Travelers Casualty & Surety Co. v. Washington Trust Bank
186 Wash. 2d 921
Wash.2016Background
- Skils’Kin, a nonprofit and representative payee for ~1,000 disabled clients, maintained a pooled business checking account at Washington Trust Bank. Employee Shannon Patterson was an authorized signer on the account.
- From 2008–2013 Patterson drew 300+ checks payable to clients or third-party providers, signed the backs with her own name (no payee indorsements), cashed them at the Bank, and embezzled the funds. Her conduct was discovered only after she confessed.
- Bank statements were mailed monthly and showed the fronts of cleared checks (check number, date, amount) but not the backs; beginning in 2011 Skils’Kin could view both front and back images online. Statements included a telephone number to request items.
- Travelers (insurer for Skils’Kin) reimbursed losses and sued the Bank for contribution, arguing the checks were not "properly payable" and that the Bank breached duties by cashing checks to a nonpayee. Bank asserted possible agency authority, account "terms and conditions," and the one‑year notice/time‑bar defense under RCW 62A.4‑406(f).
- The federal court certified questions of Washington law; the Washington Supreme Court reformulated the questions and decided: (1) a nonpayee’s signature on the back of a check is an indorsement as a matter of law; (2) claims based on unauthorized indorsements not discovered and reported to the bank within one year are time barred under RCW 62A.4‑406(f); (3) the Bank’s statements/online access satisfied the statute’s "made available" requirement; and (4) whether the Bank failed to exercise ordinary care is a fact question.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is a nonpayee’s signature on the back of a check an indorsement? | Travelers: signatures were mere receipts, not indorsements (no negotiation/restriction/liability). | Bank: signature on back presumptively an indorsement under UCC/Wash. statute. | Held: Yes. A signature on the back is an indorsement under RCW 62A.3‑204(a) unless it unambiguously indicates otherwise. |
| Are claims based on unauthorized indorsements time‑barred if not discovered/reported within one year under RCW 62A.4‑406(f)? | Travelers: claim is for improper payability under RCW 62A.4‑401(a), not an unauthorized indorsement; statute shouldn’t bar it. | Bank: RCW 62A.4‑406(f) applies and precludes untimely claims. | Held: Yes. RCW 62A.4‑406(f) bars claims based on unauthorized indorsements not discovered and reported within one year. |
| Did the Bank make the statement/items "reasonably available" by sending front images and providing online access to front/back images and a phone number? | Travelers: bank didn’t send backs and Skils’Kin didn’t consent to electronic delivery; availability was inadequate. | Bank: monthly statements with check numbers/amounts/dates plus phone number and online images met the statute. | Held: Yes. The statement met RCW 62A.4‑406(a) — numbers/amounts/dates plus phone access and online images made items reasonably available. |
| Does a bank fail to exercise ordinary care as a matter of law when it pays a check to a nonpayee absent the payee’s indorsement? | Travelers: paying a nonpayee without payee indorsement is suspect and shows lack of ordinary care as a matter of law. | Bank: whether ordinary care was exercised depends on facts (agent authority, bank inquiries, account resolution, terms). | Held: No per se. Generally a missing payee indorsement supports a finding of lack of ordinary care, but here facts about Patterson’s agency and bank practices create disputed issues for the trier of fact. |
Key Cases Cited
- Parents Involved in Cmty. Schs. v. Seattle Sch. Dist. No. 1, 149 Wn.2d 660 (Wash. 2003) (standard for review of certified questions and de novo review of legal issues)
- Bank of Am. NT & SA v. David W. Hubert, PC, 153 Wn.2d 102 (Wash. 2004) (use of UCC official comments in Washington decisions)
- Redland Co. v. Bank of Am. Corp., 568 F.3d 1232 (11th Cir. 2009) (front‑of‑check images and statements can trigger duty to examine/report)
- Chi. Title Ins. Co. v. Allfirst Bank, 905 A.2d 366 (Md. 2006) (signature on back is indorsement absent unambiguous contrary intent)
- In re Foreclosure of Deed of Tr. Executed by Bass, 738 S.E.2d 173 (N.C. 2013) (UCC presumption favoring legitimacy of indorsements)