Reality Cheque: Bank Liability for Fraudulent Bills of Exchange

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Abstract:

Where an insured is the victim of a fraudulent check scheme, fidelity insurers seeking to recover monies paid out under their policies often find that the perpetrator has very little in the way of assets to satisfy a judgment in a subrogated action. Yet it is an often overlooked fact that the bank which honored the fraudulent checks may also be liable for the stolen funds. As there may be very short notice periods in play in these cases, it is important that adjusters and other individuals who are involved in the early stages of these claims be alert to a bank's potential liability.

In Canada, the liability of banks that act on forged checks is governed by a mix of the common law and the federal Bills of Exchange Act (the "Act").1 This article discusses the legal reasons for placing liability on banks in these cases, and considers some common defenses that the subrogation professional may encounter when pursuing this avenue of recovery.

Keywords: Cheque, Bill of Exchange, Fraud, "Bills of Exchange Act", Bank, Liability, Adjuster, Subrogation, Notice Period, Fraudulent

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Pamela Pengelley, Cozen O'Connor | Attorney Advertising

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