49 F. Supp. 3d 517
N.D. Ill.2014Background
- FDIC, as Park National’s receiver, sues RLI for coverage under a Financial Institution Bond.
- Forged Lease Schedules (S080 and S084) between Sysix and Moody served as collateral; signatures forged; Moody received no equipment.
- Park National funded two loans to Rockwell using the Leases as collateral; loans totaling about $4 million.
- Purchase Agreement with U.S. Bank shifted Park National’s assets and 80% loss exposure to FDIC; not a sale and repurchase.
- Bond Insuring Agreement E covers losses from forgery on enumerated documents that create an interest in personal property securing payment; Leases fall within Security Agreement; FDIC had Original Leases in possession.
- Section 1821(d)(14)(A) supersedes the Bond’s 2-year limitation, making FDIC’s suit timely.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Leases are Security Agreements under the Bond | FDIC: Leases create a Security Agreement as defined in E(1)(h). | RLI: Leases do not create a security interest. | Yes; Leases create a Security Interest and fall within E(1)(h). |
| Whether FDIC had Actual Possession of the Original Security Agreements | FDIC possessed the Lease Schedules (the enumerated documents). | RLI: Possession of only Lease Schedules may not satisfy the Original requirement. | FDIC’s possession satisfied Insuring Agreement E; anti-bundling provision inapplicable. |
| Whether Loss Resulted Directly from Forgery rather than fictitious collateral | FDIC: Forgery on the Leases themselves caused the loss and those loans were secured by the forged Leases. | RLI: Loss attributable to worthless collateral rather than forged signatures. | Loss resulted directly from forgery on the Leases and is covered. |
| Whether the Universal Mortgage repurchase theory applies | FDIC: Purchase Agreement with U.S. Bank mitigated losses, not a repurchase. | RLI: Case stands for loss due to repurchase obligation. | No repurchase; the Purchase Agreement was a loss-sharing arrangement reducing the covered loss. |
| Whether FDIC relied in good faith on the Leases | FDIC relied in good faith on the forged Leases during credit extension. | RLI argues lack of due diligence negates good faith. | FDIC relied in good faith; negligence alone does not defeat coverage. |
Key Cases Cited
- First State Bank of Monticello v. Ohio Cas. Ins. Co., 555 F.3d 564 (7th Cir. 2009) (ambiguous contract terms do not negate coverage; good faith standard applies)
- Bank of Manitowoc v. Cincinnati Ins. Co., 485 F.3d 971 (7th Cir. 2007) (good faith standard; no requirement to investigate authenticity of documents for coverage)
- Beach Cmty. Bank v. St. Paul Mercury Ins. Co., 635 F.3d 1190 (11th Cir. 2011) (forged collateral directly causes loss; coverage for forged collateral)