Calif. bank wins ruling against Hartford in fraudulent checks case

A federal appeals court on Tuesday ruled in a California bank’s favor in litigation filed against a Hartford Financial Services Group Inc. unit in a coverage case involving the bank’s acceptance of fraudulent checks.

The case involves the fraudulent indorsement of a series of checks drawn against the account of Pleasanton, California-based construction general contractor Deacon Corp., which was the subrogor of Hartford unit Navigators Specialty Insurance Co., that were payable to Deacon’s subcontractor, Indio, California-based Champion Construction Co. and to certain Champion vendors, according to the ruling by the 9th U.S. Circuit Court of Appeals in San Francisco in Navigators Specialty Insurance Co., a New York corporation, v. California Bank and Trust.

Champion’s depository bank, Los Angeles-based California Bank and Trust, had indorsed the fraudulently indorsed checks and Navigators, standing in Deacon’s shoes, sued the bank, the ruling said.

The U.S. District Court in Los Angeles ruled in the bank’s favor in the case, and was affirmed by a three-judge appeals court panel.

“California law is unambiguous: where the fraudulent indorsement of a check is that of a trusted employee of the party incurring the loss – absent the comparative fault of other parties – the employer and, ultimately, its insurer stand to bear the loss,” the ruling said, in affirming the lower court’s ruling.

Attorneys in the case did not respond to requests for comment.