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A federal appeals court on Monday reversed a lower court ruling in favor of a Chubb Ltd. unit and held that a California bank may be entitled to coverage in a forgery case.
The Santa Ana-based Banc of California, N.A., obtained a forgery insurance policy from Chubb unit Federal Insurance Co., according to the ruling by the 9th U.S. Circuit Court of Appeals in San Francisco in Banc of California National Assn. v. Federal Insurance Co.
The policy provided coverage for forgery losses provided that six conditions were met. After purchasing it, the bank made a $15 million loan in reliance on a document — a bank account control agreement — that was later determined to be forged, the ruling said.
Federal denied coverage, on the basis that the first necessary element under its policy, that the forgery appeared on one of eight listed types of collateral, which includes a “security agreement” or an “evidence of debt,” had not been met.
Banc filed suit in U.S. District Court in Pasadena, which granted Chubb summary judgment in the case. It was overturned by a unanimous three-judge appeals court panel.
The district court ruled in Chubb’s favor on the basis that a control agreement that bore a forged signature did not qualify as a security agreement or evidence of debt.
The policy defined security agreement as “‘an agreement which creates an interest in personal property or fixtures and which secures payment or performance of an obligation.’ But the Policy does not specify what sort of ‘interest’ has to be retained in the personal property or fixture in order for the Control Agreement to qualify as a Security Agreement,” the ruling said.
“Contrary to the district court’s conclusion,” the control agreement constitutes a Security Agreement because it creates an interest, it concluded, in reversing the lower court and remanding the case to the district court to consider the remaining five elements.
Attorneys in the case did not respond to request for comment.