In Great American Insurance Co. v. AFS/IBEX Financial Services, Inc., 2008 WL 2795205 (N.D.Tex. July 21, 2008) the insured made premium finance loans for insurance policies. It was fraudulently induced to issue 127 checks payable to Charles McMahon Insurance Agency. There was a Charles McMahon Insurance Agency owned by Charles McMahon, Sr. His son, Charles McMahon, Jr. was the office manager and the perpetrator of the fraud. The son endorsed the checks Charles McMahon Insurance Agency and deposited them in his personal account. The premium finance company claimed a loss resulting from forged endorsements on the checks. During the period of the fraud, the insured had two policies from the same insurer. The insurer argued that the claim could be made under only the second policy because the first policy was cancelled effective upon commencement of the second policy. The second policy defined forgery as excluding the signing of one’s own name, in whole or in part, and the insurer argued that since Charles McMahon Insurance Agency included “Charles McMahon” and that was the son’s name, there was no forgery. The court rejected both contentions. Cancellation was not defined in the policy, and the court held it just meant the policy period ended not that the policy was rescinded as to losses already sustained. The court also thought that the definition of forgery excluded signing one’s own “true” name as an agent without authority but not signing another entity’s name with intent to deceive just because the other entity shared part of the signer’s name. The court pointed out that under the insurer’s interpretation if Bob Smith stole Bob Jones’ checkbook and signed Bob Jones to a check it would not be a forgery because Bob was part of his name. The court thought that endorsing the checks Charles McMahon Insurance Agency was not signing the “true” name of the son. The court also thought the son did not have authority to endorse the agency’s name to the checks, even though he had general authority to endorse checks, because he did not have authority to endorse fraudulent checks. The father testified he knew nothing of the fraudulent scheme, received no benefit from it, and never authorized his son to endorse the checks at issue in the case or otherwise to commit crimes in the agency’s name. The court held that the son exceeded the scope of his authority, the endorsements were forgeries and, therefore, within the forgery coverage of the policies. The court did reject the insured’s contentions that there was coverage under the “inside the premises” or theft provisions of the policies and the computer crime and fraudulent transfer instructions coverages. The court postponed consideration of the insured’s claim for attorneys fees and dismissed the insured’s claim for misrepresentation based on an alleged representation that the two policies provided the same coverage since under the court’s ruling they did. Finally, the court found that genuine issues of material fact precluded summary judgment for either party on the insured’s claim for extra contractual damages based on alleged improper claims handling.
