BNCCORP, INC. and BNC NATIONAL BANK, Plaintiffs/Appellants,
HUB INTERNATIONAL LIMITED, HUB INTERNATIONAL INSURANCE SERVICES, INC., HUB INTERNATIONAL OF CALIFORNIA INSURANCE SERVICES, INC., and HUB INTERNATIONAL SOUTHWEST AGENCY LIMITED, Defendants/Appellees.
from the Superior Court in Maricopa County No. CV2012-014329
The Honorable Lori Horn Bustamante, Judge
Anthony Ostlund Baer & Louwagie PA, Minneapolis, MN By
Richard T. Ostlund, Shannon M. Awsumb Counsel for
Plaintiff/Appellant BNCCORP, Inc.
Carlock & Applewhite PA, Phoenix By Fredric D. Bellamy
Co-Counsel for Plaintiff/Appellant BNC National Bank
Offices of Michele Van Quathem PLLC, Phoenix By Michele Van
Quathem Co-Counsel for Plaintiff/Appellant BNC National Bank
Maledon PA, Phoenix By David D. Garner Counsel for
Jon W. Thompson delivered the opinion of the Court, in which
Presiding Judge Randall M. Howe and Judge Lawrence F.
BNCCORP, Inc. (BNCCORP) and BNC National Bank, N.A. (The
Bank) (collectively, BNC), appeal from the trial court's
judgments in favor of HUB International Limited, HUB
International Services, Inc., HUB International of California
Insurance Services, Inc., and HUB International Southwest
Agency Limited (collectively, HUB). For the following
reasons, we affirm.
AND PROCEDURAL HISTORY
BNCCORP, a Delaware corporation, is a registered bank holding
company with its principal place of business in Bismarck,
North Dakota. It does business through wholly owned
subsidiaries, including The Bank. The Bank's main office
is in Arizona. The Bank has branches in Arizona, North Dakota
and Minnesota. In 2002, BNC purchased BNC Insurance Services,
Inc. (BIS), an insurance agency. BNC utilized BIS for all its
insurance broker needs.
In 2004, BNC entered a mortgage-loans-in-transit (MLT)
agreement with Concord Mortgage (Concord). Pursuant to that
agreement, Concord originated loans using up to $100 million
in funds provided by BNC, with BNC retaining a 100%
participation interest in each loan. Concord then sold the
loans in the secondary market and paid BNC back the principal
and accrued interest.
Although at the time BNC was placing all its own insurance
coverage through BIS, the MLT agreement was a custom
agreement that BNC's lawyers drafted. BNC did not take
additional steps to determine whether it had coverage for any
fraud or other risks that may be associated with the new MLT
In 2005, BNCs Chief Financial Officer (CFO) questioned
whether the MLT relationship should be included in BNCs
insurance application. At the time, BIS had assigned its
employee, Kathy Cook (Cook), as the insurance broker for
BNC's insurance renewal. Because of its CFO's
question, BNC, through BIS and Cook, added an optional
coverage known as "servicing contractor coverage"
to its financial institution bond and excess follow-form bond
insurance policies with Chubb Group of Insurance Companies
(Chubb) to insure the MLT relationship with
Concord. BNC did not seek a special endorsement or manuscript
policy concerning any specific aspects of the Concord MLT
In October 2006, BNC entered into another MLT agreement with
American Mortgage Specialists (AMS), an Arizona
corporation. The AMS MLT agreement was the same basic
contract as was used for the Concord MLT agreement. Like
Concord, AMS was to originate mortgage loans using funds from
BNC, service the loans, and sell them in the secondary
market, and repay to BNC, principal, interest and fees. Under
the agreement, BNC allowed AMS to draw up to $27.5 million in
funds from BNC at any time.
In March 2006, the Arizona Department of Financial
Institutions (ADFI), under a seventeen-page Consent Order,
had sanctioned AMS and fined it nearly a quarter of a million
dollars for unlawful conduct, unlicensed activity, failure to
maintain proper records, failure to maintain control over
bank accounts, failure to comply with an earlier 2004 Consent
Order, and pages of additional enumerated violations. The
record does not indicate that BNC investigated AMS's
standing with ADFI.
BNC approved and decided to go forward with an MLT
relationship with AMS while BNC was renewing its insurance
policies in August 2006. However, BNC did not disclose this
new MLT agreement in its renewal application and requested
coverage "same as prior year." This included the
same servicing contractor coverage that it had obtained in
2005 for the Concord MLT relationship. BNC did not seek,
through BIS, a special endorsement, rider or other coverage
specific to the MLT program (Concord and AMS)-such as one
that would cover the risk of a lapping scheme fraud.
On March 14, 2007, the relationship between BNC and HUB began
pursuant to a Purchase and Sale Agreement (PSA). BNCCORP and
BIS were the named parties to the agreement, along with HUB
International of California Insurance Services, Inc. (Hub
Cal.). Pursuant to the PSA, BNC sold certain of BIS's
assets and liabilities to HUB. HUB acquired BIS's book of
business-including the BNC account. The BNC parties also
agreed to appoint either Hub Cal. or one of the HUB
"Affiliates" as "the broker of record for all
insurance maintained by [BNCCORP] and its direct and indirect
wholly owned subsidiaries, " which included The Bank.
The PSA did not require HUB to provide BNC with risk
management services, to act as BNCs guarantor, or otherwise
recommend services beyond those BNC sought. The PSA states
that BNCCORP and "its Affiliates" retained
liability for their pre-sale conduct, which would include
conduct arising out of insurance broker services provided to
BNC in 2005 and 2006, when BNC added servicing contractor
coverage to its insurance package to cover its MLT
relationships, including its relationship with AMS. The PSA
also included a jury trial waiver.
In accord with the PSA, upon closing of the sale in mid-2007,
BNC appointed HUB as its broker of record. Cook became
HUB's employee and continued in her role as BNCs broker.
She assisted BNC in obtaining its 2007 renewal with
Chubb-providing coverage for a bond period from August 15,
2007, to August 15, 2008. The renewal policy Cook procured
included a financial institution bond and excess follow-form
policy that provided servicing contractor coverage that was
materially identical to the coverage BNC previously obtained
through BIS in 2005 and 2006. Again, BNC did not specifically
seek coverage for risks associated with its MLT program.
Cook left her position at HUB in May 2008, and Timothy Elliot
and Thomas Gilmor reassigned the accounts Cook had
serviced-including the BNC account. BNCs account was
reassigned to HUB's insurance brokers, Jerry Thomas and
Brett Plant, who completed the 2008 renewal.
Around the time of the 2008 renewal, BNCs policies with Chubb
were about to expire. As to the 2008 renewal, in a June 30,
2008 letter BNC informed HUB, as follows:
(1) We request a remarket this year. (2) We would like to
look at the option of a three-year prepaid policy (or annual
installments) as well as an annual renewal. (3) We would like
the quote to include various deductible options. (4) We would
like the quote to include a renewal at the current limits
plus an increased limit for [Banker's Professional
Liability (BPL)] and any recommendations for other limit
increases you feel appropriate.
(Emphasis added.) As part of the 2008 renewal, BNC asked HUB
to help it procure financial institution bond and excess
follow-form policies from new insurance carriers that matched
the coverages BNCs expiring insurance policies provided. BNC
also requested servicing contractor coverage, but as in 2006,
and 2007, BNC did not request any special endorsement, rider
or other coverage specific to AMS or BNCs MLT program.
Consistent with BNCs directions in the June 30, 2008 letter
and specific requests, HUB obtained insurance quotes/options,
from multiple insurers in the remarketing process - including
quotes with annual renewals, some with three year renewals,
with various deductibles, and requested increases. HUB met
with BNCs management and board to present options from
Instead of staying with Chubb, which offered only a one-year
term, BNC elected to move its primary coverage to
Colonial/Zurich (Colonial) and its excess coverage to St.
Paul Mercy Insurance Company/Travelers (Travelers)
(collectively, the insurance carriers). The 2008 renewal
policies provided BNC with materially identical coverage as
it had with Chubb, but included a higher $14.9 million
combined limit and a guaranteed three-year term. In its bond,
Colonial "agree[d] to indemnify [BNC] for . . . [l]oss
resulting from dishonest or fraudulent acts committed by any
servicing contractor acting alone or in collusion with
BNC did not identify any fraudulent activities in its
relationship with AMS until April 2010, despite the
activities of its own management, credit analysts, auditors,
and regulators. Throughout its three-and-a-half-year
relationship with AMS, BNC accepted and relied on AMS's
representations concerning dates, amounts, and
"sources" of secondary-market purchases of loans
originated by AMS using funds provided by BNC. In April 2010,
BNC discovered AMS had defrauded it out of a claimed $26
million (the AMS loss) in a "fraudulent lapping
scheme." Prior to discovery of the AMS loss, BNC had not
asked or required any of the secondary-market investors who
purchased loans from AMS to provide purchase (and/or payment)
advices directly to BNC, nor did BNC require any other
independent verification of AMS's representations that
the investor funds were being applied to pay off the correct
In July 2010, BNC submitted a proof of loss insurance claim
and supporting information to Colonial and Travelers.
Colonial denied the claim, and thereafter filed a lawsuit
seeking declaratory judgment concerning its obligations under
the bond. Travelers also filed a complaint for declaratory
relief. Colonial's and Travelers's suits were
consolidated (the coverage litigation). BNC filed
counterclaims for breach of contract and bad faith, and
sought punitive damages.
In September 2012, for $7.5 million, BNC settled its lawsuit
against the insurance carriers. The settlement agreement
reflects that BNC was contemplating filing a suit against
HUB. BNC did so less than a week after settling with the
insurance carriers, asserting a claim for negligence against
HUB. The complaint demanded a jury trial.
In separate rulings in HUB's favor, the trial court found
(1) pursuant to the waiver in the PSA, BNC had waived its
right to a jury trial, and (2) HUB did not breach the
applicable standard of care and that BNC did not prove HUB
proximately caused BNCs damages. After denying BNCs motion
for a new trial and/or to alter or amend judgment, the trial
court entered final judgment, pursuant to Rule 54 on August
BNC timely appealed to this court. We have jurisdiction
pursuant to Arizona Revised Statutes (A.R.S.) sections
12-120.21 (2016) and -2101 (2016).
As a preliminary matter, we review whether the trial court
erred in ruling that both BNCCORP and The Bank waived their
right to a jury trial under the terms of the PSA. Both The
Bank and BNCCORP argue that the purported waiver does not
extend to the negligence action. Relying heavily on external
authorities, The Bank separately argues that it is not bound
by the jury trial waiver because it was neither a named party
nor signatory to the PSA. We agree with the trial court's
ruling as to both BNCCORP and The Bank.
Pursuant to the Arizona Constitution, a right to a jury trial
"may be waived by the parties in any civil cause."
Ariz. Const. art. 6, § 17. In Arizona, jury waivers are
recognized as commonplace such that they typically
"attract no attention." Indus. Comm'n v.
Frohmiller, 60 Ariz. 464, 474, 140 P.2d 219, 223 (1943).
It has been said that the right to a jury trial in civil
matters is "a privilege which may be waived by either
party and not an absolute right." Id. There are
typically no procedural obstacles for obtaining a jury waiver
in a civil case, and such waiver may be the consequence where
parties simply fail to timely request a jury. See, e.g.,
Stukey v. Stephens, 37 Ariz. 514, 516, 295 P. 973, 974
(1931). It follows that parties may include such waiver
provisions in their contractual agreements.
As pertinent here, the jury waiver in the PSA
Each party hereto hereby irrevocably and unconditionally
waives any and all right to trial by jury in any action,
suit, or proceeding arising out of or related to this
agreement or any of the transactions contemplated
hereby. The parties acknowledge and agree that the terms
and provisions of this section constitute a material
inducement for the parties to enter into this agreement.
(Emphasis added.) We interpret these terms to avoid
surplusage. See, e.g., Taylor v. State Farm Mut. Auto.
Ins. Co., 175 Ariz. 148, 158 n.9, 854 P.2d 1134, 1144
n.9 (1993); see also In re Estate of Zaritsky, 198
Ariz. 599, 603, ¶ 11, 12 P.3d 1203, 1207 (App. 2000).
We find the negligence action falls within the terms of the
PSA's jury waiver. This negligence action could not have
arisen absent the relationships created by the PSA. The
provision of broker services, which HUB is alleged to have
negligently provided in procuring insurance for The Bank,
arose out of and was a "transaction contemplated"
by the PSA. The Bank acknowledges as much. In its briefing,
The Bank states that the PSA required HUB to provide BNCCORP
and its affiliates - which includes The Bank-with broker
services for five years. Additionally, contrary to The
Bank's and BNCCORP's position, the fact that
HUB's duty and standard of care in the negligence action
is dictated by Arizona law does not change the fact that the
jury waiver is guided by the terms of the PSA which extends
to the negligence action.
We further address The Bank's objection to being bound by
the waiver because, as The Bank argues, it did not
"knowingly and voluntarily" waive its right to a
jury trial. In support of this position, The Bank asserts
that the present jury waiver is unlike an agreement to
arbitrate. Therefore, The Bank posits Arizona's policy
not to presume against jury waivers-espoused in
Harrington v. Pulte Home Corp., which involves an
arbitration agreement-is inapplicable in this matter. 211
Ariz. 241, 250, ¶ 30, 119 P.3d 1044, 1053 (App. 2005).
We disagree. See id. (citations omitted) (stating,
generally, that in civil actions "test of waiver applied