Question & Answer

Question: An attorney has contacted us who has a copy of an insurance check payable to another bank and an individual. The individual named took to the check to a check casher, who is our customer, and negotiated the item. The back of the check shows his endorsement, and the endorsement of the check casher, but not that of the payee bank.

The attorney wants to give us a letter and the copy of the check and wants our check in reimbursement. He says their demand letter and a copy of the check is sufficient to obtain reimbursement. I think the check has to come back to us from the insurance company, through the insurance company's bank. Am I right?

Answer: You sure are. The claim has to come from the insurance company, who will take the check (original, no doubt) back to their bank and request them to send it back, without entry, for missing endorsement. They will send it to you. You will charge it back to the check casher, since they guaranteed the payees endorsement. It's then their problem. You, in the meantime, will send the insurance company's bank your check in reimbursement, offset by your credit from the check casher's account. The other bank will then credit the insurance company for the check. And the insurance company will write a new check, payable to both the financial institution and the payee and they can start all over. All this, of course, depends on your check casher having enough in the account to cover the returned item. If not, you may have to offset by whatever collateral you're holding for the check casher's account.

Copyright © 2001 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 11, No. 8, 8/01