00a0286p.06

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
%3 &+(0,&$/6 ,1&
3ODLQWLII$SSHOODQW
&URVV$SSHOOHH
Y
),567 67$7( ,1685$1&(
&203$1<
'HIHQGDQW$SSHOOHH
&URVV$SSHOODQW
;!

1
1RV
$SSHDOIURPWKH8QLWHG6WDWHV'LVWULFW&RXUW
IRUWKH1RUWKHUQ'LVWULFWRI2KLRDW&OHYHODQG
1R²'RQDOG&1XJHQW'LVWULFW-XGJH
$UJXHG$SULO
'HFLGHGDQG)LOHG$XJXVW
%HIRUH*8<%2**6DQG68+5+(,15,&+&LUFXLW
-XGJHV
BBBBBBBBBBBBBBBBB
&2816(/
$5*8(' 7KRPDV 6 .LOEDQH 648,5( 6$1'(56
'(036(< &OHYHODQG 2KLR IRU $SSHOODQW %UXFH 0
$OOPDQ7+203621+,1( )/25<&LQFLQQDWL2KLR

-- 1 of 10 --

%3&KHPLFDOV,QFY
)LUVW6WDWH,QV&R
1RV
IRU$SSHOOHH21%5,()7KRPDV6.LOEDQH6WHYHQ$
)ULHGPDQ648,5(6$1'(56 '(036(<&OHYHODQG
2KLRIRU$SSHOODQW%UXFH0$OOPDQ/DXULH-1LFKROVRQ
7+203621+,1( )/25<&LQFLQQDWL2KLR7LPRWK\
- &RXJKOLQ 7+203621 +,1( )/25< &OHYHODQG
2KLRIRU$SSHOOHH
BBBBBBBBBBBBBBBBB
23,1,21
BBBBBBBBBBBBBBBBB
5$/3+ % *8< -5 &LUFXLW -XGJH 3ODLQWLII %3
&KHPLFDOV,QFDSSHDOVIURPWKHHQWU\RIMXGJPHQWLQIDYRU
RIGHIHQGDQW)LUVW6WDWH,QVXUDQFH&RPSDQ\LQWKLVEUHDFKRI
FRQWUDFWDFWLRQIRULQGHPQLILFDWLRQXQGHUDQH[FHVVOLDELOLW\
LQVXUDQFHSROLF\SXUFKDVHGE\LWVFRQWUDFWRU%DWK(OHFWULFDO
6\VWHPV,QF%3VRXJKWWRUHFRYHUPRUHWKDQLW
SDLGLQVHWWOHPHQWRIDQXQGHUO\LQJQHJOLJHQFHDFWLRQVHHNLQJ
GDPDJHV IRU WKH HOHFWURFXWLRQ GHDWK RI D %DWK HPSOR\HH
SHUIRUPLQJZRUNDWD%3SODQW
%3DUJXHVWKDWWKHGLVWULFWFRXUWSURSHUO\IRXQGLWZDVDQ
LQVXUHG XQGHU )LUVW 6WDWH¶V H[FHVV SROLF\ EXW HUUHG E\
IDLOLQJ WR GHWHUPLQH ZKHWKHU WKH SROLF\ FRYHUHG %3 IRU LWV
RZQ QHJOLJHQFH DQG E\ ILQGLQJ WKH FURVVOLDELOLW\
H[FOXVLRQLQWKHH[FHVVSROLF\EDUUHGDQ\FRYHUDJH$UJXLQJ
WKDW WKH GLVWULFW FRXUW SURSHUO\ IRXQG WKH H[FOXVLRQ EDUUHG
FRYHUDJH)LUVW6WDWHDOVRXUJHVLQLWVFURVVDSSHDO WKDWZH
DIILUPRQWKHDOWHUQDWLYHJURXQGVWKDWHLWKHU%3ZDVQRWDQ
LQVXUHG RU WKH SROLF\ GLG QRW FRYHU %3¶V RZQ QHJOLJHQFH
$IWHU FDUHIXO UHYLHZ RI WKH DUJXPHQWV SUHVHQWHG DQG WKH
DSSOLFDEOHODZZHDIILUP
,
,Q%3&KHPLFDODQG%DWK(OHFWULFDOFRQWUDFWHGIRU
%DWKWRSURYLGHFOHDQLQJ DQGPDLQWHQDQFHVHUYLFHVIRUWKH
HOHFWULFDOV\VWHPVDWD%3SODQWLQ3RUW/DYDFD7H[DV7KH
VFRSHRIZRUNSURYLVLRQVLQWKH%3%DWKFRQWUDFWUHTXLUHG%3

-- 2 of 10 --

1RV %3&KHPLFDOV,QFY
)LUVW6WDWH,QV&R

WR SURYLGH DSSURSULDWH GLDJUDPV RI WKH HOHFWULFDO SRZHU
GLVWULEXWLRQ DQG WR SHUIRUP DOO VZLWFKLQJ QHFHVVDU\ WR GH
HQHUJL]H DQG LVRODWH SODQW HOHFWULFDO HTXLSPHQW %DWK
HPSOR\HHV LQFOXGLQJ %U\DQ 6ZLIW ZHUH LQVWUXFWHG WR QRW
ZRUNRQFLUFXLWVWKDWKDGQRWEHHQYHULILHGDVGHHQHUJL]HG
$IWHUWKHSODQWZDVSDUWLDOO\VKXWGRZQVHYHUDO%3HPSOR\HHV
DQG 6ZLIW GHHQHUJL]HG WDJJHG DQG ORFNHG RXW FHUWDLQ
WUDQVIRUPHUHTXLSPHQW
2Q 6HSWHPEHU 6ZLIW D %DWK VXSHUYLVRU ZDV
WURXEOHVKRRWLQJDSUREOHPZLWKDQHOHFWULFDOFLUFXLW6ZLIW
KDG ³%XWFK´ $PDLPR D %3 HPSOR\HH XQORFN RQH GH
HQHUJL]HG FXELFOH )LQGLQJ QR SUREOHP 6ZLIW RSHQHG DQ
DGMDFHQWFRPSDUWPHQWWKDWZDVQRWORFNHGRXWWDJJHGRUGH
HQHUJL]HG7KHUHZDVHYLGHQFHWKDW$PDLPRWROG6ZLIWRQO\
WKDW LW ZDV DQ ³LQFRPLQJ´ SDQHO DQG WKHQ OHIW KLP DORQH
GHVSLWHNQRZLQJIURPSDVWH[SHULHQFHWKDWRUDOZDUQLQJVFDQ
EH LQVXIILFLHQW $OVR %3 GLG QRW SURYLGH WKH GHWDLOHG
GUDZLQJVLWKDGRIWKHFRPSDUWPHQW¶VLQWHULRUWR6ZLIWRUDQ\
RWKHU%DWKHPSOR\HH6ZLIWZDVHOHFWURFXWHGZKHQKHPDGH
FRQWDFWZLWKWKHHQHUJL]HGFDEOHV
$ZURQJIXOGHDWKDFWLRQZDVILOHGLQWKH7H[DVVWDWHFRXUWV
DOOHJLQJ WKDW 6ZLIW¶V GHDWK ZDV FDXVHG E\ ERWK %3¶V
QHJOLJHQFHDQG%DWK¶VJURVVQHJOLJHQFH7KHFODLPDJDLQVW
%3ZDVVHWWOHGGXULQJWULDOIRUSOXVDDG
OLWHPIHH)LUVW6WDWHGRHVQRWFRQWHVWWKHUHDVRQDEOHQHVVRI
WKHVHWWOHPHQW$IWHUWKHVHWWOHPHQWWKHFODLPDJDLQVW%DWK
ZDVGLVPLVVHGE\WKHVWDWHFRXUW
$OWKRXJKWKHQHJOLJHQFHLVVXHZDVQRWGHFLGHGLQWKHVWDWH
FRXUW SURFHHGLQJ WKH GLVWULFW FRXUW GHWHUPLQHG WKDW WKH
LQVXUDQFHTXHVWLRQLQWKLVFDVHGHSHQGHGXSRQWKHUHODWLYH
QHJOLJHQFHRI%3%DWKDQG6ZLIW7KHLVVXHZDVWULHGWRD
MXU\ DQG WKH MXU\ UHWXUQHG D VSHFLDO YHUGLFW ILQGLQJ %3¶V
QHJOLJHQFHZDVDSUR[LPDWHFDXVHRIWKHLQMXULHVVXIIHUHGE\
6ZLIWEXW%DWKZDVQRWQHJOLJHQW7KHMXU\VSHFLILFDOO\IRXQG
WKDW%3ZDVQHJOLJHQW6ZLIWZDVQHJOLJHQWDQG
%DWKZDVQHJOLJHQW6LJQLILFDQWO\%3GRHVQRWDSSHDOWKH

-- 3 of 10 --

%3&KHPLFDOV,QFY
)LUVW6WDWH,QV&R
1RV
$OVR UHTXLUHG ZHUH ZRUNHUV¶ FRPSHQVDWLRQ LQVXUDQFH DQG
DXWRPRELOH OLDELOLW\ LQVXUDQFH 7KHVH SROLFLHV DUH QRW DW LVVXH
MXU\¶V YHUGLFW RU WKH GHQLDO RI LWV SRVWWULDO PRWLRQ IRU
MXGJPHQWDVDPDWWHURIODZRUIRUDQHZWULDO
7KH %3%DWK FRQWUDFW UHTXLUHG WKDW %DWK REWDLQ DQG
PDLQWDLQ WKH LQVXUDQFH SROLFLHV LQFOXGLQJ DQ\ VSHFLDO
FRYHUDJH SURYLVLRQV VSHFLILHG LQ ([KLELW $ ([KLELW $ D
IRUP SUHSDUHG E\ %3 UHTXLUHG WKDW %DWK KDYH DW OHDVW
LQFRPSUHKHQVLYHJHQHUDOOLDELOLW\LQVXUDQFHDQG
REWDLQ DQ $GGLWLRQDO ,QVXUHG HQGRUVHPHQW %DWK KDG
SUHYLRXVO\ SXUFKDVHG D JHQHUDO OLDELOLW\ SROLF\
IURP1DWLRQDO8QLRQ)LUH,QVXUDQFH&RPSDQ\FRYHULQJWKH
SHULRGIURP1RYHPEHUWR1RYHPEHU%DWK
DOVRREWDLQHGDQLQVXUDQFHSROLF\IURP)LUVW6WDWHFRYHULQJ
WKH VDPH SHULRG ZKLFK SURYLGHG LQ H[FHVV
OLDELOLW\DQGXPEUHOODFRYHUDJH7KHH[FHVVFRYHUDJHZDV
QHLWKHUPHQWLRQHGLQQRUUHTXLUHGE\WKH%3%DWKFRQWUDFW
%3ILUVWOHDUQHGRIWKHH[FHVVSROLF\GXULQJGLVFRYHU\LQWKH
VWDWHFRXUWDFWLRQ([KLELW$RIWKH%3%DWKFRQWUDFWOLVWHG
WKH1DWLRQDO8QLRQSROLF\DQGRQWKHVDPHSDJHERWK%DWK
DQG DQ DJHQW IRU 1DWLRQDO 8QLRQ FHUWLILHG WKDW WKH JHQHUDO
OLDELOLW\SROLF\KDGOLPLWVRIDWOHDVWWKHDPRXQWVSHFLILHGDQG
FRQWDLQHGWKHOLVWHGHQGRUVHPHQWV &HUWLILFDWHRI,QVXUDQFH
%3¶V SUHSULQWHG FRQWUDFW FRQWDLQHG DQ LQGHPQLILFDWLRQ
FODXVH LQ SDUDJUDSK D ZKLFK SXUSRUWHG WR KROG %3
KDUPOHVVIURPDOOOLDELOLWLHVDQGFODLPVIRUORVVRULQMXU\WR
SHUVRQ RU SURSHUW\ LQ ³DQ\ PDQQHU DULVLQJ RXW RI RU LQ
FRQQHFWLRQZLWKWKH:25.´7KHLQGHPQLILFDWLRQSURYLVLRQ
DOVRVWDWHGWKDWWKHLQGHPQLW\REOLJDWLRQZRXOGQRWDSSO\WR
WKHH[WHQWWKDW%3ZDVSURYLGHGFRYHUDJHDVDQDGGLWLRQDO
1RV %3&KHPLFDOV,QFY
)LUVW6WDWH,QV&R

HYLGHQFH RI WKH SDUWLHV¶ LQWHQW RU XQGHUVWDQGLQJ LV QRW DGPLVVLEOH WR FUHDWH
DQ DPELJXLW\ 6HH %DODQGUDQ 6:G DW
$)),50('

-- 4 of 10 --

%3&KHPLFDOV,QFY
)LUVW6WDWH,QV&R
1RV
8QDEOH WR HVWDEOLVK DPELJXLW\ LQ WKH ODQJXDJH LWVHOI %3 DVVHUWV WKDW
DPELJXLW\ LV HYLGHQW IURP )LUVW 6WDWH¶V IDLOXUH WR PHQWLRQ WKH FURVV
OLDELOLW\ H[FOXVLRQ DPRQJ WKH OLWDQ\ RI GHIHQVHV DVVHUWHG XQWLO DIWHU %3¶V
FODLP ZDV IRUZDUGHG WR )LUVW 6WDWH¶V SDUHQW FRPSDQ\ +RZHYHU SDURO
LOOXVRU\EHFDXVH%DWKZRXOGEHFRYHUHGIRUOLDELOLW\WRDWKLUG
SDUW\LIWKHLQMXU\ZDVFDXVHGE\DQ,QVXUHGZKHWKHULWLVD
1DPHG RU DQ $GGLWLRQDO ,QVXUHG )RU H[DPSOH FRYHUDJH
ZRXOG QRW EH H[FOXGHG LI D %DWK HPSOR\HH¶V QHJOLJHQFH
FDXVHGLQMXU\WRVRPHRQHQRWHPSOR\HGE\HLWKHU%DWKRU%3
%3 DOVR DUJXHV WKDW WKH FURVVOLDELOLW\ H[FOXVLRQ ZDV
LQWHQGHGRQO\WRH[WHQGDQRWKHUH[FOXVLRQ LQWKHXPEUHOOD
LQVXUDQFHSURYLVLRQV WRDSSO\EHWZHHQDOO1DPHG,QVXUHGV
6SHFLILFDOO\ WKH XPEUHOOD SURYLVLRQV H[FOXGH FRYHUDJH IRU
ERGLO\LQMXU\WRDQ³HPSOR\HHRIWKH,QVXUHGDULVLQJRXWRIDQG
LQ WKH FRXUVH RI HPSOR\PHQW E\ WKH ,QVXUHG´ H[FHSW IRU
³OLDELOLW\ DVVXPHG E\ \RX XQGHU DQ\ FRQWUDFW´ 7KH WHUP
,QVXUHGKRZHYHULVVHSDUDWHO\GHILQHGIRUSXUSRVHVRIWKH
SROLF\¶VXPEUHOODFRYHUDJHDQGLVGLIIHUHQWIURPWKHGHILQLWLRQ
RIWKHWHUP,QVXUHGIRUSXUSRVHVRIH[FHVVLQVXUDQFHFRYHUDJH
%3DOVRDUJXHVWKDWDPELJXLW\DULVHVIURPWKHXVHRIWKH
SKUDVH ³HPSOR\HH RI DQ ,QVXUHG´ EHFDXVH LW FRXOG EH
LQWHUSUHWHG WR PHDQ WKDW RQO\ WKH OLDELOLW\ RI DQ LQGLYLGXDO
HPSOR\HH LV H[FOXGHG ZKLOH FRYHUDJH ZRXOG UHPDLQ IRU
FRUSRUDWHOLDELOLW\7RWKHFRQWUDU\WKHH[FOXVLRQDSSOLHVWR
³DQ\OLDELOLW\´IRULQMXULHV³FDXVHGE\´DQHPSOR\HHRIRQH
,QVXUHGWRDQHPSOR\HHRIDQRWKHU,QVXUHG%3WKHFRUSRUDWH
HQWLW\GLGQRW³FDXVH´WKHLQMXULHVWR6ZLIW5DWKHULWZDVWKH
QHJOLJHQFH RI %3¶V HPSOR\HHV DQG RI 6ZLIW KLPVHOI WKDW
FDXVHGKLVHOHFWURFXWLRQ
:HILQGWKDWWKHSODLQDQGXQDPELJXRXVODQJXDJHRIWKH
FURVVOLDELOLW\ H[FOXVLRQ VSHFLILFDOO\ H[FOXGHG OLDELOLW\ IRU
ERGLO\LQMXU\FDXVHGE\HPSOR\HHVRIRQH,QVXUHG%3WRDQ
HPSOR\HHRIDQRWKHU,QVXUHG%DWK%3VRXJKWFRYHUDJHDVDQ
,QVXUHGXQGHUWKHH[FHVVSROLF\DQGOLNHZLVHLVDQ,QVXUHG
IRUSXUSRVHVRIWKHFURVVOLDELOLW\H[FOXVLRQ
1RV %3&KHPLFDOV,QFY
)LUVW6WDWH,QV&R

7KH VWDQGDUG LQGHPQLILFDWLRQ FODXVH SURSRVHG E\ %3 VWDWHG LQ
SHUWLQHQW SDUW DV IROORZV
,1'(01,),&$7,21 D ,Q *HQHUDO ± &2175$&725
KHUHE\ LQGHPQLILHV DQG DJUHHV WR GHIHQG DQG VDYH 2:1(5 DQG
LWV DIILOLDWHG &RUSRUDWLRQV WKHLU DJHQWV VHUYDQWV DQG HPSOR\HHV
KDUPOHVV IURP DOO OLDELOLWLHV DQG FODLPV IRU ORVV GDPDJH RU LQMXU\
WR RU GHDWK RI SHUVRQV DQG ORVV RI RU GDPDJH WR SURSHUW\
LQFOXGLQJ SURSHUW\ RI 2:1(5 LQ DQ\ PDQQHU DULVLQJ RXW RI RU
LQ FRQQHFWLRQ ZLWK WKH :25. DQG DJUHHV WR SD\ DOO GDPDJHV
FRVWV DQG H[SHQVHV LQFOXGLQJ DWWRUQH\V¶ IHHV DULVLQJ LQ
FRQQHFWLRQ WKHUHZLWK 7KLV LQGHPQLW\ REOLJDWLRQ RI
&2175$&725 VKDOO QRW EH DSSOLFDEOH WR WKH H[WHQW WKDW
2:1(5 LV SURYLGHG FRYHUDJH DV DQ DGGLWLRQDO LQVXUHG XQGHU
&2175$&725¶6 LQVXUDQFH SROLFLHV DV VSHFLILHG LQ ([KLELW
³$´ WR WKLV &2175$&7 RU WR WKH H[WHQW WKDW WKH ULJKW RI
LQGHPQLW\ LV SURKLELWHG RU OLPLWHG E\ WKH ODZV RI WKH VWDWH LQ
ZKLFK WKH :25. LV ORFDWHG
LQVXUHGDVVSHFLILHGLQ([KLELW$%DWKWRRNH[FHSWLRQWR
WKLVLQGHPQLILFDWLRQFODXVHDQGSURSRVHGDQRWKHULQOLHXRI
WKHVWDQGDUGSURYLVLRQ$IWHU%3SURSRVHGIXUWKHUFKDQJHV
WKHQHJRWLDWHGLQGHPQLILFDWLRQDJUHHPHQWEHFDPHSDUWRIWKH
FRQWUDFW ,Q WKDW SURYLVLRQ %DWK DJUHHG WR LQGHPQLI\ %3
DJDLQVW³DQ\DQGDOOORVVHVH[SHQVHVGHPDQGVDQGFODLPV´
WKDWPD\EHFODLPHGRUIRUZKLFKVXLWLVEURXJKWIRUDQ\DFWXDO
RU DOOHJHG ERGLO\ LQMXU\ RU GHDWK RFFXUULQJ WR DQ\ SHUVRQ
ZKDWVRHYHU³DULVLQJRXWRILQFRQQHFWLRQZLWKRUUHVXOWLQJ
LQZKROHRULQSDUWRXWRIWKHDFWVRURPLVVLRQVRI%(6,1&
RUDQ\VXEFRQWUDFWRUVHPSOR\HGE\RUXQGHUWKHGLUHFWFRQWURO
RI %(6 ,1& DQG WKHLU UHVSHFWLYH RIILFHUV DJHQWV DQG
HPSOR\HHVLQWKHSHUIRUPDQFHRIWKHZRUNLQDFFRUGDQFHZLWK
WKLV $JUHHPHQW >%3%DWK FRQWUDFW@´ 7KH LQGHPQLW\
REOLJDWLRQZDVOLPLWHGKRZHYHUDVIROORZV
6XFKREOLJDWLRQVKDOOQRWDSSO\ZKHQWKHOLDELOLW\DULVHV
VROHO\IURPWKHQHJOLJHQFHRI2ZQHULWVHPSOR\HHVRU
DJHQWV6XFKREOLJDWLRQVKDOODOVREHOLPLWHGLQDFDVH
LQYROYLQJ RU DOOHJLQJ MRLQW QHJOLJHQFH EHWZHHQ %(6
,1& DQG 2ZQHU LWV HPSOR\HHV RU DJHQWV WR %(6
,1&¶VDFWXDOSHUFHQWDJHRIFRPSDUDWLYHQHJOLJHQFHLI

-- 5 of 10 --

%3&KHPLFDOV,QFY
)LUVW6WDWH,QV&R
1RV
:H QRWH WKDW )LUVW 6WDWH KDV VWUHQXRXVO\ DUJXHG DQG ZH DJUHH WKDW
LW LV QRW ERXQG E\ 1DWLRQDO 8QLRQ¶V GHFLVLRQ WR GHIHQG WKH XQGHUO\LQJ VXLW
DQG WHQGHU SD\PHQW RQ WKH VHWWOHPHQW 6HH 7H[DV )DUPHUV ,QV &R Y
0F*XLUH 6:G 7H[ FRYHUDJH QRW FUHDWHG E\
ZDLYHU RU HVWRSSHO )XUWKHU 1DWLRQDO 8QLRQ¶V GHFLVLRQ ZRXOG KDYH EHHQ
LQIRUPHG E\ D YDULHW\ RI IDFWRUV DSDUW IURP WKH SROLF\ ODQJXDJH LQFOXGLQJ
XQFHUWDLQW\ DERXW WKH UHODWLYH IDXOW RI %3 DQG %DWK
%3 PDNHV PXFK RI WKH IDFW WKDW WKH GLVWULFW FRXUW UHTXHVWHG
DGGLWLRQDO EULHILQJ RQ WKH FRYHUDJH TXHVWLRQ DQG WKHQ GHFLGHG WKH FDVH RQ
WKH EDVLV RI WKH FURVVOLDELOLW\ H[FOXVLRQ :KLOH %3 LPSOLHV VRPH VXUSULVH
DQ\IRXQGE\WKHWULHURIIDFWLQDFDXVHRIDFWLRQEURXJKW
DJDLQVW%(6,1&DULVLQJRXWRIWKHSHUIRUPDQFHRIWKH
ZRUN RU DOOHJHG QHJOLJHQFH LQ DFFRUGDQFH ZLWK WKLV
$JUHHPHQW
(PSKDVLVDGGHG
$W %3¶V UHTXHVW WKH SULPDU\ OLDELOLW\ LQVXUHU 1DWLRQDO
8QLRQSURYLGHGDGHIHQVHLQWKHXQGHUO\LQJODZVXLWEDVHG
XSRQ%3¶VVWDWXVDVDQDGGLWLRQDOLQVXUHGXQGHULWVSROLF\
'HVSLWH1DWLRQDO8QLRQ¶VGHWHUPLQDWLRQWKDWLWVKRXOGDVVXPH
WKHGHIHQVHDQGLQGHPQLI\%3)LUVW6WDWHGHQLHGWKHUHZDV
FRYHUDJHXQGHUWKHH[FHVVSROLF\IRUDOLWDQ\RIUHDVRQV7KH
XQGHUO\LQJ DFWLRQ ZDV VHWWOHG ZLWK WKH DGYLFH RI 1DWLRQDO
8QLRQ¶V UHSUHVHQWDWLYHV DQG 1DWLRQDO 8QLRQ WHQGHUHG WKH
OLPLWV RI WKH SULPDU\ SROLF\ :KHQ )LUVW 6WDWH UHIXVHG WR
WHQGHUWKHDGGLWLRQDOGXHXQGHUWKHVHWWOHPHQW%3
SDLGLWIURPLWVRZQIXQGVDQGEURXJKWWKLVDFWLRQ
,QWKHFRXUVHRIFRQVLGHULQJWKHSDUWLHV¶VHYHUDOPRWLRQVIRU
VXPPDU\MXGJPHQWWKHGLVWULFWFRXUWFRQFOXGHGWKDWVLQFH%3
ZDVDQDGGLWLRQDOLQVXUHGXQGHU1DWLRQDO 8QLRQ¶VSULPDU\
SROLF\ %3 DOVR ZDV DQ LQVXUHG XQGHU )LUVW 6WDWH¶V H[FHVV
SROLF\ :LWKRXW GHFLGLQJ ZKHWKHU WKH XQGHUO\LQJ SROLF\
FRYHUHG%3IRULWVRZQQHJOLJHQFHWKHGLVWULFWFRXUWIRXQG
WKDWDQ\H[FHVVOLDELOLW\FRYHUDJHIRU%3¶VRZQQHJOLJHQFH
ZRXOGEHH[FOXGHGE\WKHVHSDUDWHFURVVOLDELOLW\H[FOXVLRQ
IRXQGRQO\LQWKHH[FHVVSROLF\$IWHUWKHMXU\GHWHUPLQHG
1RV %3&KHPLFDOV,QFY
)LUVW6WDWH,QV&R

(PSKDVLVDGGHG $VWKHGLVWULFWFRXUWREVHUYHGWKHH[FHVV
SROLF\VSHFLILFDOO\GHILQHVWKHWHUP³,QVXUHG´DVIROORZV
,1 7+,6 32/,&< 7+( :25'6 <28 $1' <285
5()(5727+(1$0(',1685('6+2:1,17+(
'(&/$5$7,2167+(:25',1685('0($16
$1<3(56212525*$1,=$7,2148$/,)<,1*
$668&+81'(56(&7,21,9±1$0(',1685('
$1',1685('
6HFWLRQ,9³1$0(',1685('$1',1685('´SURYLGHV
LQSDUW
:+2,6$1,1685('±&29(5$*($ (;&(66
/,$%,/,7<,1685$1&(
([FHSW DV SURYLGHG LQ :+2 ,6 $1 ,1685(' ±
1(:/<$&48,5('25)250('(17,7,(6>@HDFK
SHUVRQ RU RUJDQL]DWLRQ ZKR LV DQ ,QVXUHG LQ WKH
XQGHUO\LQJLQVXUDQFHLVDQ,QVXUHGXQGHU&RYHUDJH$
VXEMHFW WR DOO WKH OLPLWDWLRQV XSRQ VXFK XQGHUO\LQJ
LQVXUDQFH RWKHU WKDQ WKH OLPLWV RI WKH XQGHUO\LQJ
LQVXUHU¶VOLDELOLW\
7KHSODLQPHDQLQJRIWKHVHWHUPVLVWKDW³\RX´RU³\RXU´LV
OLPLWHG WR WKH 1DPHG ,QVXUHG EXW WKDW WKH WHUP ³LQVXUHG´
LQFOXGHVERWKQDPHGDQGDGGLWLRQDOLQVXUHGVLQWKHXQGHUO\LQJ
LQVXUDQFH7KXVWKHH[FOXVLRQIRUDQ\OLDELOLW\IRULQMXULHV
³FDXVHGE\DQHPSOR\HHRIRQH,QVXUHGWRDQHPSOR\HHRI
DQRWKHU,QVXUHG´DSSOLHVKHUHVLQFHLWKDVEHHQGHWHUPLQHG
WKDWWKHQHJOLJHQFHRI%3¶VHPSOR\HHV³FDXVHG´WKHGHDWKRI
%DWK¶VHPSOR\HH
%3FRQWHQGVWKDWWKHFURVVOLDELOLW\H[FOXVLRQLVDPELJXRXV
DQGVKRXOGEHUHDGWRDSSO\RQO\EHWZHHQ1DPHG,QVXUHGV
EHFDXVHRWKHUZLVHWKHH[FHVVFRYHUDJHZRXOGEHLOOXVRU\
%3H[SODLQVWKDWXQOHVVWKHWHUP,QVXUHGUHIHUVRQO\WR1DPHG
,QVXUHGV%DWKZRXOGKDYHQRH[FHVVOLDELOLW\FRYHUDJHLILW
KDG EHHQ D %DWK HPSOR\HH WKDW FDXVHG LQMXU\ WR D %3
HPSOR\HH)LUVW6WDWHUHVSRQGVWKDWWKHH[FHVVFRYHUDJHLVQRW

-- 6 of 10 --

%3&KHPLFDOV,QFY
)LUVW6WDWH,QV&R
1RV
)LUVW 6WDWH UHOLHV XSRQ HYLGHQFH WKDW WKH LQGLYLGXDOV LQYROYHG LQ
PDNLQJ WKH FRQWUDFWV DFWXDOO\ XQGHUVWRRG WKDW WKH ([KLELW $ HQGRUVHPHQW
ZRXOG SURWHFW %3 IURP H[SRVXUH WR %DWK¶V OLDELOLW\ EXW QRW IRU %3¶V RZQ
LQGHSHQGHQW OLDELOLW\ 6XFK HYLGHQFH PD\ QRW EH FRQVLGHUHG LQ
GHWHUPLQLQJ ZKHWKHU D FRQWUDFW LV DPELJXRXV <HW LI ZH ZHUH WR ILQG WKH
([KLELW $ HQGRUVHPHQW DPELJXRXV )LUVW 6WDWH LV FRUUHFW WKDW LW ZRXOG
KDYH WR EH FRQVWUXHG DJDLQVW %3 6HH 5HSXEOLF 1DW¶O %DQN Y 1RUWKZHVW
1DW¶O %DQN 6:G 7H[ $OWKRXJK WKH 7H[DV
FRXUWV KDYH UHSHDWHGO\ VWDWHG WKH UXOH WKDW DQ DPELJXRXV SURYLVLRQ
PXVW EH FRQVWUXHG LQ IDYRU RI WKH LQVXUHG WKH 7H[DV 6XSUHPH
&RXUW UHFHQWO\ WRRN FDUH WR QRWH WKDW WKLV ³ZLGHO\ IROORZHG UXOH LV
DQ RXWJURZWK RI WKH JHQHUDO SULQFLSOH WKDW XQFHUWDLQ FRQWUDFWXDO
ODQJXDJH LV FRQVWUXHG DJDLQVW WKH SDUW\ VHOHFWLQJ WKH ODQJXDJH 6HH
6HJDOOD &RXFK RQ ,QVXUDQFH † G HG ´ %DODQGUDQ
6:G DW Q
*HWW\2LOWKDWWKHLQVXUDQFHREOLJDWLRQZDVDQLQGHSHQGHQW
IUHHVWDQGLQJREOLJDWLRQ:HILQGWKDWWKHPRVWUHDVRQDEOH
FRQVWUXFWLRQRIWKHDGGLWLRQDOLQVXUHGHQGRUVHPHQWVLQWKLV
FDVHLVWKDWWKH\ZHUHLQWHQGHGWRDVVXUHSHUIRUPDQFHRIWKH
LQGHPQLW\ DJUHHPHQW DQG WKHUHIRUH PXVW EH UHDG LQ
FRQMXQFWLRQZLWKWKHLQGHPQLW\SURYLVLRQVZKLFKFHUWDLQO\
GRQRWH[SOLFLWO\H[SUHVVDQ\LQWHQWLRQWRLQGHPQLI\%3IRULWV
RZQQHJOLJHQFH
& &URVV/LDELOLW\([FOXVLRQ
+DYLQJGHWHUPLQHGWKDWWKHSULPDU\SROLF\GLGQRWFRYHU%3
IRULWVRZQQHJOLJHQFHZHQRQHWKHOHVVDOVRFRQFOXGHWKDWWKH
GLVWULFWFRXUWGLGQRWHUULQILQGLQJWKDWWKHH[FHVVOLDELOLW\
LQVXUDQFHH[FOXGHGFRYHUDJHIRU6ZLIW¶VHOHFWURFXWLRQ7KH
H[FHVV LQVXUDQFH IROORZHG WKH SULPDU\ OLDELOLW\ LQVXUDQFH
³H[FHSWDVRWKHUZLVHVWDWHGLQWKLVSROLF\´7KHH[FHVVSROLF\
LQFOXGHGWKHIROORZLQJFURVVOLDELOLW\H[FOXVLRQ
7KLVSROLF\VKDOOQRWDSSO\WRDQ\OLDELOLW\RIRQH,QVXUHG
IRUSURSHUW\GDPDJHWRWKHSURSHUW\RIDQRWKHU,QVXUHG
RUWRDQ\OLDELOLW\IRUERGLO\LQMXU\RUSHUVRQDOLQMXU\
FDXVHGE\DQHPSOR\HHRIRQH,QVXUHGWRDQHPSOR\HHRI
DQRWKHU,QVXUHG
1RV %3&KHPLFDOV,QFY
)LUVW6WDWH,QV&R

WKH FURVVOLDELOLW\ H[FOXVLRQ KDG EHHQ UDLVHG $V VXFK WKH FKURQRORJ\ RI
WKH YDULRXV PRWLRQV DQG WKH GLVWULFW FRXUW¶V WKUHH RUGHUV DGGUHVVLQJ WKH
PRWLRQV IRU VXPPDU\ MXGJPHQW DUH QRW VLJQLILFDQW WR RXU UHYLHZ
WKDW%3ZDVQHJOLJHQWDQG%DWKZDVQRWWKH GLVWULFWFRXUW
HQWHUHGMXGJPHQWLQIDYRURI)LUVW6WDWH%3DSSHDOHGDQG
)LUVW6WDWHFURVVDSSHDOHG
,,
:HUHYLHZWKHGLVWULFWFRXUW¶VLQWHUSUHWDWLRQRIDQLQVXUDQFH
FRQWUDFWGHQRYR6HH3DUDPHWHU'ULYHQ6RIWZDUH,QFY
0DVVDFKXVHWWV%D\,QV&R)G WK&LU
:HDOVRUHYLHZWKHJUDQWRIVXPPDU\MXGJPHQWGHQRYR6HH
HJ6PLWKY$PHULWHFK)G WK&LU
$OWKRXJK WKH GLVWULFW FRXUW GHQLHG )LUVW 6WDWH¶V PRWLRQ IRU
VXPPDU\ MXGJPHQW DQG %3¶V FURVVPRWLRQ IRU VXPPDU\
MXGJPHQW WKH FRXUW LQWHUSUHWHG WKH LQVXUDQFH SROLFLHV DQG
GHWHUPLQHGWKHVFRSHRIFRYHUDJH7KHRQO\LVVXHWULHGWRWKH
MXU\ZDVWKHDOORFDWLRQRIIDXOWLQ6ZLIW¶VGHDWK7KHHQWU\RI
MXGJPHQWLQWKLVFDVHZDVEDVHGXSRQDGHWHUPLQDWLRQWKDW
)LUVW6WDWHZDVHQWLWOHGWRMXGJPHQWDVDPDWWHURIODZDQG
ZDVHVVHQWLDOO\DJUDQWRIVXPPDU\MXGJPHQW2QDSSHDOWKH
SDUWLHVFRQWHVWWKHGLVWULFWFRXUW¶VFRQFOXVLRQVRIODZDQGGR
QRWVXJJHVWWKDWTXHVWLRQVRIIDFWUHPDLQHGIRUWULDO
7KHSDUWLHVDJUHHWKDW7H[DVODZJRYHUQVWKLVDFWLRQ8QGHU
7H[DVODZLQVXUDQFHSROLFLHVDUHFRQVWUXHGXQGHUWKHUXOHVRI
FRQWUDFWFRQVWUXFWLRQ6HH%DODQGUDQY6DIHFR,QV&R
6:G 7H[ %DUQHWWY$HWQD/LIH,QV&R
6:G 7H[ :KHQLQWHUSUHWLQJDFRQWUDFW
WKHFRXUW¶VSULPDU\FRQFHUQLVWRJLYHHIIHFWWRWKHZULWWHQ
H[SUHVVLRQRIWKHSDUWLHV¶LQWHQW6HH)RUEDXY$HWQD/LIH
,QV&R6:G 7H[ 7KHFRXUWPXVW
UHDG DOO SDUWV RI WKH FRQWUDFW WRJHWKHU WR DVFHUWDLQ WKH
DJUHHPHQWRIWKHSDUWLHVDQGHDFKSDUWRIWKHFRQWUDFWVKRXOG
EHJLYHQHIIHFW6HHLG,IDFRQWUDFWLVH[SUHVVHGLQSODLQDQG
XQDPELJXRXVODQJXDJHWKHFRXUWPD\QRWUHVRUWWRWKHUXOHV
RI FRQVWUXFWLRQ 6HH %DUQHWW 6:G DW $Q

-- 7 of 10 --

%3&KHPLFDOV,QFY
)LUVW6WDWH,QV&R
1RV
LQVXUDQFHSURYLVLRQLVDPELJXRXVZKHQLWLVVXVFHSWLEOHWR
PRUHWKDQRQHIDLUDQGUHDVRQDEOHLQWHUSUHWDWLRQ6HH2KLR
&DV *URXS RI ,QV &RV Y &KDYH] 6:G
7H[$SS &RXUWVVKRXOGQRWKRZHYHUVWUDLQWRILQG
DQDPELJXLW\LIGRLQJVRGHIHDWVWKHSUREDEOHLQWHQWLRQRIWKH
SDUWLHV 6HH LG %RWK WKH GHWHUPLQDWLRQ RI ZKHWKHU DQ
LQVXUDQFHSURYLVLRQLVDPELJXRXVDQGWKHLQWHUSUHWDWLRQRI
XQDPELJXRXVODQJXDJHDUHTXHVWLRQVRIODZ6HHLGDW
)LUVW6WDWH¶VSROLF\SURYLGHGWZRNLQGVRIFRYHUDJHH[FHVV
OLDELOLW\ LQVXUDQFH IROORZLQJ IRUP DQG XPEUHOOD OLDELOLW\
LQVXUDQFH RYHUDVHOILQVXUHGUHWHQWLRQ 2QO\WKHIRUPHULV
DWLVVXHKHUH7KHH[FHVVFRYHUDJH³IROORZVWKHXQGHUO\LQJ
LQVXUDQFH H[FHSW DV RWKHUZLVH VWDWHG LQ >WKH )LUVW 6WDWH@
SROLF\´ $OWKRXJK )LUVW 6WDWH DUJXHV WKDW %3 ZDV QRW DQ
LQVXUHGXQGHUWKHH[FHVVFRYHUDJHZHILQG%3ZDVDQLQVXUHG
DV WKDW WHUP LV GHILQHG LQ )LUVW 6WDWH¶V SROLF\ 7KH QH[W
TXHVWLRQZKHWKHU%3ZDVFRYHUHGIRULWVRZQQHJOLJHQFH
PXVWEHGHWHUPLQHGIURPWKHVFRSHRIFRYHUDJHSURYLGHGE\
WKHXQGHUO\LQJLQVXUDQFHSROLF\)LQDOO\%3XUJHVWKDWZH
UHYHUVHWKHGLVWULFWFRXUW¶VILQGLQJWKDWWKHH[FHVVSROLF\LWVHOI
WKURXJKWKHFURVVOLDELOLW\H[FOXVLRQH[FOXGHGFRYHUDJHIRU
%3)RUWKHUHDVRQVVHWIRUWKEHORZRXUGHQRYRUHYLHZOHDGV
XVWRILQGERWK WKDWWKHXQGHUO\LQJSROLF\GLGQRWFRYHU%3
IRU LWV RZQ QHJOLJHQFH DQG WKDW WKH H[FHVV SROLF\
LQGHSHQGHQWO\H[FOXGHGFRYHUDJHLQWKLVFDVH
$ ,QVXUHG
)LUVW 6WDWH DUJXHV LQLWLDOO\ WKDW %3 FDQQRW EH DQ LQVXUHG
XQGHUWKHH[FHVVSROLF\EHFDXVHWKH%3%DWKFRQWUDFWGLGQRW
UHTXLUH WKDW %DWK HLWKHU KDYH H[FHVV OLDELOLW\ LQVXUDQFH RU
REWDLQDQDGGLWLRQDOLQVXUHGHQGRUVHPHQWWRDQH[FHVVSROLF\
7KLVFRQWHQWLRQLVZLWKRXWPHULW)LUVW6WDWH¶VH[FHVVSROLF\
GHILQHV³,QVXUHG´VXFKWKDW³HDFKSHUVRQRURUJDQL]DWLRQZKR
LVDQ,QVXUHGLQWKHXQGHUO\LQJLQVXUDQFHLVDQ,QVXUHGXQGHU
&RYHUDJH$>H[FHVVFRYHUDJH@VXEMHFWWRDOOWKHOLPLWDWLRQV
XSRQVXFKXQGHUO\LQJLQVXUDQFHRWKHUWKDQWKHOLPLWVRIWKH
XQGHUO\LQJLQVXUHU¶VOLDELOLW\´7KXVLI%3ZDVDQLQVXUHG
1RV %3&KHPLFDOV,QFY
)LUVW6WDWH,QV&R

GHFOLQHGWRH[WHQGWKHH[SUHVVQHJOLJHQFHGRFWULQHWR
VHSDUDWH LQVXUDQFH DJUHHPHQWV WKDW ZHUH QRW LQWHQGHG WR
VXSSRUWDQLQGHPQLW\DJUHHPHQW,Q*HWW\2LOWKHFRXUWILUVW
IRXQGWKDWDQLQGHPQLW\SURYLVLRQKROGLQJ*HWW\KDUPOHVVIRU
LWVRZQQHJOLJHQFHZDVLQYDOLGXQGHUD7H[DVVWDWXWH7KH
FRXUWWKHQKRZHYHUUHMHFWHGWKHFODLPWKDWDQLQGHSHQGHQW
DGGLWLRQDOLQVXUHGSURYLVLRQZDVDOVRLQYDOLGWRWKHH[WHQWWKDW
LWUHTXLUHGFRYHUDJHIRU*HWW\¶VRZQQHJOLJHQFH7KXVDQ
LQVXUDQFHDJUHHPHQWWKDWVWDQGVDORQHFDQYDOLGO\VKLIWWKH
ULVNRILQVXULQJDSDUW\¶VRZQQHJOLJHQFHWRDQRWKHUZLWKRXW
VSHFLILFDOO\ H[SUHVVLQJ WKH LQWHQWLRQ WR GR VR 6HH HJ
&HUWDLQ8QGHUZULWHUVDW/OR\G¶V/RQGRQY2U\[(QHUJ\&R
)G WK&LU
7KHVHSULQFLSOHVZHUHDSSOLHGLQ(PHU\$LU)UHLJKW&RUS
Y *HQHUDO 7UDQVSRUW 6\VWHPV ,QF 6:G
7H[ $SS WR WKH TXHVWLRQ RI ZKHWKHU D FRQWUDFW
UHTXLUHGRQHWREHLQVXUHGDJDLQVWOLDELOLW\DULVLQJIURPLWV
RZQ QHJOLJHQFH 7KH FRXUW GLVWLQJXLVKHG WKH LQGHSHQGHQW
DGGLWLRQDOLQVXUHGSURYLVLRQLQ*HWW\2LOZKLFK³UHTXLUHGWKH
H[WHQVLRQRIFRYHUDJHμZKHWKHURUQRWUHTXLUHG>E\WKHRWKHU
SURYLVLRQV RI WKH FRQWUDFW@¶´ ,G DOWHUDWLRQ LQ RULJLQDO
TXRWLQJ*HWW\2LO6:GDW 7KH(PHU\FRXUW
H[SODLQHGWKDW³%DVHGRQWKLVIDFWXDOGLVWLQFWLRQIURPWKH
)LUHPDQ¶V )XQG FRQWUDFW WKH >*HWW\ 2LO@ FRXUW KHOG WKH
DGGLWLRQDOLQVXUHGSURYLVLRQGLG QRWVXSSRUWWKHLQGHPQLW\
SURYLVLRQEXWZDVLQVWHDGDIUHHVWDQGLQJREOLJDWLRQ´,G
7KHFRXUWLQ(PHU\FRQFOXGHGWKDWWKHFRQWUDFWGLGQRWUHTXLUH
WKHLQGHPQLWHHEHLQVXUHGDJDLQVWLWVRZQQHJOLJHQFHILQGLQJ
WKDW WKH ³PRVW UHDVRQDEOH FRQVWUXFWLRQ´ RI WKH LQVXUDQFH
SURYLVLRQV LQ WKH FRQWUDFW ZDV WKDW WKH\ ZHUH LQWHQGHG WR
DVVXUHSHUIRUPDQFHRIWKHLQGHPQLW\DJUHHPHQWDQGGLGQRW
FUHDWHDQLQGHSHQGHQWREOLJDWLRQ
,Q WKLV FDVH QHLWKHU WKH LQGHPQLW\ DJUHHPHQW QRU WKH
DGGLWLRQDOLQVXUHGHQGRUVHPHQWVH[SUHVVO\VWDWHDQLQWHQWLRQ
WRLQGHPQLI\%3DJDLQVWLWVRZQQHJOLJHQFH7KHLQVXUDQFH
SURYLVLRQV RI WKH FRQWUDFW LQFOXGLQJ WKH ([KLELW $
HQGRUVHPHQWGRQRWLQFOXGHODQJXDJHGHPRQVWUDWLQJDVLQ

-- 8 of 10 --

%3&KHPLFDOV,QFY
)LUVW6WDWH,QV&R
1RV
LQVXUHG¶V QHJOLJHQFH DQG ZRXOG QRW H[WHQG WR WKH DGGLWLRQDO LQVXUHG¶V RZQ
QHJOLJHQFH 6HH DOVR 0LG&RQWLQHQW &DV &R Y 6ZLIW (QHUJ\ &R
)G WK &LU 0LG&RQWLQHQW &DV &R Y &KHYURQ 3LSH /LQH
&R )G WK &LU :LWKRXW DJUHHLQJ RU GLVDJUHHLQJ ZLWK
WKH GHFLVLRQV LQ WKHVH FDVHV ZH ILQG WKDW WKH\ DUH LQDSSOLFDEOH KHUH
:KHWKHU RU QRW WKH VFRSH RI WKH DGGLWLRQDO LQVXUHG FRYHUDJH GHILQHG E\
WKH ³DULVLQJ RXW RI´ ODQJXDJH LQ WKH HQGRUVHPHQWV FRXOG EH LQWHUSUHWHG DV
%3 XUJHV WKH SULPDU\ SROLF\ DOVR FRQWDLQHG WKH VSHFLILF H[FOXVLRQ IRU DQ\
QHJOLJHQW DFWV FRPPLWWHG E\ WKH DGGLWLRQDO LQVXUHG 6HH &KHYURQ
)G DW QRWLQJ LQVXUHU FRXOG HDVLO\ KDYH OLPLWHG FRYHUDJH E\
LQFOXGLQJ WHUPV RI IXUWKHU OLPLWDWLRQ
7KLVUHVXOWLVIXUWKHUFRPSHOOHGZKHQWKHFRQWUDFWLVUHDGLQ
OLJKWRIWKHVXUURXQGLQJFLUFXPVWDQFHV6HH%DODQGUDQ
6:GDW,QWKLVFDVH([KLELW$LV SDUWRIERWKWKH
LQVXUDQFHSROLF\DQGWKH%3%DWKFRQWUDFW7KHLQVXUDQFH
FRYHUDJHDQGHQGRUVHPHQWVLQ([KLELW$ZHUHUHTXLUHGE\WKH
%3%DWK FRQWUDFW DQG WKH LQGHPQLILFDWLRQ SURYLVLRQ
RULJLQDOO\ SURSRVHG E\ %3 VSHFLILFDOO\ UHIHUHQFHG WKRVH
LQVXUDQFHSURYLVLRQV8QZLOOLQJWRDFFHSWWKHREOLJDWLRQWR
LQGHPQLI\%3IRUDOOOLDELOLWLHVDULVLQJRXWRIRULQFRQQHFWLRQ
ZLWK WKH ZRUN %DWK SURSRVHG DQG WKH SDUWLHV QHJRWLDWHG D
PRUHOLPLWHGLQGHPQLILFDWLRQDJUHHPHQW:KLOHWKHVFRSHRI
WKH LQGHPQLILFDWLRQ DJUHHPHQW LV QRW EHIRUH WKH FRXUW LWV
SURYLVLRQV FOHDUO\ UHIOHFW DQ LQWHQWLRQ WR OLPLW %DWK¶V
REOLJDWLRQWRLQGHPQLI\%3IRU%3¶VRZQQHJOLJHQFH
7H[DVODZKDVUHFRJQL]HGDUHODWLRQVKLSEHWZHHQLQGHPQLW\
DQG LQVXUDQFH REOLJDWLRQV LQ WKH FRQWH[W RI GHWHUPLQLQJ
ZKHWKHU SDUWLHV WR D FRQWUDFW LQWHQGHG WR LQGHPQLI\ DQ
LQGHPQLWHHIRULWVRZQQHJOLJHQFH6HH)LUHPDQ¶V)XQG,QV
&RY&RPPHUFLDO6WDQGDUG,QV&R6:G 7H[
6LQFH)LUHPDQ¶V)XQGWKH7H[DV6XSUHPH&RXUWKDV
DGRSWHGDEULJKWHUOLQHH[SUHVVQHJOLJHQFHGRFWULQHUHTXLULQJ
WKDW SDUWLHV VHHNLQJ WR LQGHPQLI\ DQ LQGHPQLWHH IRU WKH
FRQVHTXHQFHV RI LWV RZQ QHJOLJHQFH VSHFLILFDOO\ VWDWH WKDW
LQWHQWLRQZLWKLQWKHIRXUFRUQHUVRIWKHFRQWUDFW6HH(WK\O
&RUS Y 'DQLHO &RQVWU &R 6:G 7H[
7KH 7H[DV 6XSUHPH &RXUW LQ *HWW\ 2LO &R Y
,QVXUDQFH &R RI 1RUWK $PHULFD 6:G 7H[
1RV %3&KHPLFDOV,QFY
)LUVW6WDWH,QV&R

7KLV LV XQOLNH WKH SROLFLHV DW LVVXH LQ 0XVJURYH Y 6RXWKODQG &RUS
)G WK &LU DQG )RUHVW 2LO &RUS Y 6WUDWD (QHUJ\
,QF )G WK &LU LQ ZKLFK WKH H[FHVV LQVXUDQFH
SROLFLHV WKHPVHOYHV H[SUHVVO\ GHILQHG LQVXUHG WR PHDQ RQH WR ZKRP WKH
QDPHG LQVXUHG ZDV REOLJDWHG E\ ZULWWHQ FRQWUDFW WR SURYLGH H[FHVV
LQVXUDQFH
XQGHUWKHSULPDU\SROLF\LWZDVDOVRDQ LQVXUHGXQGHUWKH
H[FHVVSROLF\
7KHXQGHUO\LQJSROLF\LQFOXGHGDEODQNHWHQGRUVHPHQW &*
IRUDGGLWLRQDOLQVXUHGVZKLFKVWDWHGLQLWVHQWLUHW\
,7,6$*5(('7+$7$'',7,21$/,1685('6$5(
&29(5(' 81'(5 7+,6 32/,&< $6 5(48,5('
%< :5,77(1 &2175$&7 %87 21/< :,7+
5(63(&772/,$%,/,7,(6$5,6,1*2872)7+(,5
23(5$7,216 3(5)250(' %< 25 )25 7+(
1$0(' ,1685(' %87 (;&/8',1* $1<
1(*/,*(17 $&76 &200,77(' %< 68&+
$'',7,21$/,1685('
%3 TXDOLILHG DV DQ DGGLWLRQDO LQVXUHG XQGHU WKLV EODQNHW
HQGRUVHPHQWEHFDXVHWKH%3%DWKFRQWUDFWH[SUHVVO\UHTXLUHG
WKDW %3 EH HQGRUVHG DV DQ DGGLWLRQDO LQVXUHG XQGHU WKH
SULPDU\SROLF\%3LVDOVRDQDGGLWLRQDOLQVXUHGE\UHDVRQRI
WKH &HUWLILFDWH RI ,QVXUDQFH ZKLFK FHUWLILHG WKDW %DWK KDG
REWDLQHGWKHIROORZLQJUHOHYDQWHQGRUVHPHQWWRWKHSULPDU\
SROLF\
2:1(5>%3@LVDQDGGLWLRQDOLQVXUHGWKHUHXQGHUDV
UHVSHFWV OLDELOLW\ DULVLQJ RXW RI RU IURP WKH :25.
SHUIRUPHG E\ &2175$&725 >%DWK@ IRU 2:1(5
>%3@>@
7KH&HUWLILFDWHRI,QVXUDQFHH[HFXWHGDIWHUWKHSROLF\KDG
EHHQ LVVXHG ZDV VLJQHG E\ DXWKRUL]HG UHSUHVHQWDWLYHV RI
1DWLRQDO8QLRQDQG%DWK6LQFH%3ZDVDQLQVXUHGXQGHUWKH
SULPDU\SROLF\LWDOVRZDVDQLQVXUHGXQGHUWKHH[FHVVSROLF\

-- 9 of 10 --

%3&KHPLFDOV,QFY
)LUVW6WDWH,QV&R
1RV
% 6FRSHRI&RYHUDJHIRU$GGLWLRQDO,QVXUHGV
7KHGLVWULFWFRXUWGLGQRWUHVROYHWKHTXHVWLRQRIZKHWKHU
WKH SULPDU\ OLDELOLW\ SROLF\ FRYHUHG %3 DV DQ DGGLWLRQDO
LQVXUHGIRULWVRZQQHJOLJHQFH%3DUJXHVWKDWWKHGLVWULFW
FRXUWHUUHGE\IDLOLQJWRJUDQWVXPPDU\MXGJPHQWLQLWVIDYRU
RQWKLVTXHVWLRQEHFDXVHQRJHQXLQHLVVXHRIPDWHULDOIDFW
H[LVWHG:KLOHZHDJUHHWKDWWKHPDWWHUFDQEHGHWHUPLQHGDV
DPDWWHURIODZZHILQGWKDWZKHQDOORIWKHSURYLVLRQVDUH
UHDG WRJHWKHU LW LV FOHDU WKDW WKH SDUWLHV LQWHQGHG WKDW %3
ZRXOGQRW EH FRYHUHGDVDQDGGLWLRQDOLQVXUHGIRULWVRZQ
QHJOLJHQFH
%3 PDLQWDLQV WKDW WKH &HUWLILFDWH RI ,QVXUDQFH ZKLFK
LQFRUSRUDWHVWKH([KLELW$HQGRUVHPHQW³WUXPSV´WKH&*
HQGRUVHPHQW DQG E\ LWV WHUPV XQDPELJXRXVO\ SURYLGHV
FRYHUDJH ZLWKRXW UHJDUG IRU %3¶V RZQ QHJOLJHQFH 7KLV
UHDVRQLQJ UHVWV RQ WZR FRQFOXVLRQV ILUVW WKDW WKH
HQGRUVHPHQWVLQ&*DQG([KLELW$FRQIOLFWDQGVHFRQG
WKDWWKH([KLELW$HQGRUVHPHQWSURYLGHVFRYHUDJHZLWKRXW
UHJDUGIRUWKHDGGLWLRQDOLQVXUHG¶VRZQQHJOLJHQFH%3UHOLHV
XSRQVHYHUDOFDVHVIRUWKHJHQHUDOSURSRVLWLRQWKDWZKHQD
FHUWLILFDWH RI LQVXUDQFH FRQIOLFWV ZLWK WKH PDLQ SROLF\ WKH
FHUWLILFDWHFRQWUROV6HHHJ&LW\RI1RUWKJOHQQY&KHYURQ
86$ ,QF ) 6XSS ' &ROR -0
&RUEHWW&RY,QVXUDQFH&RRI1$P1(G ,OO
$SS&W $7H[DVFRXUWUHFHQWO\H[SODLQHGWKDWZKLOH
HQGRUVHPHQWV JHQHUDOO\ VXSHUVHGH DQG FRQWURO RYHU
FRQIOLFWLQJSURYLVLRQVRIDSROLF\³DGGHGSURYLVLRQVZLOORQO\
VXSHUVHGH WKH SUHYLRXV SROLF\ WHUPV WR WKH H[WHQW WKH\ DUH
WUXO\ LQ FRQIOLFW 7KH SROLF\ DQG HQGRUVHPHQW VKRXOG EH
FRQVWUXHGWRJHWKHUXQOHVVWKH\DUHVRPXFKLQFRQIOLFWWKDW
WKH\ FDQQRW EH UHFRQFLOHG´ 6HH 0HVD 2SHUDWLQJ &R Y
&DOLIRUQLD8QLRQ,QV&R6:G 7H[$SS
FLWDWLRQ RPLWWHG :KHQ WKH DGGLWLRQDO LQVXUHG
HQGRUVHPHQWVLQWKLVFDVHDUHFRQVWUXHGWRJHWKHUWKH\DUHQRW
LQFRQVLVWHQW
1RV %3&KHPLFDOV,QFY
)LUVW6WDWH,QV&R

%3 UHOLHV KHDYLO\ XSRQ WZR UHFHQW 7H[DV &RXUW RI $SSHDOV GHFLVLRQV
LQWHUSUHWLQJ WKH DGGLWLRQDO LQVXUHG SURYLVLRQV WKDW FRYHU OLDELOLW\ ³DULVLQJ
RXW RI´ HLWKHU WKH QDPHG LQVXUHG¶V RSHUDWLRQV RU WKH QDPHG LQVXUHG¶V
ZRUN IRU WKH DGGLWLRQDO LQVXUHG 6HH 0F&DUWK\ %URV &R Y &RQWLQHQWDO
/OR\GV ,QV &R 6:G 7H[ $SS $GPLUDO ,QV &R
Y 7ULGHQW 1*/ ,QF 6:G 7H[ $SS ,Q
0F&DUWK\ WKH FRXUW UHMHFWHG WKH LQWHUSUHWDWLRQ WKDW ³DULVLQJ RXW RI´ PHDQW
³GLUHFWO\ IURP´ VXFK WKDW OLDELOLW\ PXVW VWHP GLUHFWO\ IURP WKH QDPHG
7KHSROLF\¶V&*HQGRUVHPHQWGHILQHVWKHVFRSHRI%3¶V
DGGLWLRQDOLQVXUHGFRYHUDJHZLWKUHVSHFWWRWKLVFDVHLQWZR
UHOHYDQWZD\V E\SURYLGLQJFRYHUDJHRQO\ZLWKUHVSHFWWR
OLDELOLW\DULVLQJRXWRI%3¶VRSHUDWLRQVSHUIRUPHGE\%DWK
DQG E\H[SUHVVO\H[FOXGLQJDQ\QHJOLJHQWDFWVFRPPLWWHG
E\ WKH DGGLWLRQDO LQVXUHG 7KH ([KLELW $ HQGRUVHPHQW
FHUWLILHGWREHSDUWRIWKHSULPDU\OLDELOLW\SROLF\RQO\GHILQHV
WKHVFRSHRIFRYHUDJHLQWHUPVRIOLDELOLW\DULVLQJRXWRIRU
IURPWKHZRUNSHUIRUPHGE\%DWKIRU%37KHUHLVQRFODLP
RI D FRQIOLFW EHWZHHQ WKH PHDQLQJ RI WKH ³DULVLQJ RXW RI´
ODQJXDJHLQWKHVHHQGRUVHPHQWV
5DWKHU %3 VHHPVWRDUJXHWKDWEHFDXVHWKLVDQGVLPLODU
³DULVLQJRXWRI´ODQJXDJHKDVEHHQLQWHUSUHWHGE\VRPHFRXUWV
WR DIIRUG FRYHUDJH ZLWKRXW UHTXLULQJ WKDW WKH OLDELOLW\ EH
³FDXVHGE\´WKHQDPHGLQVXUHG LQWKLVFDVH%DWK WKH([KLELW
$ HQGRUVHPHQW VRPHKRZ FRQIOLFWV DQG FRQWUROV WKH PRUH
VSHFLILFH[FOXVLRQLQWKH&*HQGRUVHPHQW7RWKHFRQWUDU\
ZH QHHG QRW GHFLGH ZKHWKHU WKH ³DULVLQJ RXW RI´ ODQJXDJH
HQFRPSDVVHVDQDGGLWLRQDOLQVXUHG¶VRZQQHJOLJHQFHEHFDXVH
XQOLNHRWKHUFDVHVFRQVWUXLQJVXFKODQJXDJHWKHSROLF\KHUH
FRQWDLQVDVSHFLILFH[FOXVLRQIURPFRYHUDJHIRUDQDGGLWLRQDO
LQVXUHGIRUDQ\QHJOLJHQWDFWVFRPPLWWHGE\WKHDGGLWLRQDO
LQVXUHG(DFKSDUWRIWKHFRQWUDFWVKRXOGEHJLYHQHIIHFWDQG
PRUH VSHFLILF SURYLVLRQV FRQWURO RYHU JHQHUDO RQHV ³)RU
H[DPSOH ZKHQ D FRQWUDFW SURYLVLRQ PDNHV D JHQHUDO
VWDWHPHQW RI FRYHUDJH DQG DQRWKHU SURYLVLRQ VSHFLILFDOO\
VWDWHV WKH WLPH OLPLW IRU VXFK FRYHUDJH WKH PRUH VSHFLILF
SURYLVLRQ ZLOO FRQWURO 6HH $57+85 / &25%,1
&2175$&76† ´)RUEDX6:GDW

-- 10 of 10 --