ILNews

High court affirms summary judgment for bank

Jennifer Nelson
January 1, 2008
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A bank that opened an account for a man who used it to fraudulently deposit checks wasn't required under Indiana Code to exercise ordinary care when opening the account, ruled the Indiana Supreme Court.

At issue in Auto-Owners Insurance Company v. Bank One, et al., No. 49S04-0701-CV-27 is whether Bank One violated Section 405 of the Indiana Uniform Commercial Code by not exercising ordinary care when it allowed Kenneth B. Wulf to open a fraudulent account.

Wulf was a resident adjustor for Auto-Owners and worked for the company for 10 years. He handled files for each case of subrogation and salvage claims and it was his responsibility to forward any checks the company received for those claims to the clerical staff to send to the company's headquarters.

In 1991, Wulf opened an account at Bank One in the name of "Auto-Owners, Kenneth B. Wulf" and the bank did not request any documents to confirm he was allowed to open and use an account in Auto-Owners' name. Over the course of eight years, he deposited more than half a million dollars into that account. While he was on vacation, Auto-Owners discovered what he had been up to.

Auto-Owners brought a suit against Bank One, arguing the bank failed to exercise ordinary care when it opened the account and that failure substantially contributed to the company's losses. It also argued Bank One was liable for losses up to the moment of discovery, regardless of any statute of limitations.

The trial court granted Bank One's motion for summary judgment and denied Auto-Owners' motion for partial summary judgment on the statute of limitations issue only. The Court of Appeals affirmed.

In today's ruling authored by Justice Frank Sullivan, the majority affirmed the Court of Appeals decision. The case and the court's decision rested upon Indiana's Uniform Commercial Code, which allows a person bearing a loss because of fraudulent activity to recover from the person failing to exercise ordinary care to prevent the loss.

Section 405 does not mention a bank's responsibilities when opening an account and only requires ordinary care from a bank in the "paying" or "taking" of an instrument, wrote Justice Sullivan. In fact, in the absence of the bank's negligence, the section shifts the responsibility of monitoring employees' activities onto the employer. The employer is in a better position to supervise its employees than the bank, he wrote.

As to the second issue raised on appeal, even if Bank One didn't demonstrate ordinary care by accepting the checks, Auto-Owners still has to show that lack of ordinary care substantially contributed to its losses. To determine whether the conduct has substantially contributed to a loss, the high court looked to I.C. 26-1-3.1-406, to view Bank One's conduct in its entirety. Other than the lack of procedure used in opening the account in 1991, Bank One followed required protocol in depositing Wulf's checks. Even if opening the account was a contributing factor to Auto-Owners' loss, the Supreme Court agrees with the lower courts that the bank's conduct in its entirety does not meet the "substantially contributed" test (Thompson Maple Products v. Citizens National Bank of Corry, 234 A.2d 32 (Pa.Super.Ct.1967)).

Justice Theodore Boehm, in a separate opinion in which Justice Brent Dickson concurred, agreed that the statute of limitations barred much of Auto-Owners' claims but did not agree Bank One is entitled to summary judgment because he believes there are issues of fact not resolvable on summary judgment.
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  1. Im very happy for you, getting ready to go down that dirt road myself, and im praying for the same outcome, because it IS sometimes in the childs best interest to have visitation with grandparents. Thanks for sharing, needed to hear some positive posts for once.

  2. Been there 4 months with 1 paycheck what can i do

  3. our hoa has not communicated any thing that takes place in their "executive meetings" not executive session. They make decisions in these meetings, do not have an agenda, do not notify association memebers and do not keep general meetings minutes. They do not communicate info of any kind to the member, except annual meeting, nobody attends or votes because they think the board is self serving. They keep a deposit fee from club house rental for inspection after someone uses it, there is no inspection I know becausee I rented it, they did not disclose to members that board memebers would be keeping this money, I know it is only 10 dollars but still it is not their money, they hire from within the board for paid positions, no advertising and no request for bids from anyone else, I atteended last annual meeting, went into executive session to elect officers in that session the president brought up the motion to give the secretary a raise of course they all agreed they hired her in, then the minutes stated that a diffeerent board member motioned to give this raise. This board is very clickish and has done things anyway they pleased for over 5 years, what recourse to members have to make changes in the boards conduct

  4. Where may I find an attorney working Pro Bono? Many issues with divorce, my Disability, distribution of IRA's, property, money's and pressured into agreement by my attorney. Leaving me far less than 5% of all after 15 years of marriage. No money to appeal, disabled living on disability income. Attorney's decision brought forward to judge, no evidence ever to finalize divorce. Just 2 weeks ago. Please help.

  5. For the record no one could answer the equal protection / substantive due process challenge I issued in the first post below. The lawless and accountable only to power bureaucrats never did either. All who interface with the Indiana law examiners or JLAP be warned.

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