A federal appeals court has ruled against Impac Mortgage Holdings Inc. in a lawsuit over insurance coverage on mortgage-backed securities.
The Irvine, California-based residential lender previously took out a
directors-and-officers insurance policy from Houston Casualty Co.
But when Impac was sued over the sale of MBS, it filed a claim, and Houston denied
coverage for losses incurred from the underlying actions.
So Impac filed a federal lawsuit.
The insurance policy states that it covers losses “arising out of, based upon or attributable to the purchase or sale of … any securities of [Impac],” according to the lawsuit.
Impac argued that the language in the D&O policy meant that the MBS it sold were covered.
But the court found that such language ordinarily refers to shares of stock and ruled in favor of Houston.
In addition to explicit language in the policy, the decision cited “Houston policy’s E&O exclusion, which excludes claims ‘arising out of, based upon or attributable to any insured’s or organization’s performance of (or failure to perform) any professional services, or any act, error or omission relating thereto.'”
Impac appealed the decision with the Ninth Circuit U.S. Court of Appeals.
However, the district court’s decision was affirmed.
Impac had argued ” that the underlying claims do not arise out of its performance of professional services, because the claims allege liability for approving offering documents and SEC filings, which are acts required by statute,” the decision states. “But, drafting such documents, which describe complicated financial products, plainly requires professional skill, whether or not the duty to file the documents is imposed by statute.”
