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Cengage Advantage Books: Fundamentals of Business Law 9th Edition by Roger LeRoy Miller
Edition 9ISBN: 978-1111530624Cengage Advantage Books: Fundamentals of Business Law 9th Edition by Roger LeRoy Miller
Edition 9ISBN: 978-1111530624 Exercise 19
Auto-Owners Insurance Co. v. Bank One
Supreme Court of Indiana, 879 N.E.2d 1086 (2008).
FACTS Kenneth Wulf worked in the claims department of AutoOwners Insurance Company for ten years. When the department received a check, a staff member would note it in the file and send it on to headquarters. Wulf opened a checking account at Bank One in the name of "Auto-Owners, Kenneth B. Wulf." Over a period of eight years, he deposited $546,000 worth of checks that he had stolen from Auto-Owners and had indorsed with a stamp that read "Auto-Owners Insurance Deposit Only." When the scam was finally discovered, Auto-Owners sued Bank One, contending that it had failed to exercise ordinary care in opening the account because it had not asked for documentation to show that Wulf was authorized to open an account in the name of Auto-Owners. The lower courts rejected that argument and granted summary judgment for Bank One. Auto-Owners appealed.
ISSUE Did the bank's failure to request proof from Wulf that he was authorized to deposit checks made payable to Auto-Owners substantially contribute to the company's loss?
DECISION No. The state supreme court affirmed the decision of the lower courts, finding that Bank One's conduct did not "substantially contribute" to the losses suffered by Auto-Owners.
REASON The court reasoned that UCC 3-405(b) makes no mention of a bank's responsibilities when opening an account for a new customer. Rather, subsection (b) requires ordinary care from a bank in the "paying" or "taking" of an instrument. Therefore, the bank did not breach any duty to the insurance company by opening Wulf's checking account. In such cases, the courts consider all of the facts surrounding the transactions that occurred. Here, the major reasons for the losses suffered by Auto-Owners were its weak internal monitoring of its own files and the lack of controls in the handling of company checks. The bank did not worsen the situation by allowing Wulf to have a checking account.
FOR CRITICAL ANALYSIS-Management Consideration What reasonable steps could Auto-Owners have taken to prevent such internal fraud?
Supreme Court of Indiana, 879 N.E.2d 1086 (2008).
FACTS Kenneth Wulf worked in the claims department of AutoOwners Insurance Company for ten years. When the department received a check, a staff member would note it in the file and send it on to headquarters. Wulf opened a checking account at Bank One in the name of "Auto-Owners, Kenneth B. Wulf." Over a period of eight years, he deposited $546,000 worth of checks that he had stolen from Auto-Owners and had indorsed with a stamp that read "Auto-Owners Insurance Deposit Only." When the scam was finally discovered, Auto-Owners sued Bank One, contending that it had failed to exercise ordinary care in opening the account because it had not asked for documentation to show that Wulf was authorized to open an account in the name of Auto-Owners. The lower courts rejected that argument and granted summary judgment for Bank One. Auto-Owners appealed.
ISSUE Did the bank's failure to request proof from Wulf that he was authorized to deposit checks made payable to Auto-Owners substantially contribute to the company's loss?
DECISION No. The state supreme court affirmed the decision of the lower courts, finding that Bank One's conduct did not "substantially contribute" to the losses suffered by Auto-Owners.
REASON The court reasoned that UCC 3-405(b) makes no mention of a bank's responsibilities when opening an account for a new customer. Rather, subsection (b) requires ordinary care from a bank in the "paying" or "taking" of an instrument. Therefore, the bank did not breach any duty to the insurance company by opening Wulf's checking account. In such cases, the courts consider all of the facts surrounding the transactions that occurred. Here, the major reasons for the losses suffered by Auto-Owners were its weak internal monitoring of its own files and the lack of controls in the handling of company checks. The bank did not worsen the situation by allowing Wulf to have a checking account.
FOR CRITICAL ANALYSIS-Management Consideration What reasonable steps could Auto-Owners have taken to prevent such internal fraud?
Explanation
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Customer Negligence:
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Cengage Advantage Books: Fundamentals of Business Law 9th Edition by Roger LeRoy Miller
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