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Question & Answer
Question: The insurance draft for $4,400 was made payable to, let's say, "Blotto". He gave the check to "Miss Priss", our customer, who brought the check into our bank for negotiation. We gave her the money. We got the check back without entry along with an affidavit of forgery from the payee, so, under our guarantee of endorsement, we had to send the $4,400 to the drawee bank. They credited the insurance company, which then reissued the check.
We tried to go back to our customer for reimbursement, and found the account is closed.
Now, after further investigation by us, and by our local police detectives, we've discovered the forgery affidavit was false-the payee received and endorsed both checks.
The police say our customer (who only got $1,000 of the check which was a debt owed by "Blotto" to her) is a holder in due course.
Recovery from "Blotto" is virtually impossible-he's wanted for armed robbery in another state!
Do we have any action possible against the insurance company or the drawee bank for accepting a false affidavit from the payee? Or are we stuck with the $4,400 loss?
Answer: We bounced this off a couple of our attorney advisors and learned something in the process.
You may have an action against the insurance company. It's certainly worth a try. They accepted a fraudulent claim.
You probably have none against the drawee bank, though, being lawyers, they said to go ahead and try! When we asked what responsibility there was for a bank to check the authenticity of a forgery claim, we were told there is none! The bank has to rely on its customer.
You also had the option to deny the claim, we learned, and force the insurance company to sue. Depending on the amount of the check and the strength of the case, that could, of course, be pretty expensive.
Copyright © 1997 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 7, No. 7, 6/97
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