Private Bank & Trust Company v. Progressive Casualty Insurance Company

This case provides an illustration of what we refer to as double-layer identity fraud. An individual using a false identity for himself took two stolen checks made payable to a corporation into a bank and, using the name of a sham entity which was nearly identical to the name of the check payee and bogus corporate documents, set up an account, deposited the checks, and made away with more than $400,000. After the bank suffered the loss, it attempted to make a claim against its insurer for an "on premises loss" under its financial institution bond. The trial court and the 7th Circuit Court of Appeals granted summary judgment in favor of the insurance company, holding that because the on premises clause covered "theft, false pretenses, common-law or statutory larceny committed by a person present in an office or on the premises of the Insured ..." (emphasis supplied) and this particular loss occurred when the crook made a telephone transfer from the fraudulently opened account to the account of another bank customer from whom he made a purchase of gold coins, the loss was not an "on premises" loss and the insurer wasn't required to pay. Obviously, the best way to avoid a loss like this is to have strong, effective CIP procedures that would enable you to spot the fake ID and bogus corporate papers and block the opening of an account.