The opinion of the court was delivered by: Yohn, J.
Plaintiff Hudson United Bank ("Hudson") is the successor by merger to
Regent National Bank ("Regent"). Defendant Progressive ("Progressive")
issued a bond to insure Regent against certain types of losses. Hudson
sues Progressive for payment under the bond, alleging that the
circumstances surrounding Regent's losses in its automobile insurance
premium finance business ("IPF business") trigger Progressive's bond
obligation. Progressive, arguing that the facts alleged do not trigger
its bond obligations, moves for dismissal under Fed.R.Civ.P. 12(b)(6).
When reviewed in the light most favorable to Hudson, the facts alleged in
the complaint adequately state a cause of action. Progressive's motion
will therefore be denied.
Pending before the court is a motion to dismiss for failure to state
claim upon which relief can be granted under Rule 12(b)(6). The purpose
of a Rule 12(b)(6) motion is to test the legal sufficiency of the
complaint. See Holder v. City of Allentown, 987 F.2d 188, 194 (3d Cir.
1993). In deciding a motion to dismiss, the court must "accept as true
all allegations in the complaint and all reasonable inferences that can
be drawn from them after construing them in the light most favorable to
the [plaintiff]." Consequently, at this stage of the litigation, "a court
may dismiss a complaint only if it is clear that no relief could be
granted under any set of facts that could be proved consistent with the
allegations." Hishon v. King & Spalding, 467 U.S. 69, 73 (1984). In
deciding a motion to dismiss, a court may also consider exhibits attached
to the complaint. Pension Benefit Guar. Corp. v. White Consol. Indus.,
Inc., 998 F.2d 1192, 1196 (3d Cir. 1993).
Under the Regent — K-C agreement, K-C was to establish and
maintain a computer system that would generate the data and reports
needed by Regent in these key tasks. Id. at ¶ 15. K-C was also to
enter account information into the computer and transmit the data to
Regent's pre-existing computers. Id. at ¶¶ 18, 21, 23. Regent
acquired an ownership interest in this computer system. Id. at ¶
16. K-C, as recompense for its services, was to receive a
transaction-based servicing fee and a separate fee equal to 50% of
profits. Id. at ¶ 20.
Regent alleges that K-C, by representing that the IPF business was
profitable, concealed the true state of the IPF business from Regent and
induced Regent to continue its IPF business. Id. at ¶ 22. In
particular, K-C used the computer system it had devised to transmit
incomplete, inaccurate, and misleading data to Regent. Id. at ¶ 23.
The data prevented Regent from properly tracking and addressing
delinquencies and prevented Regent from properly tracking profits and
losses on individual transactions. Id. at ¶¶ 27, 28. As a result of
the inaccurate data, Regent allegedly incurred $3,919,430.00 in
collateral deterioration and overpaid K-C $889,089.00 based on
non-existent profits. Id. at ¶ 37(c).
On or around October 7, 1997, Regent submitted a Proof of Loss
statement to Progressive and sought coverage under the bond. Id. at
¶ 38. On June 18, 1999, Progressive denied coverage and declined to
make payment on the bond. Id. at ¶ 39. On July 12, 2000, following
substantial discussion between the parties, Progressive reaffirmed its
denial and declination. Id. Hudson, Regent's successor by merger,
initiated suit against Progressive.
Hudson alleges two separate causes of action: liability under the
Computer Systems Rider to the bond or, in the alternative, liability
under the Fidelity Insuring Agreement of the bond. Compl. at 12, 14.
Progressive seeks dismissal of the complaint in its entirety. Def. Mem.
at 5, 7, 9. With respect to both causes of action, Progressive argues
that the facts alleged in Hudson's complaint do not establish the
elements that trigger Progressive's obligation to make bond payments.
The relevant exclusion provision of the bond excludes coverage
loss resulting directly or indirectly from the
complete or partial nonpayment of, or default upon,
any Loan or transaction involving the Insured as a
lender or borrower, or extension of credit, including
the purchase, discounting or other acquisition of
false or genuine accounts, invoices, notes, agreements
or Evidences of Debt, where such Loan, transaction or
extension was procured in good faith or through