A federal appeals court on Monday reversed a lower court ruling in favor of a Chubb Ltd. unit, ruling that a California bank may be entitled to coverage in a counterfeiting case.
Santa Ana-based Banc of California, NA, obtained a counterfeit insurance policy from Chubb unit Federal Insurance Co., according to the ruling by the 9th US Circuit Court of Appeals in San Francisco in Banc of California National Assn. v. Federal Insurance Co .
The policy provided cover for counterfeiting losses provided six conditions were met. After buying 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 required element under its policy, that the forgery occurred on one of eight listed types of collateral, which include a “security agreement”; or an “evidence of indebtedness,” had not been met.
Banc filed suit in US 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 bearing a forged signature did not qualify as a security agreement or evidence of debt.
The policy defined security agreements as “‘an agreement which creates an interest in personal property or fixtures and which secures the payment or performance of an obligation.’ But the policy does not specify the type of “interest” that must be retained in the personal property or inventory 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 was determined, to reverse the lower court and refer the case back to the district court to try the remaining five elements.
Attorneys in the case did not respond to requests for comment.