... Says Its own Insurer in Unilaterally Rescinding Insurance Coverage for JPMorgan Chase's own Mortgage Losses.
Brief Summary of the Federal Court's Holding:
JPMorgan Chase had no claim against its Mortgage Insurance Company for Rescission of JPMorgan Chase's own Mortgage Insurance for Mortgage Losses. The Mortgage Insurance Company Rescinded Because Chase and Wamu Supplied the Mortgage Insurance Company With "Materially False or Misleading" Information Which Chase Certified.
Many bankers have told newspaper reporters that no remedies exist on account of the Great Economic Fiasco and particularly the Subprime Mortgage Crisis. Moreover, many bankers have verbally shifted all blame for their issuing Subprime Mortgages to the people who received them.
In a recent decision, a Federal Court held that JPMorgan Chase was responsible for giving information to its own Mortgage Insurance Company which allowed the Mortgage Insurance Company to Rescind Chase's own Coverage because the information was "materially false or misleading".
The Federal Case: Download JPMorgan Chase Bank, N.A. v. Republic Mortgage Insurance Co. (D.N.J. Case No. 10.06141, Opinion Filed May 4, 2011) PUBLIC RECORDS ACCESS, 2011 WL 1750439 (D.N.J. May 4, 2011).
Republic Mortgage Insurance Company issued Mortgage Insurance Policies to JPMorgan and to Washington Mutual Bank ("Wamu"). The Mortgage Insurance was "on residential loans in which a borrower makes a down payment that is less than twenty percent of the property's purchase price." Download JPMorgan Chase Bank, N.A. v. Republic Mortgage Insurance Co. (D.N.J. Case No. 10.06141, Opinion Filed May 4, 2011) PUBLIC RECORDS ACCESS, 2011 WL 1750439 *1 (D.N.J. May 4, 2011)(authorized password required to access Westlaw).
The Court in this case referred to JPMorgan Chase and Wamu collectively as "Chase".
The RMIC Underwriters were careful. They wrote Mortgage Insurance Policies that required Chase, their Policyholder-Insured, to represent that the information provided on each of these Mortgages "was 'not false or misleading in any material respect'" in order to get the Coverage. JPMorgan Chase Bank, N.A. v. Republic Mortgage Insurance Co., 2011 WL 1750439 at *1.
As quoted by the Court in this case, three (3) standard provisions in just about any Insurance Policy and application then came into play together here regarding each Mortgage to be covered by the Policy:
- "Pursuant to the terms of the Policies, RMIC agreed to pay Chase, in consideration of the premium paid and 'in reliance upon [Chase's] representations and statements made in any Application for coverage' under the Policies, certain losses incurred as a result from the default by a borrower on a mortgage loan."
- Chase was required to provide the Insurance Company with information about each loan before there would be Coverage under the Policy for each particular loan transaction, i.e., for each such Mortgage insured under Chase's Insurance Policy with RMIC. There were two general types of information which Chase could choose to provide. "In either case, Chase represented to RMIC that this information was 'not false or misleading in any material respect ....'"
- Under the Policies, Republic Mortgage had the standard right "'at its option and to the extent permitted by applicable law, to cancel or rescind coverage'" if any of the representations made by Chase "in the insurance application were materially false or misleading".
Id. at *1.
Republic Mortgage unilaterally rescinded. JP Morgan Chase sued. Chase alleged three claims or Counts: Declaratory Judgment, breach of contract, and Bad Faith. Chase based all three claims on the same one contention: Chase argued only that Republic Mortgage should have gone to Court to rescind Chases' Policies and not rescinded them on its own.
Chase did not allege that it did not make any material misrepresentations in its loan applications, said the Court in this case. Chase's Count I was, it bears repeating, for a Declaratory Judgment "that RMIC cannot rescind coverage for a loan without first commencing litigation," id. at *1. The Plaintiff and Insured in this case was of course Chase itself suing on its own Coverage with Republic Mortgage, and the Court made note of the following:
Nowhere in Count I does Plaintiff allege that the insured did not make any material misrepresentations in its loan applications for the Policies, which would render RMIC's rescission fraudulent.
Id. at *3.
The Federal Court granted Republic Mortgage's motion to dismiss all Counts, with leave to Chase to amend to allege individual, specific Mortgage transactions, if Chase be so advised.
It has been said that the great glory of the common law is its capacity for growth in the direction of obvious propriety. With that in mind, this is a case to be followed.
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