Our insured car dealer took a fake cashiers check for the purchase of an automobile. He let the customer take the car. 10 days later his bank called him and told him the cashiers check was counterfeit. My question is: would the exclusion 2.(2) apply under the attached False Pretense form? I can’t find anything addressing fake checks. It seems to me, based on what I am reading in FC&S, the exclusion would apply because FP coverage is not meant to protect an insured who does not practice sound business practices when taking checks. Thank you.
The answer to this question comes down to the nature of the cashiers’ check, which is a check guaranteed by a bank, drawn on the banks own funds and signed by a cashier. Cashier’s checks are treated as guaranteed funds because the bank, rather than the purchaser, is responsible for paying the amount represented.
You mention in your question that the cashiers’ check was counterfeit.
We believe that the endorsement would provide coverage for the loss because the fraudster caused the dealer to voluntarily part with the covered “auto” by tricking him into thinking the cashiers’ check was authentic, and thus represented real money in the bank for which the bank was responsible.
We do not believe that exclusion 2. b. (2) would apply because of the counterfeit nature of the cashiers check. Since the bank was never obligated to pay this cashiers’ check, they cannot “fail to pay” the cashiers’ check. If the bank had validated a cashiers’ check and then revoked that validation and not paid what was due to the dealer, that action would constitute a failure to pay.