRUWKHFRVWRIWKH SUHVXPSWLRQ PD\ EH DSSOLHG  7KLV DFFRUGV ZLWK OHDUQHG VHWWOHPHQW VXEVWDQWLDO DWWRUQH\jV IHHV LQFXUUHG GXULQJ WKH FRPPHQWDU\RQ'HODZDUHODZZKLFKGHVFULEHVWKHSRZHUVRI VHWWOHPHQW DQG SUHMXGJPHQW LQWHUHVW  1DWLRQDO 8QLRQ WKH FRUSRUDWLRQ WR LQFOXGH SURYLVLRQ RI mDFFHOHUDWHG DSSHDOVWKHJUDQWVRIVXPPDU\MXGJPHQWWKHHQWU\RIILQDO SURFHGXUHVIRUWKHµGHWHUPLQDWLRQjUHTXLUHGE\6HFWLRQ G MXGJPHQWDQGWKHUHIXVDOWRDOORZLWWRDPHQGLWVSOHDGLQJV >RU@SURFHGXUHVXQGHUZKLFKDIDYRUDEOHGHWHUPLQDWLRQ ZLOOEHGHHPHGWRKDYHEHHQPDGHXQGHUFLUFXPVWDQFHVZKHUH ,, WKHERDUGIDLOVRUUHIXVHGWRDFW>@l5 )5$1./,1 %$/277, s(66( $ ),1.(/67(,1 '(/$:$5( /$: 2) &25325$7,216 6WDQGDUGRI5HYLHZ $1' %86,1(66 25*$1,=$7,216†:DOWXFK)GDW  Q FLWLQJ WKLV WUHDWLVH VHFWLRQ   7KXV  WKH VSHFLILF 7KH DOORFDWLRQ DQG LQGHPQLILFDWLRQ LVVXHV FRPH WR XV SURYLVLRQV RI †  G  DUH QRW PDQGDWRU\ LQ WKHVH IROORZLQJ JUDQWV RI VXPPDU\ MXGJPHQW LQ IDYRU RI 2ZHQV FLUFXPVWDQFHV ZLWK UHJDUG WR LQGHPQLILFDWLRQ XQGHU &RUQLQJ  2Q DSSHDO ZH UHYLHZ WKH JUDQW RI VXPPDU\ †† D  E 2XUUHDGLQJRIWKHVHUXOHVLVWKDWJRRGIDLWK MXGJPHQWGHQRYRXVLQJWKHVDPH5XOH F VWDQGDUGDVWKH PD\ EH SUHVXPHG XQGHU WKH H[SDQVLYH E\ODZV RI 2ZHQV GLVWULFWFRXUW+DQVDUGY%DUUHWW)G WK&LU &RUQLQJHYHQLIWKHUHOHYDQWGHWHUPLQDWLRQLVQRWVSHFLILFDOO\  7KHPRYLQJSDUW\KDVWKHLQLWLDOEXUGHQRISURYLQJ PDGH1DWLRQDO8QLRQFRXOGVWLOOFKDOOHQJHXQGHU'HODZDUH WKDW QR JHQXLQH LVVXH RI PDWHULDO IDFW H[LVWV DQG WKDW WKH ODZZKHWKHU2ZHQV&RUQLQJjVGLUHFWRUVZHUHLQIDFWDFWLQJ PRYLQJ SDUW\ LV HQWLWOHG WR MXGJPHQW DV D PDWWHU RI ODZ LQJRRGIDLWKEDFNLQDQGWKHUHDIWHUZKHQWKHIDFWXDO 6WUHHWYs&%UDGIRUG &R)G WK&LU SUHGLFDWH RI WKH /DYDOOH DFWLRQ DURVH  6HH VXSUD Q  . 7KH EXUGHQ WKHQ VKLIWV WR WKH QRQPRYLQJ SDUW\ WR +RZHYHU 1DWLRQDO 8QLRQ GRHV QRW VHHP WR KDYH RIIHUHG FRPHIRUZDUGZLWKHYLGHQFHVKRZLQJWKDWWKHUHLVDJHQXLQH VSHFLILFDOOHJDWLRQVRQWKLVLVVXHLQLWVDSSHDO LVVXHIRUWULDO6HH$QGHUVRQY/LEHUW\/REE\,QF86   m:KHUHWKHUHFRUGWDNHQDVDZKROHFRXOG ,WLVQRWSUHFLVHO\FOHDURQZKDWJURXQGVWKHGLVWULFWFRXUW QRW OHDG D UDWLRQDO WULHU RI IDFW WR ILQG IRU WKH QRQPRYLQJ GHWHUPLQHG WKDW WKH LQGHPQLILFDWLRQ KHUH FRPSRUWHG ZLWK SDUW\ WKHUH LV QR µJHQXLQH LVVXH IRU WULDOjl  0DWVXVKLWD 'HODZDUHODZ7KHFRXUWjVRSLQLRQDSSHDUVWRUHO\SULPDULO\ (OHFWULF,QGXVWULDO&R/WGY=HQLWK5DGLR&RUS86 RQ WKH FODLP WKDW WKHUH ZDV D mVXFFHVVl E\ WKH GLUHFWRUV    UHVXOWLQJ LQ PDQGDWRU\ LQGHPQLILFDWLRQ XQGHU †  F  $OWKRXJKIRUWKH UHDVRQVGLVFXVVHGZHFDQQRWVXSSRUWWKLV ,Q WKLV FDVH ZH DSSO\ VWDWH ODZ LQ DFFRUGDQFH ZLWK WKH LQWHUSUHWDWLRQZHPD\DIILUPRQDQ\JURXQGVVXSSRUWHGE\ FRQWUROOLQJGHFLVLRQVRIWKH2KLRRU'HODZDUH6XSUHPH&RXUW WKHUHFRUG&LW\0DQDJHPHQW&RUSY86&KHP&R,QF DV DSSURSULDWH  (ULH 55 &R Y 7RPSNLQV  86   )G   WK &LU    :H FRQFOXGH WKDW WKH  %DLOH\)DUPV,QFY125$0&KHP&R)G  WK&LU ,IWKHVWDWHVXSUHPHFRXUWKDVQRW \HW DGGUHVVHG WKH LVVXH SUHVHQWHG ZH PXVW SUHGLFW KRZ LW ZRXOGUXOHE\ORRNLQJWRmDOODYDLODEOHGDWDlLQFOXGLQJVWDWH  1DWLRQDO 8QLRQ RULJLQDOO\ VHHPV WR KDYH FRQVLGHUHG DSSO\LQJ H[FOXVLRQV EDVHG RQ SHUVRQDO PDOIHDVDQFH E\ WKH GLUHFWRUV EXW KDV QRW EURXJKW WKHP IRUZDUG LQ WKH OLWLJDWLRQ  2ZHQV&RUQLQJY1DWjO 1R 1R 2ZHQV&RUQLQJY1DWjO  8QLRQ)LUH,QV&R 8QLRQ)LUH,QV&R VWUXFWXUHVHWWOHPHQWWHUPVWKDWVKLIWFRVWVRQWRWKHLULQVXUHU DSSHOODWH GHFLVLRQV  .LQJVOH\ $VVRFV ,QF Y 0ROO 0RUHRYHU VLQFH LQGHPQLILFDWLRQ DULVLQJ IURP VXFK D 3ODVWLF&UDIWHUV,QF)G WK&LU mVXFFHVVlFRXOGSUHVXPDEO\EHFKDOOHQJHGXQGHU'HODZDUH ODZIRUODFNRIGLUHFWRULDOJRRGIDLWKHTXDWLQJFRPSURPLVH 7KHGHQLDORI1DWLRQDO8QLRQjVPRWLRQVWRDPHQGDQGILOH ZLWK VXFFHVV ZRXOG FUHDWH FRQVLGHUDEOH WHQVLRQ ZLWK WKH DQHZFRXQWHUFODLPDUHFRQVLGHUHGXQGHUDEXVHRIGLVFUHWLRQ PDQGDWRU\QDWXUHRI† F LQGHPQLILFDWLRQ m'HFLVLRQVDVWRZKHQMXVWLFHUHTXLUHVDPHQGPHQWDUHOHIWWR WKHVRXQGGLVFUHWLRQRIWKHWULDOMXGJHDQGZHUHYLHZWKRVH :KDWHYHUPD\EHWKHPHULWVRIWKH1LQWK&LUFXLWjVYLHZDV GHFLVLRQVXQGHUDQDEXVHRIGLVFUHWLRQVWDQGDUGl0LOOHUY DJHQHUDOPDWWHUDQLQVSHFWLRQRIWKH'HODZDUHVWDWXWHVKRZV 0HWURSROLWDQ/LIH,QV&R)G WK&LU  WKDWWKHSURYLVLRQVLQVHFWLRQV D DQG E DUHPXFK PRUH FOHDUO\ GHVLJQHG IRU VLWXDWLRQV ZKHUH VHWWOHPHQWV DUH 7KHSDUWLHVKDYHQRWEULHIHGWKHLVVXHRIWKHVWDQGDUGRI SDLG RXW  %RWK VHFWLRQV D  DQG E  H[SOLFLWO\ PHQWLRQ UHYLHZ DSSURSULDWH WR WKH JUDQW RI D PRWLRQ WR HQWHU ILQDO mVHWWOHPHQWl ZKHUHDV †  F  GRHV QRW OLPLWLQJ LWVHOI WR MXGJPHQW  +RZHYHU EDVHG RQ LWV FRQQHFWLRQ WR WKH WULDO FRVWVDQGDWWRUQH\jVIHHV7KLVSURYLGHVDVWURQJLQGLFDWLRQ MXGJHjVGLVFUHWLRQLQGRFNHWPDQDJHPHQWDQGLWVUHODWLRQVKLS WKDW VHFWLRQ F  XQOLNH D  DQG E  LV QRW LQWHQGHG WR EH WR WKH IDFWXDO GHWDLOV RI WKH SDUWLHVj FRQIHUHQFH DEXVH RI RUGLQDULO\DSSOLFDEOHWRVHWWOHPHQWV7KHUHIRUHZHKROGWKDW GLVFUHWLRQDSSHDUVWREHWKHDSSURSULDWHVWDQGDUG&I%DQNRI 2ZHQV&RUQLQJjVLQGHPQLILFDWLRQDULVLQJIURPWKH/DYDOOH /LQFROQZRRGY)HGHUDO/HDVLQJ,QF)G WK VHWWOHPHQWFRXOGQRWKDYHSURFHHGHGXQGHU†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jVFODLPXQGHUWKH3ROLF\ WRUHSUHVHQWRQO\DIUDFWLRQ  RI WKH WRWDO SDLG RXW  ,I WKH IUDFWLRQ RI WKH  PLOOLRQ /LNH WKH :DOWXFK FRXUW ZH H[SUHVV QR RSLQLRQ RQ ZKHWKHU D DOORFDWHGWRWKHGLUHFWRUVUHVXOWHGLQDILJXUHEHORZWKH SD\PHQW LQ DQ\ DPRXQW PXVW EH FRQVLGHUHG D IDLOXUH $ VXLW GRHV KDYH D PLOOLRQ GHGXFWLEOH 1DWLRQDO 8QLRQ FRXOG K\SRWKHWLFDOO\ mQXLVDQFHl YDOXH EDVHG RQ WKH SURVSHFWLYH OLWLJDWLRQ FRVWV UHTXLUHG WR HIIHFW D GLVPLVVDO RI WKH DFWLRQ ,I D GHIHQGDQW FRXOG VKRZ WKDW WKH DYRLGSD\PHQWDOWRJHWKHU DPRXQW SDLG LQ VHWWOHPHQW ZDV ORZHU WKDQ WKH SURVSHFWLYH DWWRUQH\jV IHHV DQG RWKHU FRVWV LW ZRXOG KDYH LQFXUUHG VDYH IRU WKH VHWWOHPHQW WKHUH LV D 7KHSDUWLHVDJUHHWKDWWKHLQLWLDOTXHVWLRQLVZKHWKHURUQRW JRRG DUJXPHQW IRU D ODEHO RI mVXFFHVVl GHVSLWH SD\PHQW 6HH 9RQ )HOGW WRDSSO\WKHmODUJHUVHWWOHPHQWlUXOHDVWKHGLVWULFWFRXUWGLG  :/  DW  ,W ZRXOG VHHP QHHGOHVVO\ EXUGHQVRPH WR FUHDWH 7KHODUJHUVHWWOHPHQWUXOHDOORZVDOORFDWLRQRIWKHFRVWVRID DQ DEVROXWH UXOH WKDW ZRXOG FRPSHO OLWLJDQWV WR VHHN D 3\UUKLF YLFWRU\ LQ VHWWOHPHQWmRQO\ZKHUHWKDWVHWWOHPHQWLVODUJHUEHFDXVHRIWKH FRXUW 1R VXFK VKRZLQJ KDV EHHQ DWWHPSWHG E\ 2ZHQV &RUQLQJ KHUH KRZHYHU LQVWHDG LW UHOLHV RQ WKH LQVXIILFLHQW JURXQG WKDW WKHUH ZDV QRW DQ DFWLYLWLHVRIXQLQVXUHGSHUVRQVZKRZHUHVXHGRUSHUVRQVZKR mDGYHUVH MXGJPHQW RU ILQGLQJ RI ZURQJGRLQJl 2ZHQV %U DW  o ZHUHQRWVXHGEXWZKRVHDFWLRQVPD\KDYHFRQWULEXWHGWRWKH VRPHWKLQJ ZKLFK LV JHQHUDOO\ WUXH RI DQ\ SUHWULDO VHWWOHPHQW VXLWl&DWHUSLOODU,QFY*UHDW$P,QV&R)G  2ZHQV&RUQLQJY1DWjO 1R 1R 2ZHQV&RUQLQJY1DWjO  8QLRQ)LUH,QV&R 8QLRQ)LUH,QV&R  WK &LU    +HQFH LI WKH XQLQVXUHG FRUSRUDWH PDQGDWRU\XQGHU† F DQGWKDWWKHVHWWOHPHQWFRQVWLWXWHG GHIHQGDQWPDGHWKHVHWWOHPHQWODUJHUWKDQLWRWKHUZLVHZRXOG mVXFFHVVRQWKHPHULWVRURWKHUZLVHl$OWKRXJKZHILQGWKH KDYH EHHQ ZLWK RQO\ WKH LQVXUHG GLUHFWRUV DV GHIHQGDQWV LQGHPQLILFDWLRQGLGQRWYLRODWH'HODZDUHODZZHUHMHFWERWK DOORFDWLRQRIWKHH[FHVVFDQEHPDGHDQGFRYHUDJHSDUWLDOO\ RI 2ZHQV &RUQLQJj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s  :LWKUHJDUGWR2ZHQV&RUQLQJjVVHFRQGDUJXPHQWLWLVDOVR ,QDQRSLQLRQODWHUZLWKGUDZQIRURWKHUUHDVRQVDGLVWULFW H[WUHPHO\GXELRXVWKDWDSD\RXWRIDOPRVWWHQPLOOLRQGROODUV FRXUWLQRXU&LUFXLWDOVRFKRVHWKHODUJHUVHWWOHPHQWUXOHRYHU ZRXOGEHGHHPHGmVXFFHVVlE\WKHFRXUWVRI'HODZDUH%RWK LWV ULYDO WKH mUHODWLYH H[SRVXUH UXOHl 6HH $PHULZRRG RIWKHPDLQFDVHVRQWKHLVVXH9RQ)HOGWDQG:DOWXFKKDYH ,QGXVWULHV ,QWjO &RUS Y $PHULFDQ &DV &R RI 5HDGLQJ GHFOLQHGWRGHILQHWKHWHUPSUHFLVHO\EXWDUHDGLQJRIWKHP 3HQQV\OYDQLD 1R &9  :/   :' VXJJHVWV WKH\ ZRXOG KDYH UHMHFWHG ODEHOLQJ /DYDOOH DV D 0LFKsXO\  YDFDWHGRQVWLSXODWLRQRISDUWLHV 7KH mVXFFHVVlDSSURSULDWHIRU† F 6HH:DOWXFK)GDW UHODWLYH H[SRVXUH UXOH DOORFDWHV D VHWWOHPHQW EDVHG RQ  Q VWDWLQJm>H@VFDSHIURPGHWULPHQWIRUZKDWHYHU FRPSDULQJ WKH SRWHQWLDO H[SRVXUH RI WKH XQLQVXUHG DQG UHDVRQ LV GHWHUPLQDWLYHl EXW DOVR mZH QHHG QRW GHFLGH LQVXUHG GHIHQGDQWV KDG WKH OLWLJDWLRQ SURFHHGHG  6HH ZKHWKHU D GHIHQGDQWjV VHWWOHPHQW SD\PHQW DXWRPDWLFDOO\ &DWHUSLOODU)GDW WK&LU  FKRRVLQJODUJHU UHQGHUVWKDWGHIHQGDQWµXQVXFFHVVIXOjXQGHU† F l 9RQ VHWWOHPHQWUXOHXVLQJDSSOLFDEOH,OOLQRLVODZ %HFDXVHWKH )HOGW  :/  DW  QRW UHDFKLQJ TXHVWLRQ RI UHODWLYH H[SRVXUH UXOH mHQYLVLRQV D VRPHZKDW HODERUDWH ZKHWKHU mURRP PLJKW H[LVWl IRU YLHZLQJ mQRPLQDO LQTXLU\LQWRZKDWKDSSHQHGLQ DVHWWOHPHQWDQGZKRUHDOO\ FRQVLGHUDWLRQlDVFRQVLVWHQWZLWKVXFFHVV  HPSKDVLVDGGHG  SDLGIRUZKDWUHOLHI>@lLELG1DWLRQDO8QLRQHQGRUVHVWKHUXOH %\FRQWUDVWWKH1LQWK&LUFXLWjVLQWHUSUHWDWLRQ RI0DU\ODQG LQLWVHIIRUWWRUHVLVWVXPPDU\MXGJPHQW ODZ LQ 6DIHZD\ DSSHDUV ZLOOLQJ WR H[WHQG WKH PHDQLQJ RI mVXFFHVVl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jO 8QLRQ OLPLW WKH LQGHPQLILFDWLRQ ULJKWV RI WKH GLUHFWRUV 1RWDEO\ WKH %\ODZV )LUH ,QV &R RI 3LWWVEXUJK 1R   :/  WK &LU VSHFLILFDOO\ SURYLGH WKDW WKH IDLOXUH WR PDNH D GHWHUPLQDWLRQ VKDOO QRW sXQ   XQSXEOLVKHG   86& † X I  7KH UHOHYDQW VXLW DQG FUHDWH D SUHVXPSWLRQ WKDW WKH GLUHFWRU KDV QRW PHW WKH UHTXLVLWH VWDQGDUG VHWWOHPHQW KHUH /DYDOOH  RSHUDWHG XQGHU WKH ROG SUH36/5$ UHJLPH RI FRQGXFW UHTXLUHG IRU LQGHPQLILFDWLRQ  2ZHQV&RUQLQJY1DWjO 1R 1R 2ZHQV&RUQLQJY1DWjO  8QLRQ)LUH,QV&R 8QLRQ)LUH,QV&R RSSRVHGWRPD\ UHLPEXUVHGLUHFWRUVIRUWKHLUFRVWV2ZHQV 2KLRKDVQRWVSRNHQWRZKHWKHULWZRXOGIDYRURQHRUWKH &RUQLQJKDVGRQHWKLV7KHUHTXLUHPHQWRIJRRGIDLWKRQWKH RWKHU RI WKHVH UXOHV DOWKRXJK LW ZLOO QRW HQIRUFH '  2 SDUWRIWKHGLUHFWRUVLQGHPQLILHGXQGHU†† D  E KRZHYHU FRYHUDJHIRUVHWWOHPHQWFRVWVLIWKHXQGHUO\LQJVKDUHKROGHU LVVWDWXWRU\DQGFDQQRWEHZDLYHGE\DWWHPSWLQJWRH[WHQG FODLPVDUHQRWSUHPLVHGRQWKHPLVGHHGVRIGLUHFWRUVDFWLQJLQ LQGHPQLILFDWLRQ HYHQ IXUWKHU  6HH 9RQ)HOGW Y 6WLIHO )LQ WKHLUFRUSRUDWHFDSDFLW\6HH&LQFLQQDWL,QV&RY,UZLQ&R &RUS1R:/DW  'HO&KsXQH 1R&:/DW  2KLR&W$SS  &RFKUDQ Y 6WLIHO )LQ &RUS 1R   :/ 'HF  ILQGLQJFRPSHWHQWHYLGHQFHH[LVWHGWKDWDOO DW  'HO&K0DU 6HHDOVR:DOWXFKY FODLPV KDG EHHQ IRU DFWV FRPPLWWHG E\ GLUHFWRUV LQ WKHLU &RQWL &RPP 6HUY ,QF  )G   G &LU  SHUVRQDOFDSDFLWLHV 1RUGRHVWKH3ROLF\VWDWHZKLFKPHWKRG GLVFXVVLQJ ZK\ 'HODZDUH ODZ UHTXLUHV JRRG IDLWK LQ VXFK RIDOORFDWLRQVKRXOGEHXVHG,QVWHDGLWVXJJHVWVWKDWSRVW FLUFXPVWDQFHV  VHWWOHPHQWWKHLQVXUHUDQGWKHSROLF\KROGHUZLOOXVHWKHLUEHVW HIIRUWV WR GHWHUPLQH D mIDLU DQG SURSHU DOORFDWLRQ RI WKH $GHIDXOWPHWKRGIRUWKHGHWHUPLQDWLRQRIJRRGIDLWKE\WKH DPRXQWVDVEHWZHHQWKH&RPSDQ\DQGWKH,QVXUHGVlZLWKWKLV FRUSRUDWLRQLVGHVFULEHGE\† G ,WLV1DWLRQDO8QLRQjV ODWWHUWHUPUHIHUULQJWRWKHGLUHFWRUVDQGRIILFHUV 3ROLF\ˆ  FRQWHQWLRQWKDW2ZHQV&RUQLQJIDLOHGWRFRPSO\ZLWKWKLV 7KHODEHOmIDLUlGRHVQRWXQLTXHO\GHVLJQDWHRQHRIDQXPEHU DQGWKHUHIRUHWKHLQGHPQLILFDWLRQZDVQRWmSXUVXDQWWRODZl RI ULYDO OHJDO SULQFLSOHV  7KHUHIRUH DOWKRXJK VHWWOHPHQW DVWKH3ROLF\UHTXLUHV&RQVHTXHQWO\1DWLRQDO8QLRQFODLPV DOORFDWLRQEHWZHHQFRYHUHGDQGXQFRYHUHGFODLPVLVFOHDUO\ LWRZHVLWVSROLF\KROGHUQRWKLQJIRUWKH/DYDOOHVHWWOHPHQW FRQWHPSODWHGE\WKH3ROLF\ZKHUHDSSURSULDWHWKHQDWXUHRI 7KLVDUJXPHQWZDVDWWHPSWHGE\WKHDSSHOODQW DQGUHMHFWHG WKHPHWKRGRIDOORFDWLRQLVDPELJXRXV LQWKH1LQWK&LUFXLW6DIHZD\6WRUHV,QFY1DWjO8QLRQ)LUH ,QV &R  )G   WK &LU   LQWHUSUHWLQJ 8QGHU ZHOOVHWWOHG 2KLR ODZ ZKHQ mSURYLVLRQV RI D 0DU\ODQGFRUSRUDWLRQODZKRZHYHU  FRQWUDFWRILQVXUDQFHDUHUHDVRQDEO\VXVFHSWLEOHRIPRUHWKDQ RQHLQWHUSUHWDWLRQWKH\ZLOOEHFRQVWUXHGVWULFWO\DJDLQVWWKH 2ZHQV &RUQLQJ FODLPV WKDW LWV E\ODZV SURYLGH DQ LQVXUHUDQGOLEHUDOO\LQIDYRURIWKHLQVXUHGl86)LGHOLW\ LQGHSHQGHQW EDVLV IRU LQGHPQLILFDWLRQ ZLWKRXW UHIHUHQFH WR *XDUDQW\ &R Y /LJKWQLQJ 5RG 0XW ,QV &R  1(G JRRGIDLWKRULQWKHDOWHUQDWLYHWKDWLWVLQGHPQLILFDWLRQZDV  2KLR  FLWDWLRQVDQGLQWHUQDOTXRWDWLRQPDUNV RPLWWHG 7KH6HYHQWK&LUFXLWLQ&DWHUSLOODUFKRVHWKHODUJHU VHWWOHPHQW UXOH LQ SDUW EHFDXVH m,OOLQRLV GLVIDYRUV SUR UDWD  DOORFDWLRQDEVHQWODQJXDJHLQWKHLQVXUDQFHFRQWUDFWWKDWVR 1DWLRQDO 8QLRQ E\ FRQWUDVW KDV DOVR DVVHUWHG WKDW 2ZHQV &RUQLQJ YLRODWHG LWV RZQ FRQWUDFWXDO DJUHHPHQWV ZLWK LWV GLUHFWRUV 1DWjO 8QLRQ UHTXLUHVl)GDW$OORFDWLRQLVLQHIIHFWDSDUWLDO 5HSO\ %U DW   7KLV LV XQSHUVXDVLYH IRU WZR UHDVRQV )LUVW WKLV H[FOXVLRQRIWKHLQVXUHUjVOLDELOLW\DQGWKXV,OOLQRLVjVSROLF\ DJUHHPHQW DQG WKH 2ZHQV E\ODZV HVWDEOLVK D m5HYLHZLQJ 3DUW\l WKDW FDQ UHVHPEOHVLQWKLVUHVSHFWWKH2KLRSULQFLSOHWKDWmDQH[FOXVLRQ PDNH D QHJDWLYH GHWHUPLQDWLRQ WKDW VWRSV LQGHPQLILFDWLRQ WKDW ZRXOG IURP OLDELOLW\PXVWEHFOHDUDQGH[DFWLQRUGHUWREHJLYHQ RWKHUZLVH RFFXU LQGHPQLILFDWLRQ SURFHHGV VR ORQJ DV WKH 5HYLHZLQJ 3DUW\ mVKDOO QRW KDYH GHWHUPLQHG    WKDW ,QGHPQLWHH ZRXOG QRW EH SHUPLWWHG WR EH LQGHPQLILHG XQGHU DSSOLFDEOH ODZl  7R DUJXH WKDW WKLV LPSRVHV D  UHTXLUHPHQW WKDW WKHUH mPXVW EH    D GHWHUPLQDWLRQ E\ WKH µ5HYLHZLQJ 7KLV SURYLVLRQ RI WKH 3ROLF\ FRQWHPSODWHV FRQVHQW E\ WKH ,QVXUHU WR 3DUW\j WKDW WKH GLUHFWRU VKRXOG    EH SHUPLWWHG WR EH LQGHPQLILHG XQGHU WKH VHWWOHPHQW DQG FRQVLGHUDEO\ PRUH FROODERUDWLRQ mEHVW HIIRUWVl 'HODZDUH ODZl 1DWjO 8QLRQ 5HSO\ %U DW   LV WR SXW LW FKDULWDEO\ DQ EHWZHHQ WKH SDUWLHV WKDQ LQ IDFW RFFXUUHG 7KLV GLVWLQFWLRQ LV SDUW RI HUURU RI HOHPHQWDU\ ORJLF 6HFRQG WKH DJUHHPHQW H[SOLFLWO\ SURYLGHV WKDW 1DWLRQDO 8QLRQjV FODLP WKDW 2ZHQV &RUQLQJ EUHDFKHG LWV GXW\ RI JRRG DQ\ ULJKWV WR LQGHPQLILFDWLRQ LQ WKH DJUHHPHQW DUH LQ DGGLWLRQ WR ULJKWV IDLWK DQG IDLU GHDOLQJ  2ZHQV&RUQLQJY1DWjO 1R 1R 2ZHQV&RUQLQJY1DWjO  8QLRQ)LUH,QV&R 8QLRQ)LUH,QV&R HIIHFWl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jVOLDELOLW\6HHDOVR GDW7KH3LSHUFRXUWGLGDFFHSWWKHH[LVWHQFHRIRQH 6WROOHUY)LGHOLW\ *XDUDQW\,QV8QGHUZULWHUV,QF1R JHQXLQH LVVXH RI PDWHULDO IDFW LG DW  ZKLFK LQYROYHG :':/DW  2KLR&W$SS$XJ ZKHWKHU XQLQVXUHG HPSOR\HHV PLJKW KDYH EHHQ DFWLQJ   GHQ\LQJDOORFDWLRQRIVHWWOHPHQWIRUFRYHUDJHSXUSRVHV LQGHSHQGHQWO\RIWKHGLUHFWRUV+RZHYHUWKLVZDVWUHDWHGDV DQG QRWLQJ WKDW ZKHUH DQ mLQVXUDQFH FRPSDQ\ ZURQJIXOO\ D UHEXWWDO RI WKH LQVXUHGjV HYLGHQFH DQG QR VXFK UHEXWWDO GLVFODLPVFRYHUDJHDQGUHIXVHVWRSDUWLFLSDWHLQVHWWOHPHQW HYLGHQFH KDV EHHQ RIIHUHG KHUH WR VKRZ WKDW WKH DFWV RI VXFKGLVFODLPHULVPDGHDWLWVSHULOl ,IWKHXQLQVXUHG XQLQVXUHGSDUWLHVKDGLQFUHDVHGOLDELOLW\ FODLPVZRXOGQRWLPSRVHDPDUJLQDOFRVWRQWKHLQVXUHUWKHLU SUHVHQFHLQWKHVHWWOHGVXLWVKRXOGQRWRSHUDWHWRH[FOXGHWKH %3URSULHW\RI,QGHPQLILFDWLRQ SROLF\KROGHUIURPFRYHUDJHIRUWKHLQVXUHGFODLPV XQOHVVDQ DOORFDWLRQ PHWKRG WKDW PDQGDWHV WKLV LV VSHOOHG RXW LQ WKH 7KH DELOLW\ RI D 'HODZDUH FRUSRUDWLRQ WR LQGHPQLI\ LWV 3ROLF\  GLUHFWRUVIRUWKHFRQVHTXHQFHVRIWKHLUDFWVLVFRQVWUDLQHGE\ 'HODZDUHjV *HQHUDO &RUSRUDWLRQ /DZ †   7KLV VHFWLRQ $VWKHPRYDQWIRUVXPPDU\MXGJPHQWWKHLQVXUHGFDUULHV GHILQHVDEDVLFVWUXFWXUHWKDWFDQEHPRGLILHGZLWKLQOLPLWV WKHEXUGHQRIGHPRQVWUDWLQJWKDWWKHUHLVQRJHQXLQHLVVXHRI E\WKHDGRSWLRQRIE\ODZV'(/ &  $WLW† I  PDWHULDOIDFWFRQFHUQLQJZKHWKHUDOORFDWLRQLVZDUUDQWHG6HH 7KH EDVLF VWUXFWXUH KDV WZR W\SHV RI LQGHPQLILFDWLRQ 3LSHUsDIIUD\&RY1DWjO8QLRQ)LUH,QV&R)6XSSG PDQGDWRU\DQGSHUPLVVLYH0DQGDWRU\LQGHPQLILFDWLRQIRU  '0LQQ  LQWHUSUHWLQJHVVHQWLDOO\WKHVDPH GHIHQVHH[SHQVHVRFFXUVZKHQWKHGLUHFWRULVmVXFFHVVIXORQ FRQWUDFWDVLQWKLVFDVH 7KHGLVWULFWFRXUWKHOGWKDW2ZHQV WKH PHULWV RU RWKHUZLVHl LQ GHIHQVH RI WKH DFWLRQ EURXJKW &RUQLQJFDUULHGLWVEXUGHQE\VKRZLQJWKDWLQVXUHGGHIHQGDQW DJDLQVWKLP† F 3HUPLVVLYHLQGHPQLILFDWLRQPD\RFFXU GLUHFWRUV ZHUH VXHG RQ DOO FODLPV WKHUH ZHUH QR VHSDUDWH LI WKH FRUSRUDWLRQ VR FKRRVHV IRU WKH FRVWV LPSRVHG RQ FODLPVDWWULEXWDEOHVROHO\WRRWKHUFRUSRUDWHHPSOR\HHVRUWR GLUHFWRUVZKRKDYHEHHQGHWHUPLQHGWRKDYHDFWHGLQJRRG WKHFRUSRUDWLRQ1DWLRQDO8QLRQFODLPVWKDWHYHQXQGHUWKH IDLWK†† D  E ,WLVFRPPRQIRUFRUSRUDWLRQVWRDGRSW ODUJHUVHWWOHPHQWUXOHVRPHRIWKHVHWWOHPHQWFDQEHDWWULEXWHG WKURXJK WKHLU E\ODZV D UHTXLUHPHQW WKDW WKH\ PXVW DV WRWKHFRUSRUDWLRQZKLFKJDLQHGDQDGYDQWDJHLQDYRLGLQJEDG SXEOLFLW\DQGORVVRIPRUDOH3UHVXPDEO\1DWLRQDO8QLRQLV DUJXLQJWKDWWKLVLQFHQWLYHOHGWKHFRUSRUDWLRQWRVHWWOHIRUD  1DWLRQDO 8QLRQ DOVR QRZ VXJJHVWV WKDW WKH VHWWOHPHQW PD\ KDYH KLJKHU DPRXQW FUHDWLQJ FLUFXPVWDQFHV IRU DOORFDWLRQ  7KH UHVROYHG DOOHJDWLRQV RI LQVLGHU WUDGLQJ EURXJKW E\ WKH /DYDOOH SODLQWLIIV GLVWULFW FRXUW UHMHFWHG WKHVH FODLPV KROGLQJ DQ\ JHQHUDO 1DWj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