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LIBERTY NATIONAL BANK AND TRUST COMPANY v. TRAVELERS INDEMNITY COMPANY (12/26/68)

SUPREME COURT OF NEW YORK, ERIE COUNTY 1968.NY.44075 <http://www.versuslaw.com>; 295 N.Y.S.2d 983; 58 Misc. 2d 443 December 26, 1968 LIBERTY NATIONAL BANK AND TRUST COMPANY, PLAINTIFF,v.TRAVELERS INDEMNITY COMPANY, DEFENDANT Jaeckle, Fleischman, Kelly, Swart & Augspurger (David C. Fielding and Timothy C. Leixner of counsel), for plaintiff. Brown, Kelly, Turner, Hassett & Leach (Mark N. Turner of counsel), for defendant. Reid S. Moule, J. Author: Moule


Reid S. Moule, J.

Author: Moule

 Plaintiff, claiming it lost $28,881.21 through a check kiting scheme, now seeks indemnity for the loss under a bankers blanket bond issued by the defendant.

The defendant claims that the loss is not covered by its bond.

The case was tried by the court without a jury on November 12, 13 and 14, 1968.

Norfolk Homes Inc. and Guerney Kranz Inc. were corporations owned by common interests. Norfolk Homes Inc. had a checking account at Liberty and Guerney Kranz Inc. had a checking account at the Bank of Buffalo. Checks drawn on the Guerney Kranz Inc. account were deposited to the Norfolk Homes Inc. account and vice versa. At the time the checks were drawn and deposited there were not sufficient funds in the accounts on which they were drawn to cover them. The purpose of this was to allow these corporations to operate on the banks' money. In other words, one bad check was covered with another. For a time both Liberty and the Bank of Buffalo were honoring checks drawn against these deposits before the funds represented by the deposits were collected. The scheme came to light when the Bank of Buffalo refused payment on, and returned to Liberty a check for $15,000 which had been drawn on the Guerney Kranz Inc. account and deposited in the Norfolk Homes Inc. account. As a result of honoring checks drawn against uncollected funds, Liberty lost $28,881.21. The amount is not in dispute, the only issue being coverage.

The pertinent parts of the bond are as follows:

"The losses covered by this bond are as follows:

ON PREMISES

"(B) Any loss of Property through robbery, burglary, common-law or statutory larceny, theft, false pretenses * * * while the Property is (or is supposed to be) lodged or deposited within any offices or premises located anywhere". DEFINITION OF PROPERTY

"Wherever used in this Bond Property shall be deemed to mean money, currency, coin, bank notes, Federal Reserve notes, postage and revenue stamps, U. S. Savings Stamps, bullion, precious metals of all kinds and in any form and articles made therefrom, jewelry, watches, necklaces, bracelets, gems, precious and semi-precious stones, bonds, securities, evidences of debts, debentures, scrip, certificates, receipts, warrants, rights, transfers, coupons, drafts, bills of exchange, acceptances, notes, checks, withdrawal orders, money orders, travelers' letters of credit, bills of lading, abstracts of title, insurance policies, deeds, mortgages upon real estate and/or upon chattels and upon interests therein, and assignments of such policies, mortgages and instruments, and other valuable papers and documents, and all other instruments similar to or in the nature of the foregoing, in which the insured has an interest or which are held by the insured for any purpose or in any capacity and whether so held gratuitously or not and whether or not the insured is liable therefor, and chattels which are not hereinbefore enumerated and for which the insured is legally liable."

EXCLUSIONS

"Section 1. This bond does not cover:

"(d) Any loss, the result of the complete or partial non-payment of or default upon any loan made by or obtained from the Insured, whether procured in good faith or through trick, artifice, fraud or false pretenses".

Defendant claims that no tangible property was lost, that the loss was not sustained through false pretenses, and that ...


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