Tenth Circuit Court of Appeals Finds Financial Institution Bond Only Applied to Losses Due to Forgery or Alteration of Guaranty

 Recently, the U.S. Court of Appeals for the Tenth Circuit affirmed a lower court decision holding that a provision in a Financial Institution Bond unambiguously applied to protect against loss resulting from extending credit based on a good faith reliance on a corporate guaranty only where that guaranty was forged or altered. First Nat'l Bank of Oklahoma v. Progressive Cas. Ins. Co. No. 10-6132 (10th Cir. Feb. 1, 2011). In this case, a bank extended to a customer credit secured by a corporate guaranty.  The customer defaulted and the corporate guaranty failed. The bank's judgment against the corporate guaranty was uncollectable, and it sought recovery from its insurer under its Financial Institution Bond. The court found that unambiguous language in the Financial Institution Bond and the related Insuring Agreement provided that the bank was insured against an instrument (i.e., a corporate guaranty) that contained a forged signature or that was altered, lost, or stolen. The Insuring Agreement did not insure the bank against non-payment. Therefore, the Tenth Circuit affirmed the lower court's ruling granting summary judgment in favor of the insurer and denying the bank's cross-motion for summary judgment. For a copy of the opinion, please see http://www.ca10.uscourts.gov/opinions/10/10-6132.pdf. Lexis.com subscribers can access an enhanced version of the opinion.  

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