A federal appeals court on Tuesday ruled against a California bank in litigation brought against a unit of Hartford Financial Services Group Inc. in a coverage case involving the bank’s acceptance of fraudulent checks.
The case involves the fraudulent endorsement of a series of checks drawn against the account of Pleasanton, Calif.-based construction contractor Deacon Corp., which was a subsidiary of Hartford unit Navigators Specialty Insurance Co., payable to Deacon’s subcontractor, Indio, Calif.-based Champion Construction Co. and to certain Champion suppliers, according to the ruling of the 9th US Circuit Court of Appeals in San Francisco i Navigators Specialty Insurance Co., a New York corporation, v. California Bank and Trust.
Champion̵7;s escrow bank, Los Angeles-based California Bank and Trust, had endorsed the fraudulently endorsed checks, and the Navigators, standing in Deacon’s shoes, sued the bank, according to the ruling.
The US District Court in Los Angeles ruled in favor of the bank in the case and was affirmed by a three-judge panel of the Court of Appeals.
“California law is unequivocal: when the fraudulent indorsement of a check is by a trusted employee of the injured party — without comparative fault on the part of other parties — the employer and ultimately its insurer are liable for the loss,” ruled that confirm the ruling of the lower court.
Attorneys in the case did not respond to requests for comment.