A federal court last month abstained from the insurer's legal argument trying to avoid financial institution bonds covering the bank's losses as a result of the borrower's use of forged documents to obtain a $ 3.6 million loan. Thus, Arizona rejected the court's Everest National Insurance Company's narrow structure of the bond's "Securities" insurance contract and argued that the rule of the acronym applies to a financial institution. MBP Collection LLC v Everest National Insurance Co. No. CV-17-04022-PHX-GMS, 2019 WL 110987 (D. Ariz, January 4, 2019), the bank lent $ 3.6 million to Global Medical Equipment of Arizona, Inc. to fund part of its purchase of two other medical devices . Since the loan did not cover the entire purchase price, the bank required the borrower to agree that it would not make any further payments to the sellers over a four-year period. The bank also received stand-by credit agreements that it believed were signed by the seller, which required sellers to pay to the bank any payments they received from the borrower during the four-year period.
As with almost all financial institution bonds, the bank's bonds applied to losses discovered during the bond periods (201
Everest denied the claim and the bank appealed. Everest moved for summary judgment and the bank moved for partial summary judgment. The proposals presented two questions. The first question was whether the counterfeit standby credit agreements constituted a "guarantee" under the bond contract's securities insurance contract, and the second was whether the rule of the acronym rule applies to a financial institution loan.
The bond's "Securities" insurance contract which includes "[l] us who directly result from [the bank] has in good faith … extended value … on the belief in, any … personal guarantee …" . The disappearance of Everest's argument argued that the creditor agreement falls within the bond's definition of "guarantee": a "rider's undertaking that obliges the signatory to pay another, to the insurer's debt … if the debt is not paid in accordance with its terms." The court noted that a guarantee need not create an obligation to pay the entire debt .
The court also decided in the bank's favor on the second question – whether the notification Court rule applies to the notice requirement under a financial institution loan. Although the timing of the bank's detection of loss was disputed – with Everest contenders occurring before the start of the 2014-2017 bond and the bank objected to it occurring during the bond period – the bank's 2016 message was not given within 30 days of the discovery provided. of the bond. Everest argued that such an obscure message excludes coverage, but the court disagreed and claimed that the prohibition of registration is in force. The court rejected Everest's arguments (often made by insurers) that the application of the prohibition rule would convert such bonds into the existence policy. The court noted that the bond is neither an occurrence policy nor an alleged policy, but instead "applies to loss first discovered under policy. The Court justified that, since discovery ] triggered the coverage, the traditional justification for not prolonging the rule of the petition for claim claims does not apply.
Although the federal court in Arizona provided some coverage issues to be resolved at the trial, it rejected Everest's narrow interpretation of the Bond Guarantee "Securities" insurance contract and its application of the receivable call rule to a financial loan was a significant gain for the policyholder. Opinion should provide a useful precedent for financial institutions to quote when confronting similar arguments from insurance companies in the future.