Opinion
No. 653290/11.
2012-07-23
OPPENHEIMER AMT–FREE MUNICIPALS, Oppenheimer Multi–State Municipal Trust, on behalf of its series Oppenheimer Rochester National Municipals, and Oppenheimer Municipal Fund, on behalf of its series Oppenheimer Limited Term Municipal Fund, Plaintiffs, v. ACA FINANCIAL GUARANTY CORPORATION, Defendant.
John G. Hutchinson, Esq., or Sidley Austin LLP, for plaintiff. Steven H. Holinsat, Esq., Samantha Springer, Esq., of Proskauer Rose LLP, for defendant.
John G. Hutchinson, Esq., or Sidley Austin LLP, for plaintiff. Steven H. Holinsat, Esq., Samantha Springer, Esq., of Proskauer Rose LLP, for defendant.
CHARLES E. RAMOS, J.
Before the court are cross-motions for summary judgment.
This litigation, seeking a declaration of coverage under financial guarantee insurance policies, focuses on the intersection of federal bankruptcy, and New York State contract and insurance law. The action arises from the sale of over $200 million in Greenville, South Carolina toll road revenue bonds issued by Connector 2000 Association, Inc. (the Issuer/Debtor), a now bankrupt municipal bond issuer, in February 1998. Defendant ACA Financial Guaranty Corporation (ACA), a monoline insurer, is authorized to provide financial guarantee insurance against payment default for public finance obligations, such as the special revenue bonds at issue here. To improve the bonds' marketability, and reduce the risk of default on its payment obligations, the Issuer purchased financial guarantee insurance policies (the Policies) from ACA. Plaintiffs Oppenheimer AMT–Free Municipals, Oppenheimer Multi–State Municipal Trust, and Oppenheimer Municipal Fund (collectively, Oppenheimer) acquired their insurance rights through their purchase of a limited subset of the original bonds (i.e., zero-coupon bonds) in an aggregate amount of $37.18 million.
Eventually, in 2010, the Issuer/Debtor, struggling with decreased revenues and its debt obligations, filed for Chapter 9 bankruptcy, which permits a municipality to restructure and adjust its debts. ACA was one of the Issuer/Debtor's largest creditors in the bankruptcy case.
Oppenheimer seeks a judgment declaring that the Policies issued to the Issuer/Debtor and related Certificates of Bond Insurance (CBIs), also issued by ACA, are enforceable, and that Oppenheimer is entitled to the protection and coverage of the Policies to pay for losses resulting from the Issuer/Debtor's default and subsequent bankruptcy. It argues that ACA's conduct and admissions after the bankruptcy confirm ACA's understanding that its insurance obligations under the Policies and CBIs became a fixed liability when (1) ACA allegedly admitted its liability exposure to Oppenheimer on its website until withdrawing that information after Oppenheimer referenced the admission in its complaint; and (2) ACA began purchasing the CBIs at a discount in the secondary market long after the insured bonds to this case had been cancelled. Oppenheimer characterizes these acts as “admissions.” On the other hand, ACA contends that these two alleged admissions were an administrative oversight and error.
ACA moves for summary judgment, pursuant to CPLR 3212, for an order denying the declaratory relief sought by Oppenheimer, and declaring that ACA is relieved of liability for further payment obligations under the Policies as a matter of New York guaranty law. ACA accepts that under the Policies, ACA was obligated to pay the shortfall in the amount the Issuer/Debtor is obligated to pay on the original insured bonds. However, ACA insists that the cancellation and mandatory exchange of the original insured bonds, coupled with the alleged express release of the Issuer/Debtor's liability under the original insured bonds, without ACA's consent, constitutes an alteration of the original insured bonds and its insurance obligations, thereby relieving it of any obligation under the Policies. Since nothing is allegedly due under the cancelled bonds, there cannot be any claim for a shortfall payable by ACA. It contends, as well, that its subrogation rights under the Policies have been irreparably impaired because the Issuer/Debtor's liability under the original insured bonds cannot be resurrected.
Plaintiffs cross-move, pursuant to CPLR 3212, for an order granting summary judgment. Oppenheimer claims that the basis of this state court action is a garden-variety contract action pursuant to the terms of the Policies, and that ACA is attempting to circumvent its contractual obligations to it. Pointing to the language of the Policies, specific provisions of New York Insurance Law and the Bankruptcy Code, Oppenheimer asserts that ACA's liability obligation became fixed when the Issuer/Debtor defaulted on its payment obligations and became bankrupt, causing Oppenheimer to suffer a payment loss after the old bonds were exchanged for new bonds, and the principal amount and maturity dates of the bonds were modified. Oppenheimer therefore seeks an order declaring that, on the maturity date of the original insured bonds covered by the Policies, ACA must pay all sums that the Issuer/Debtor fails to pay on the original insured bonds. Oppenheimer also contends that ACA's claim that it lost its subrogation rights in the bankruptcy proceeding is pure fiction.
The parties presented their arguments to the court on April 18, 2012. Having reviewed the pleadings and supporting documents, arguments and applicable case law, the court cannot agree with each side in full, as each side's position is mistaken in some regard. However, for the reasons that follow, ACA's motion for summary judgment is denied, and Oppenheimer's cross motion for summary judgment is granted.
Factual Background
The common thread in this litigation is Connector 2000 Association, a South Carolina public benefits corporation formed in 1996 to assist the South Carolina Department of Transportation (SCDOT) in the funding, construction and operation of turnpikes and other highway and transportation projects. On February 11, 1998, the Issuer/Debtor issued tax-exempt municipal bonds under a Master Indenture of Trust and First Supplemental Indenture of Trust for the purpose of financing the costs of a toll highway and roadways in Greenville, South Carolina (the Southern Connector project
The term “Southern Connector” relates to the 16–mile, four-lane toll highway south of the City of Greenville that connects the I–85/I–185 interchange (exit 42} with the I–385/U.S. 276 interchange (exit 30) which is owned by SCDOT and operated by the Issuer/Debtor under a license agreement.
Specifically, $200,177,680 original principal amount of Toll Road Revenue Bonds, Series 1998A, 1998B and 1998C (collectively, the Original Bonds) were issued for the Southern Connector project. The Series 1998A Original Bonds represent interest-paying obligations, with interest payable semi-annually on January 1 and July 1 of each year. The Series 1998B and 1998C Original Bonds consist of zero-coupon obligations that do not pay periodic interest, but instead pay the full principal amount due on a maturity date, with serial maturity dates beginning on January 1, 2008, and continuing until January 1, 2038.
Under the terms of the Master Indenture, if the Issuer/Debtor files a voluntary petition in a federal bankruptcy court, this action is considered an “Event in Default” ( see affirmation of Ryan, exhibit 4–2, Master Indenture dated Feb. 1, 1998, at 52, ¶ 4). The U.S; Bank Trust National Association (the Trustee
became responsible for carrying out the cash transactions of the bond issue.
The U.S. Bank Trust National Association was both the Custodian for bondholders under the ACA Policies, and the Trustee in the bankruptcy proceeding. To avoid confusion, the identifier “Trustee” will be used throughout the decision for the Custodian/Trustee.
ACA is a monoline insurance company licensed throughout the United States, and regulated by the Maryland Insurance Administration. It offers financial guaranty insurance which provides for payment of any loss to an insured claimant arising from the failure by a debt issuer to pay the principal, interest, premium, or dividend due when the failure is the result of a financial default or insolvency.
Bond insurance generally reduces the borrowing costs for an issuer since investors are prepared to accept a lower interest rate in exchange for the credit enhancement provided by the bond insurance.
In June 2001, ACA issued a number of Secondary Market Insurance Policies to increase the perceived creditworthiness of certain Original Bonds. Pursuant to those policies, effective June 8, 2001, ACA contractually committed to guarantee the payment of scheduled interest and payment obligations by the Issuer for a subset of the Original Bonds (the Original Insured Bonds) in the event of a payment default by the Issuer/Debtor.
Each of the Policies contains multiple provisions that afford protections to Oppenheimer. ACA agreed to “pay the [Trustee], for the benefit of each Holder or Owner, as the case may be, the Amount Due for Payment resulting from the Nonpayment by the Issuer of the Obligations” covered by the respective policy insured bond ( see affidavit of Ryan, exhibit 1, Policy, at 1, 1 1). The “Amount Due for Payment” means the amounts of Nonpayment as reduced, if applicable, by the amount of any partial payment by or on behalf of the Issuer/Debtor. Anything less than “payment in full” on the “Due Date of Payment” would constitute nonpayment ( id. at 1, ¶ 2). The term “Non–Payment” is defined as “the failure of the Issuer to have provided sufficient funds to the Custodian for payment in full” ( id.).
The Policies further state that “[i]n any event of a Nonpayment” of those Obligations by the Issuer/Debtor, “the [Trustee] shall make a claim for payment under this Policy” ( id. at 2, 12). Consequently, if the U.S. Bank Trust National Association is informed by the Issuer/Debtor, through receipt of a Notice of NonPayment, that there are insufficient funds to make the next payment of interest and principal, then the Trustee calls on the insurance policy, orders the insurance company to deposit sufficient funds to its trustee account, and proper bondholder payments are then supposed to be made by the Trustee on a timely basis.
ACA was required to provide the Trustee with payment in full on “the later of the Due Date of Payment or within one Business Day after receipt of Non–Payment” ( id. at 1, ¶ 3). “Upon any such disbursement, the Insurer shall become fully subrogated to the Rights of the Holder or Owner” ( id. at ¶ 4).
The Policies also state that they are “noncancellable” except if the bondholder or owner surrenders its interest in the CBIs or position ( id. at 2, ¶ 7). Each policy also states: “Following any default by the Insurer in the payment of any amounts due under this Policy, each Holder or Owner, as the case may be, shall have the right to proceed directly and individually against the Insurer in whatever manner such Holder or Owner deems appropriate” (affidavit of Ryan, exhibit 1, Policy, at 2, ¶ 3). Lastly, the power to accelerate the underlying debt upon an Event of Default rested solely in the hands of ACA ( id. at 2). Therefore, ACA had the right to call and accelerate payment of the entire bond issue and pay off bondholders, thus avoiding many years of interest payments.
Under section 4.07 of the Custody Agreement, the Trustee was to notify ACA of any insolvency proceeding by the Issuer/Debtor ( see affidavit of Ryan, exhibit 5, Custody Agreement, at 52). Following payment by ACA under the related policy, ACA, as insurer, would be subrogated to the rights of the Trustee and each related bondholder or owner involved in the insolvency proceeding ( id.).
The CBIs refer to the Policies, and clarify ACA's obligations to guarantee payment on the Insured Bonds. The “Statement of Insurance” parallels the language of the Policies by providing that ACA “in consideration of the payment of the premium and subject to the terms of the Policy, has unconditionally and irrevocably guaranteed to the Custodian for the benefit of the Holders or Owners, as the case may be, the full and complete payment required to be made by or on behalf of the Issuer of the Obligations ...” ( id., exhibit 2, CBIs, at 4).
In reliance on ACA's financial guarantee of the bonds, Oppenheimer acquired certain CBIs issued by ACA between 2003 and 2007, which relate to the non-interest paying zero-coupon bonds, and it currently holds an aggregate $37.18 million par value, with payment of principal at full par value, due on the following maturity dates: January 1, 2020, January 1, 2021, January 1, 2024 and January 1, 2026.
The face of each of the insurance policies identifies two CUSIP numbers:
(a) one identifies the specific Original Insured Bonds and (b) a second “Enhanced” CUSIP, which is a book-entry position (via the Depository Trust Company [DTC] ), which evidences the issuance by ACA of CBIs. Oppenheimer collectively holds policies identified by Enhanced CUSIP Nos. 20786LCV1, 20786LCW9, 207LCX7, and 20786LCY5, which, in turn, insure payments due under the Original Insured Bonds identified by CUSIP Nos. 20786LAQ4, 20786LAR, 20786LAU5, and 207LAW1 (see Complaint, ¶¶ 33–34; Answer, ¶ I 33, 72), which correspond to applicable policy numbers SO601–18, SO601–19, SO601–20 and SO601–21.
CUSIP numbers are used by financial institutions and investors to identify securities for the purpose of trading, settlement and valuation. The Enhanced CUSIP numbers identify the “wrapped” Original Bonds and the issuance by ACA of CBIs and Policies.
Unfortunately, the traffic levels and corresponding toll revenues received by the Issuer/Debtor for the Southern Connector project were far less than projected, leading to an inability of the Issuer/Debtor to pay the debt service on the Original Bonds. On January 1, 2010, the Issuer/Debtor defaulted on the payment of scheduled interest. It also defaulted on interest payments due on July 1, 2010 and a principal payment on January 1, 2011.
On June 24, 2010, the Issuer/Debtor filed a voluntary petition for relief under Chapter 9 of the United States Bankruptcy Code
[FN5] in the United States Bankruptcy Court for the District of South Carolina (the Bankruptcy Court)(see In re Connector 2000 Association, Inc., Case No. 10–04467 [Bankr D SC] ). Along with its bankruptcy petition, the Issuer/Debtor filed a mailing matrix listing the names and addresses of its creditors and other parties-in-interest. Notice concerning the commencement of the Chapter 9 case was sent to all those creditors. Notice was also published locally and nationally three times in The State, The Greenville News, and the Bond Buyer, as required by the Bankruptcy Court. Capital assets of the Issuer/Debtor as of December 31, 2009, consisted of equipment and an intangible asset, the Issuer/Debtor's interest in a license agreement with SCDOT.
.11 USC § 109(C)(4) sets forth the statutory criteria for eligibility as a Chapter 9 debtor. It provides that an entity may be a Chapter 9 debtor only if it is an insolvent municipality which is specifically authorized to be a Chapter 9 debtor under state law and which “desires to effect a plan to adjust such debts.” “Municipality” is defined very broadly under the Bankruptcy Code. Section 101(40) defines “municipality” as a “political subdivision or public agency or instrumentality of a State.” However, the terms “political subdivision or public agency or instrumentality of a State” are not defined in the Code. One New York court has held that even an off-track betting company may be considered an instrumentality of a State ( see e.g. In re New York City Off–Track Betting Corp., 427 BR 256, 265 [Bankr SD N.Y.2010] ).
The Issuer/Debtor identified U.S. Bank Trust National Association, the Trustee, as the representative for creditors due the entire accelerated amount of the Original Bonds. The Trustee, in turn, on behalf of the owners/holders of the Original Bonds, filed a proof of claim for $237,834,413, representing the total liquidated amount of the Original Bonds, plus interest, other charges and attorneys' fees. Pursuant to these filings, the Trustee represented the claims of the owners/holders of the Original Bonds, which included Oppenheimer's claims. Oppenheimer did not participate in the bankruptcy action other than through the Trustee. ACA contends that at no time during the bankruptcy action did the Trustee or Oppenheimer make any demand on ACA for payment of the accelerated or liquidated amount that became due under the Original Insured Bonds by operation of law, resulting from the Issuer/Debtor's bankruptcy filing.
ACA was listed on the Issuer/Debtor's bankruptcy docket as a creditor and included as a “Special Notice Party” in the proceedings. ACA also was listed as an unliquidated and contingent creditor on the Issuer/Debtor's “Creditors Holding 20 Largest Unsecured Claims” ( id., exhibit 8, List of Creditors dated June 24, 2010, at 3).
Following the Issuer/Debtor's failure to make interest payments due on July 1, 2010 and January 1, 2011, and a principal payment on January 1, 2011 for the zero-coupon bonds, the Trustee sent a Notice of Nonpayment (as defined in the Policies) to ACA, which then made insurance payments to the Trustee for the benefit of the holders/owners of related CBIs (although not CBIs held by Oppenheimer).
On September 22, 2010, ACA filed a timely Proof of Claim against the Issuer/Debtor for an “unliquidated amount” ( id., exhibit 3, appendix D, Proof of Claim). In its Proof of Claim, ACA disclosed that it had made certain payments to the Trustee pursuant to the CBIs, Policies and Custody Agreement (the paid default amounts), and that it “anticipates that it will incur liability for additional payments with respect to the Insured Obligations” ( id., ¶ 8). ACA also reserved its rights to recover any amounts paid under the CBIs and Policies, as well as its subrogation rights ( id.).
On November 23, 2010, the Issuer/Debtor filed a First Amended Disclosure Statement and First Amended Plan for Adjustment of Debts
(the Plan), both of which were supplemented, modified and amended on January 17, 2011 and on March 16, 2011, with respect to the Plan only. As stated in the Issuer/Debtor's First Amended Disclosure Statement to First Amended Plan for Adjustment of Debts (the Disclosure Statement), “[w]hile the Original Trust Indenture does not provide for automatic acceleration, as a matter of bankruptcy law, claims on the [Original] Bonds are deemed accelerated on the Petition Date” (McCarthy affidavit, ¶ 16).
A plan of adjustment is a document that provides for the treatment of the various claims held by creditors against a municipality, and restructuring of liabilities. The purpose of the Plan is to implement a fair and equitable plan for the treatment of all claims and to put the Issuer/Debtor on “sound financial footing .”
Under the proposed Plan and Disclosure Statement, the owners and holders of the Original Bonds were to be issued new Series 2011A and Series 2011B Bonds (see affidavit of McCarthy, exhibit 3, First Amended Disclosure Statement and First Amended Plan for Adjustment of Debts, 47–49; see also exhibit 9, First Amended Plan for Adjustment of Debts, 6–7). The Trustee, on behalf of the owners and holders of the Original Bonds, voted to approve the Plan.
There were no objections properly filed and served pursuant to the Confirmation Hearing Notice. The Bankruptcy Court confirmed the Plan on April 11, 2011 (the Confirmation Order) and the Plan became effective on April 21, 2011. The Confirmation Order provided that the holders of the Original Bonds would be issued Series 2011A, B, and C Bonds (the New Bonds) as payment-in-kind for their interests in the Original Bonds pursuant to the First Amended and Restated Master Indenture of Trust (exhibit 11, Confirmation Order, Section P, at 29, ¶ 34).
The Confirmation Order stated that the bonds owned by bondholders under the Plan:
“will be modified, amended and restated and the certificates of indebtedness evidencing the Bonds will be exchanged for the Amended and Restated Bonds. The Amended and Restated Bonds will continue to evidence the original February 1998 loan from the Bondholders (used to finance the development of the Southern Connector and the cost of construction and financing thereof) with such loan subject to the modifications to the debt instruments contained in the Debtor's Plan as approved by this Order and set forth more fully in the Amended Trust Indenture and form of the Amended and Restated Bonds.”
id., exhibit 11, Confirmation Order, at 29).
The new bonds are in a reduced principal amount of $150,150,650, with an extended final maturity beginning on January 1, 2012, and ending on July 22, 2051 (each of the Series 2011A, B and C New Bonds has a different maturity schedule).
The Confirmation Order expressly approved the provisions of the Plan releasing all claims against the Issuer/Debtor. It further provided for “releases of and injunctive relief to third parties who [were] (1) providing substantial consideration to the Debtor's reorganization or (2) substantially compromising their claims” ( id., Section N, at 24, ¶¶ 20–22).
The Bankruptcy Court held that the third-party release provisions as to the SCDOT and their respective current and former officers, directors, employees, professionals and agents, as non-debtor parties, were appropriate and necessary to the reorganization Plan. Among the factors that the Court considered in deciding to enjoin future actions against SCDOT and their respective current and former officers, directors, employees, professionals and agents were: (1) whether there was an identity of interest between the Issuer/Debtor and a non-debtor party that was benefitted by the release of claims; (2) whether the non-debtors had contributed substantial assets to the Issuer/Debtor's reorganization; (3) whether an injunction against the commencement of an action to collect, recover or offset any claims against these particular non-debtors was essential to the Issuer/Debtor's reorganization; and (4) whether a substantial majority of creditors had agreed upon the issuance of an injunction. Bondholders, the Senior Bonds Trustee, and the Subordinate Bonds Trustee did agree to release all of their claims and causes of action existing as of the Effective Date against SCDOT, and their respective current and former officers, directors, employees, professionals and agents. However, ACA was not one of those named Plan releasees
“Plan Releasee (s) are defined by the Confirmation Plan as “any person or entity that is released from the claims of or liabilities to any creditor or party in interest pursuant to the Plan.”
On April 22, 2011, the Trustee sent a notice to owner/holders of the Original Bonds, entitled “Notice of Plan Confirmation and Mandatory Exchange” ( id., exhibit 12, Notice). The Trustee represented that: (1) it had previously notified the owners/holders of the Issuer/Debtor's bankruptcy filing, and the Issuer/Debtor's plan to restructure its debt; (2) that the requisite creditors had voted in favor of the Plan and that the Bankruptcy Court had approved the Plan; (3) that the Original Bonds currently held by the owners/holders “will be mandatorily exchanged for restructured bonds ... with the exchange to occur on April 25, 2011 or as soon as practicable”; (4) that “this exchange will take place on the records of [DTC] and will not require [the owners/holders] to take further action to conclude the exchange”; and (5) that future “notice ... regarding the [New] Bonds will be using the new CUSIP rather than the CUSIP used with the [Original] Bonds as in ... prior notices.” The notice also included an “Exchange Table” to allow the owners/holders to determine the precise exchange rate of their Original Bonds for the Replacement Bonds and identified the new CUSIP numbers evidencing the New Bonds ( id.).
Of course, the Confirmation Order sparked disagreement between ACA and Oppenheimer about ACA's obligations under its Policies. ACA's view is that the Issuer/Debtor's bankruptcy and restructuring plan relieved it of any liability to Oppenheimer under the Policies, and materially affected ACA's rights and obligations under the Policies. For example, ACA claims that its subrogation rights under the Policies were rendered a nullity as ACA was now precluded from seeking payment from the Issuer/Debtor for any amounts ACA was obligated to pay under the Policies. Oppenheimer takes the opposite view, arguing that the Policies issued by ACA in connection with the zero-coupon bonds are enforceable since the Issuer/Debtor defaulted on its bond obligations, and filed for bankruptcy.
On May 12, 2011, ACA sent a notice to holders/owners of the CBIs informing them, in part, of the Issuer/Debtor's issuance of New Bonds as part of the Issuer/Debtor's restructuring of debts, and advised them to review the Trustee's April 22, 2011 notice, and an exchange table to determine the “new underlying Exchange Bonds that replaced your Insured Obligations” (affidavit of McCarthy, exhibit 13, May 12 Letter, at 1, ¶ 3). The Notice further informed holders/owners that “ACA intends to honor Policies, if at all, only in accordance with their specific terms. A determination of the validity and/or enforceability of any particular policy will be based on, among other things, the language of the Policy and the facts and circumstances in existence at such time and applicable law ( id. at 2, ¶ 2).
On July 6, 2011, the Trustee sent ACA a Notice of Nonpayment, pursuant to Policy No. SO601–15 (Enhanced CUSIP No. 20786LCS8), making a claim for payment of $82,556.25 in interest due as of July 1, 2011, under the Original Insured Bond bearing CUSIP No. 20786LAA9. Oppenheimer does not contend that it owns the Original Insured Bonds covered by that Policy.
On July 7, 2011, ACA responded to the July 6 Notice of Nonpayment sent by the Trustee, by stating that pursuant “to the terms of the Plan and by operation of law, the Bonds were exchanged for new obligations of the issuer ... and were effectively cancelled” ( see affidavit of McCarthy, exhibit 15, Letter to Holders of CBIs, at 1, t 1).
On September 14, 2011, Oppenheimer sent ACA a letter to clarify whether “ACA will adhere to ACA's continuing obligation under the applicable Policies to guaranty full payment of the maturity value of [Oppenheimer's] CBIs relating to the [zero-coupon bonds] upon their respective maturity dates” (exhibit 16, at 2, ¶ 4). In response, on September 21, 2011, ACA requested certain information from Oppenheimer regarding the specifics of its ownership interests in the CBIS and related Original Bonds as a “precursor to any discussion” (exhibit 17, at 1, ¶ 2). On September 27, 2011, Oppenheimer provided the requested information, and reiterated its request that ACA confirm that it would honor its insurance obligations under the policies.
On October 5, 2011, ACA wrote to Oppenheimer, stating that Oppenheimer's letter was premature since “Oppenheimer's Bonds do not mature until 2020, at the earliest, and that no payments are due or owing Oppenheimer on account thereof until that time [despite the Event of Default]. Accordingly, ... ACA need not make a formal response to the Letters' inquiry at this time” (see affidavit of McCarthy, exhibit 18, at 1, ¶ 2). ACA's letter also suggested that the parties meet to discuss the current situation. Thereafter, the parties met, but there was no resolution of the dispute.
As seen by the court, one issue has been presented for the Court's determination, namely, whether Oppenheimer can recover for its claimed losses under the Secondary Market Insurance Policies, evidenced by Enhanced CUSIP Nos. 20786LCS8, 20786LCU3, 20786LCV1, 20786LCW9, 207LCX7, and 20786LCY5.
Discussion
A. Summary Judgment Standard
To prevail on a motion for summary judgment, the moving party must show that no genuine issue of material fact exists, and that the movant is entitled to judgment as a matter of law ( see Ayotte v. Gervasio, 81 N.Y.2d 1062, 1062 [1993];Esteva v. City of New York, 30 AD3d 212, 212 [1st Dept 2006] ). Unsupported allegations in the pleadings cannot create a material issue of fact.
When the moving party's burden is met, the nonmoving party must show, again through affidavits or other admissible proof, that a genuine issue of material fact does exist requiring a trial on the action (Zuckerman v. City of New York, 49 N.Y.2d 557, 560 [1980];see also Sheridan v. Bieniewicz, 7 AD3d 508, 509 [2d Dept 2004] ). In deciding the motion, the court must view all inferences drawn from the facts in the light most favorable to the nonmoving party, and all reasonable inferences must be resolved in that party's favor ( see Udoh v. Inwood Gardens, Inc., 70 AD3d 563, 565 [1st Dept 2010]; Boyd v. Rome Realty Leasing Ltd. Partnership, 21 AD3d 920, 921 [2d Dept 2005] )
Parties to an insurance contract may bring a declaratory judgment action against each other when an actual controversy develops over the extent of coverage or other issues related to the insurance contract (see e.g. Lang v. Hanover Ins. Co., 3 NY3d 350, 353 [2004] ). Further, a court “may render a declaratory judgment having the effect of a final judgment as to the rights and other legal relations of the parties to a justiciable controversy whether or not further relief is or could be claimed” (CPLR 3001)
B. Governing Contract Principles and Terms and Meaning of the Policy Language
Under New York law, state courts, with certain exceptions not relevant here, retain the power to determine the effect of a discharge in bankruptcy ( see State of New York v. Wilkes, 41 N.Y.2d 655, 657 [1977];Lumbermens Mut. Cas. Co. v. Morse Shoe Co., 218 A.D.2d 624, 625 [1st Dept 1995], citing Chevron Oil Co. v.. Dobie, 40 N.Y.2d 712, 715 [1976];; Vleming v. Chrysler Corp., Dodge Div., 90 A.D.2d 773, 774 [2d Dept 1982] ). Therefore, this Court must determine whether the Plan discharged ACA's obligation to cover Oppenheimer's losses.
This Court begins with the principles of contract interpretation that apply to the various Policies and transactional documents. ACA's rights and obligations are governed by the Policies, the Custody Agreement (dated November 3, 1997) between U.S. Bank Trust National Association as Custodian and ACA, and CBIs, which represent Oppenheimer's beneficial ownership interest in the Original Insured Bonds.
Oppenheimer contends that ACA is attempting to avoid its contractual liability for future losses covered under the financial guaranty insurance policies. As stated in Oppenheimer's papers, ACA's attempt to avoid its liability is akin to a fire insurance company refusing to pay its insurance obligation because the covered house has burned to the ground, and purportedly no longer exists (see Pl. Opp. Memo., dated Jan. 18, 2012, at 3)
In contrast, ACA claims that it may abdicate its insurance obligations because the facts of this case are more akin to a fire insurance company refusing to pay an insured on a fire insurance policy on house “A” after the insured has moved from house “A” to house “B” ( see Def. Reply at 5). Defendant maintains that when the Bankruptcy Court for the District of South Carolina approved the proposed Plan, with the issuance of new bonds, the ensuing new arrangement constituted a cancellation of the Policies, and so there is no obligation left to insure under the Policies. ACA also contends that this result is not inequitable, since Oppenheimer could have sought to include language in the Policies to deal with the foreseeable possibility that the Original Insured Bonds would be cancelled and exchanged for new bonds.
ACA is mistaken. Oppenheimer's claim for nonpayment is covered under the terms of the Policies, and no material issue of fact exists in determining whether ACA is liable to Oppenheimer. ACA is confusing the Issuer/Debtor's obligation to pay under the Insured Bonds with ACA's separate obligation to cover “any event of Nonpayment” by the Issuer/Debtor under the Insured Bonds.
At the onset, the court notes that, as agreed between the signatories to the Policies, New York law governs the interpretation of the Policies. New York legal principles governing the interpretation of the terms of an insurance policy are straightforward. As a general rule, “it is the insured's burden to establish coverage ...” (Rhodes v. Liberty Mut. Ins. Co., 67 AD3d 881, 882 [2d Dept 2009] ).
Perhaps the most basic principle of contract construction is that “when parties set down their agreement in a clear, complete document, their writing should as a rule be enforced according to its terms” (Signature Realty, Inc. v. Tallman, 2 NY3d 810, 811 [2004] [internal quotation marks and citation omitted]; see also Salvano v. Merrill Lynch, Pierce, Fenner & Smith, 85 N.Y.2d 173, 182 [1995] [observing that “[t]he court's role is limited to interpretation and enforcement of the terms agreed to by the parties; it does not include the rewriting of their contract and the imposition of additional terms”] ).
In a matter that is fundamentally a contract construction case, “unambiguous provisions of an insurance contract must be given their plain and ordinary meaning, and the interpretation of such provisions is a question of law for the court” (Vigilant Ins. Co. v. Bear Stearns Cos., Inc., 10 NY3d 170, 177 [2008] ). “iT]o exclude certain coverage from its policy obligations, [an insurer] must do so in clear and unmistakable language” (Pioneer Tower Owners Assn. v. State Farm Fire & Cas. Co., 12 NY3d 302, 307 [2009] [internal quotation marks and citation omitted] ). A court “may not disregard clear provisions which the insurers inserted in [an insurance policy] and the insured accepted” (Caporino v. Travelers Ins. Co., 62 N.Y.2d 234, 239 [1984] ). The court's interpretation of policy language must “ ‘afford[ ] a fair meaning to all of the language employed by the parties in the contract and leave[ ] no provision without full force and effect’ “ (Consolidated Edison Co. of N.Y. v. Allstate Ins. Co., 98 N.Y.2d 208, 222 [2002], quoting Hooper Assoc. v. AGS Computers, 74 N.Y.2d 487, 493 [1989] )
In determining the scope of contractual obligations, the reasonable expectation of the parties is a significant factor that this Court also must consider. “Indeed, [a]ny interpretation of an insurance contract implicates as a standard the reasonable expectation and purpose of the ordinary businessman when making an ordinary business contract” (Greater NY Mutual Ins. Co. v. Mutual Mar. Off., 3 AD3d 44, 50 [1st Dept 2003][internal quotation marks and citations omitted]; see also General Motors Acceptance Corp. v. Nationwide Ins. Co., 4 NY3d 451, 457 [2005] ).
Oppenheimer correctly argues that if there are any ambiguities in policy language, the ambiguity is resolved against the insurer absent clear evidence of a contrary intent (see Tishman Construction Corp. of New York v. CNA Ins. Co., 236 A.D.2d 211, 211 [1st Dept 1997]; see also Consolidated Edison Co. of N.Y. v. Hartford Ins. Co., 203 A.D.2d 83, 84 [1st Dept 1994] ).
Insurance policies generally require a “fortuitous event,” which is defined as: “any occurrence or failure to occur which is, or is assumed by the parties to be, to a substantial extent beyond the control of either party” (Insurance Law § 1101[a][2] ).
The risk that is insured by the issuer is the forward-looking risk of loss associated with default on the bonds. Consistent with enunciated public policy, as set forth in New York Insurance Law § 6901, financial guarantee insurance provides investors with guaranteed payment of timely interest and ultimate principal in the event that a debt issuer is unable to meet its financial obligations ( see also NPS, LLC v. Ambac Assurance Corp., 706 F Supp 2d 162, 177 [D Mass 2010] [stating that language of financial guaranty insurance contract “insures the scheduled payments of principal of and interest” on the bonds and suggested that the obligor's purpose in obtaining bond insurance was to ensure that bondholders would still be paid in the event the obligor could not pay them] ). Without insurer performance, investors would have no incentive to purchase bonds ( id. at 177 [holding that the principal purpose of the bond insurance policy was to protect the bondholders by “ensuring that the bondholders would still be paid in the event that [the issuer] itself could not pay them”] ). In this court's view, an insurer should not be able to purport coverage and then escape liability when a claim for reimbursement is made.
Under the terms of the Policies, a default or nonpayment by the Issuer/Debtor was a necessary requirement to trigger insurance coverage. On this motion for summary judgment, ACA bears the initial burden of showing affirmatively that no reasonable jury could find an event of default. One significant, interpretative question that ACA has to face is whether a default occurred under the Policies. “Events of Default” include technical defaults, such as when an Issuer/Debtor files for bankruptcy.
Importantly for present purposes, the plain language of the Policies supports the relief sought in Oppenheimer's complaint. The Policies and CBIs clearly state that ACA agreed to absolutely and unconditionally guarantee payment of the Issuer/Debtor's full obligations in the event of Issuer/Debtor's nonpayment.
ACA would have the court discard explicitly bargained-for provisions of the Policies, and jettison Oppenheimer's expectations. The language of the Policies contains no explicit exclusion for nonpayment arising from a bankruptcy. Instead, the Policies unambiguously state that, for the payment of the premium, and subject to the terms of the Policies and the Custody Agreement, ACA is to pay the amount due for payment resulting from the nonpayment by the Issuer/Debtor at their maturity date.
It is beyond dispute that a justified expectation of the party who contracts for insurance with an insurance company is that the payment of premiums to the company secures from the company a promise to provide insurance. More specifically, the payment of premiums by the insured, and acceptance thereof by the insurer, secures a promise from the insurer to pay claims on the item or property for which the premium has been paid.
In this Court's view, the fact that new bonds were issued to bondholders through the Confirmation Order supports the conclusion that the issuance of a lower principal amount, and extended maturity dates, constitute a fortuitous loss to Oppenheimer within the meaning of the Policies. These losses unequivocally make up an event of default under the Policies.
The Policies further state that they are noncancellable, except if the Holder or Owner surrenders its interest in the CBIs and waives its right to receive payment from the Insurer pursuant to sections 3.03 and 4.06(b) of the Custody Agreement. In the present case, ACA has not, and cannot contend, that Oppenheimer has surrendered its interest or waived payment from the Insurer.
Because the default clause is enforceable under contract law principles of New York ( see Western F.M. Rest. v. Austern, 35 N.Y.2d 610, 615 [1974] ), ACA is bound by the terms of its Policies, and enforcement of the terms is required.
C. Governing Bankruptcy Code Provisions
ACA further asserts that the Bankruptcy Court exercised jurisdiction over the injunction resulting from discharging a debt, and that the Issuer/Debtor's discharge and release broadly embraces its insurance obligations to Oppenheimer. Oppenheimer disagrees.
Relying upon section 524(e) of the Bankruptcy Code, Oppenheimer contends that the release of Issuer/Debtor's obligations in bankruptcy does not discharge ACA from its liability for the unpaid portion of the Issuer/Debtor's obligations. Oppenheimer insists that, while it is true that the Bankruptcy Court's confirmation of the Plan binds the Issuer/Debtor and all creditors vis-a-vis the debtor, it does not operate to alter the rights of a creditor to collect from third parties, such as ACA. Oppenheimer is, in part, correct.
The court finds no reason why the Issuer/Debtor's Plan under Chapter 9 of the Bankruptcy Code should affect Oppenheimer's rights under the Policies. Part of the legal framework within this case which comes before the court concerns the impact of a Chapter 9 bankruptcy proceeding on ACA and Oppenheimer. The title of chapter 9 is “Adjustment of Debts of a Municipality.” Consequently, Congress specifically focused, in drafting Chapter 9 of the Bankruptcy Code, on the debt adjustment of municipalities as a way to allow municipalities to continue in existence. Chapter 9 is a patchwork of federal laws that borrows concepts and particular sections from other chapters of the Bankruptcy Code (see 11 USC §§ 901–904, 921–930, 941–946). Section 103(f) provides that “[e]xcept as provided in Section 901 of [the Bankruptcy Code], only chapters 1 and 9 of [the Bankruptcy Code] apply in a case under such Chapter 9.” Nonetheless, section 901(a) of the Bankruptcy Code makes certain sections of Chapters 3, 5, and 11 of the Bankruptcy Code applicable to a Chapter 9 case.
Specifically, section 901(a) of the Bankruptcy Code provides that all or portions of 52 sections of other chapters of the Bankruptcy Code are applicable to a Chapter 9 case.
Chapter 3 contains provisions governing the administration of a case, including the filing of a case. Chapter 5 contains provisions addressing the role and power of the debtor and creditors in bankruptcy cases and the ability to avoid certain transactions. Chapter 11 contains provisions governing reorganization.
To sum up, Sections 301, 344, 347(b), 349, 350(b), 361, 362, 364(c), 364(d), 364(e), 364(f), 365, 366, 501, 502, 503, 504, 506, 507(a)(2), 509, 510, 524(a)(1)524(a)(2), 544, 545, 546, 547, 548, 549(a), 549(c), 549(d), 550, 551, 552, 553, 555, 556, 557, 559, 560, 561, 562, 1102, 1103, 1109, 1111(b), 1122, 1123(a)(1), 1123(a)(2), 1123(a)(3), 1123(a)(4), 1123(a)(5), 1123(b), 1123(d), 1124, 1125, 1126(a), 1126(b), 1126(c), 1126(e), 1126(f), 1126(g), 1127(d), 1128, 1129(a)(2), 1129(a)(3), 1129(a)(6), 1129(a)(8), 1129(a)(10), 1129(b)(1), 1129(b)(2)(A), 1129(b)(2)(B), 1142(b), 1143, 1144, and 1145 of the Bankruptcy Code apply in a Chapter 9 bankruptcy case.
The general policy considerations underlying the municipal debt adjustment plan of Chapter 9 are the same as that of a Chapter 11 reorganization: to give the debtor a breathing spell from debt collection efforts and to establish a repayment plan with creditors (see HR Rep No 595, 95th Cong, 1st Sess [1977], reprinted in 1978 USCCAN 5787, 5963). Accordingly, many of the sections applicable to a Chapter 11 reorganization are applicable in a case under Chapter 9 (11 USC § 901[a] ).
Chapter 9 also provides for the specific treatment of obligations under bonds. Like other chapters of the Bankruptcy Code, the ability of a bondholder/creditor to recover a substantial portion of its claim is dependent upon the type of claim it holds. “Special revenue bonds,” like the ones in the present case, are bonds secured by a pledge of a specific stream of income, often from a tax or fees generated by a utility or other project the bonds financed. Special revenue bonds are considered secured claims (see 11 USC § 902–2). Section 928 states that the “special revenues” from these projects remain subject to the liens of the bondholders in the specific projects.
Nonetheless, certain differences between Chapter 11 and Chapter 9 belie Oppenheimer's assertion that section 524(e) of the Bankruptcy Code expressly prohibits the third-party release of Oppenheimer. Section 524(e) provides that “discharge of a debt of the debtor does not affect the liability of any other entity on, or the property of any other entity for, such debt.”
Section 524 (e) of the Bankruptcy Code, however, is only applicable to cases under Chapter 7, 11, 12 and 13 of the Code ( see11 USC § 103[a] ). Accordingly, the statutory directive of section 524(e) is inapplicable to a bankruptcy action filed under Chapter 9 of the Code ( see In re Connector 2000 Assn., 447 BR 752, 767 (Bankr D SC 2011] )
Notwithstanding the inapplicability of section 524(e), this Court cannot ignore the language, or the directive, of the Confirmation Order, which explicitly provides that releases from liability actions would be given only to a number of named third parties, including the SCDOT and the Issuer/Debtor's management, based on considerable consideration from them and the above-noted factors. But other than those enumerated entities and persons, the court fails to find an explicit third-party release for ACA, and an implied release fails to pass muster. Accordingly, while the Issuer/Debtor's obligations were discharged, ACA's obligations were never discharged under the Plan.
D. The Effect of New York Guaranty Law and Insurance Law on ACA's Obligations
Alternatively, ACA argues that well-settled principles of New York guaranty law provide a separate and independent basis for relieving it of any further obligations under the Policies. Under New York law, a guarantor is relieved of liability where, without its consent, there is any alteration of the underlying insured obligation (because of a superseding agreement or release by the creditor of the debtor), or of the rights of the guarantor ( see e.g. In re Drexel Burnham Lambert Group, Inc., 151 BR 674, 683 [Bankr SD N.Y.1993], affd157 BR 532 [SD N.Y.1993] )
However, New York Bankruptcy Courts have remarked, a “ ‘bankruptcy proceeding is meant to protect the debtor, not third-party guarantors' “ (Schumacher v. White, 429 BR 400, 408 [ED N.Y.2010], quoting In re Larmar Estates, Inc., 5 BR 328, 331 (Bankr ED N.Y.1980] ). Other New York state courts have determined that a guarantor's liability generally is not impaired by the discharge of a principal's obligation in a bankruptcy proceeding and, thus, Oppenheimer may seek recovery from ACA notwithstanding the Issuer/Debtor's bankruptcy petition ( see Union Trust Co. v. Willsea, 275 N.Y. 164, 167 [1937];Culver v. Parsons, 7 AD3d 931, 933 [3d Dept 2004]; First Natl. Bank of Scotia v. Proem–A–Net Economics Corp., 235 A.D.2d 753, 756 [3d Dept 1997] ).
More importantly, ACA is no mere contractual guarantor, but rather a monoline insurer. None of the general guaranty cases cited by ACA involve a monoline insurer and therefore, none of the cases affect the outcome here. In this case, Oppenheimer is not seeking to cover events of nonpayment under the New Bonds, but simply seeks a declaration that ACA is obligated under the Policies and CBIs to cover any shortfall in the Issuer/Debtor's payment of the Insured Bonds on their respective maturity dates.
In this case, the Issuer/Debtor simply owned the Policies. Oppenheimer, and not the Issuer/Debtor, was the primary beneficiary of the Policies. Under the Policies, in the event of bankruptcy or nonpayment, ACA was required to pay under the schedule of indebtedness to Oppenheimer, the primary beneficiary. Oppenheimer's interest in the Policies was not the property of the Issuer/Debtor's bankruptcy estate, and thus, cannot be altered by the Plan. The Plan did not work to erase Oppenheimer's right to collect from ACA.
Further, while ACA argues that it had no notice of the bankruptcy proceeding, ACA had full notice of the Issuer/Debtor's bankruptcy, and ACA appeared, participated, and protected its rights in that bankruptcy proceeding.
Having found that section 524(e) of the Bankruptcy Code and state guaranty laws, as perceived by ACA, are inapplicable, the court turns to examining New York's Insurance Law, particularly section 3420. Section 3420(a)(1) requires that a contract of insurance contain:
“A provision that the insolvency or bankruptcy of the personinsured, or the insolvency of the insured's estate, shall not release the insurer from the payment of damages for injury sustained or loss occasioned during the life of and within the coverage of such policy or contract.”
Although this provision was absent from the Policies, section 3101(a) of the New York Insurance Law provides that mandated provisions, like section 3420(a)(1), are deemed to appear in nonconforming contracts ( see In re MF Global Holdings Ltd., 469 BR 177, 194 [Bankr SD N.Y.2012] ). There, the Bankruptcy Court held that “insurance proceeds must be used to address losses that fall within the scope of an insurance policy. The filing of a bankruptcy petition does not alter the scope or terms of a debtor's insurance policy and preserves such proceeds for those covered by the insurance policy” ( id. at 194–195). The facts here are precisely the situation Insurance Law § 3420 was intended to address.
There is, moreover, a second, overriding consideration that requires the court to apply New York Insurance Law to this case, the McCarran–Ferguson Act (11 USC §§ 1011–1015). When the McCarran–Ferguson Act was enacted in 1946, the normal rules of preemption, which would require the court to apply federal law in the face of a conflict between state and federal law even where the federal law does not explicitly manifest an intent to be preemptive, were altered by the passage of the McCarran–Ferguson Act.
The McCarran–Ferguson Act provides that
“No Act of Congress shall be construed to invalidate, impair, or supercede any law enacted by any State for the purpose of regulating the business of insurance ... unless such Act specifically relates to the business of insurance.”
15 USC § 1012[b]; see also In re MF Global Holdings Ltd., 469 BR at 195).
Therefore, under the McCarran–Ferguson Act, the Bankruptcy Code will be preempted by state insurance law if (1) the federal statute does not specifically relate to insurance; (2) the state law at issue was enacted to regulate the business of insurance; and (3) if the federal statute at issue would invalidate or impair the state law ( see In re MF Global Holdings Ltd., 469 BR at 195;see also United States Dept. of Treasury v. Fabe, 508 U.S. 491, 507–508 [1993] )
In the present case, all three requirements of the McCarran–Ferguson Act are satisfied. Accordingly, section 3420(a)(1) of the Insurance Law preempts the Bankruptcy Code to the extent of any inconsistency between the two statutes.
Accordingly, Insurance Law § 3420 grants Oppenheimer, as an injured party, the right to sue the Issuer/Debtor's insurer. Based upon the foregoing, the court finds that the Issuer/Debtor's bankruptcy proceeding and state guaranty laws are not a bar to Oppenheimer's recovery under the Policies.
This leaves one remaining point of dispute related to ACA's subrogation rights. Oppenheimer contends that when ACA pays on the old bonds, it will receive the new bonds from Oppenheimer on the former maturity dates. ACA, however, claims that Oppenheimer will recover a windfall if it pays on the old bonds because ACA has no contractual subrogation rights to those 2011 bonds that replaced the 1998 bonds.
Contractual subrogation here arises out of the insurance contract ( see Federal Ins. Co. v. Arthur Andersen & Co., 75 N.Y.2d 366, 372 [1990] ). The insurer's right of subrogation is completely derivative, and limited to the rights of the insured against the third party for its default or wrongdoing ( id. at 372).
Oppenheimer argues that it is not in violation of the subrogation clause because ACA has not made any payments under the Policies and, therefore, the defendant has no subrogation rights that can be impaired. A common remedy in an event of default is that payment on the debt is accelerated and the principal and accrued interest on the debt become due ahead of when they are scheduled. Section 509(a)
of the Bankruptcy Code, however, makes clear that, absent an actual payment under the Policies, ACA could claim no subrogation rights whatsoever, and Oppenheimer had no subrogation rights to assign in the bankruptcy proceeding ( see Aetna Cas. & Surety Co. v. Georgia Tubing Co., 1995 WL 429018, *1, n 2, 1995 U.S. Dist LEXIS 10120, *4, n 2 [SD N.Y.1995], affd 93 F3d 56 [2d Cir1996] [‘In reference to the subrogation claim, (Bankruptcy Code section) 509(a) requires that there be a payment, and then ... allows for subrogation”] ).Additionally, the Policies and section 4.07 of the Custody Agreement provide that the contractual condition for ACA to obtain subrogation rights was for ACA to first make accelerated pre-payment to Oppenheimer, which ACA elected not to do. Similarly, Oppenheimer had no obligation to submit a Notice of Nonpayment to ACA until the actual maturity dates of the Insured Bonds, which begin in 2020. By failing to exercise its unilateral option to make accelerated payments (see Insurance Law 6905[a] ), ACA effectively waived its right under the Policies and applicable law to take control of any subrogation rights with respect to those payments at the time of the bankruptcy proceeding.
Nonetheless, ACA's contractual rights of subrogation are not ripe for enforcement since the contractual right to subrogation will arise when Oppenheimer recovers its losses under the Policies. This has not occurred here. ACA will be entitled to its subrogation rights, as Oppenheimer maintains, when it actually makes a payment to Oppenheimer, beginning in 2020.
Conclusion
The viability of the bond market depends on the preservation of the protections granted to bondholders. Bankruptcy is not intended to provide a means for an insurer to escape liability simply because of the financial trouble of an insured ( see Matter of F.O. Baroff Co., 555 F.2d 38, 43 [2d Cir1977] ). Oppenheimer concededly had an insurable interest when the Policies were issued and at the time of the loss. The Polices cover any event of nonpayment by the Issuer/Debtor, and Oppenheimer must receive the full principal amount of the insured bonds due upon their maturity dates if the Issuer/Debtor fails to pay those amounts in full. Because Oppenheimer has carried its burden of establishing that no genuine issue of material fact exists regarding its right to coverage, and because Oppenheimer is entitled to judgment as a matter of law, a declaratory judgment in Oppenheimer's favor is appropriate.
Accordingly, it is hereby
ORDERED that the motion of plaintiffs Oppenheimer AMT–Free Municipals, Oppenheimer Multi–State Municipal Trust, and Oppenheimer Municipal Fund for summary judgment seeking a declaration that defendant ACA Financial Guaranty Corporation is obliged to provide coverage for its claimed losses under the Secondary Market Insurance Policies, evidenced by Enhanced CUSIP Nos. 20786LCS8, 20786LCU3, 20786LCV1, 20786LCW9, 207LCX7, and 20786LCY5 is granted; and it is further
ORDERED that defendant ACA Financial Guaranty Corporation's motion for summary judgment denying the declaratory relief sought by plaintiffs is denied; and it is further
ADJUDGED and DECLARED that defendant ACA Financial Guaranty Corporation is obligated to provide coverage to plaintiffs for their claimed losses under the Secondary Market Insurance Policies, evidenced by Enhanced CUSIP Nos. 20786LCS8, 20786LCU3, 20786LCV1, 20786LCW9, 207LCX7, and 20786LCY5.