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. Hail to our Constitutional Law Expert in the Executive Office! “What you’re not paying attention to is the fact that I just took an action to change the law,” Obama said.

  2. What is this, the Ind Supreme Court thinking that there is a separation of powers and limited enumerated powers as delegated by a dusty old document? Such eighteen century thinking, so rare and unwanted by the elites in this modern age. Dictate to us, dictate over us, the massess are chanting! George Soros agrees. Time to change with times Ind Supreme Court, says all President Snows. Rule by executive decree is the new black.

  3. I made the same argument before a commission of the Indiana Supreme Court and then to the fedeal district and federal appellate courts. Fell flat. So very glad to read that some judges still beleive that evidentiary foundations matter.

  4. KUDOS to the Indiana Supreme Court for realizing that some bureacracies need to go to the stake. Recall what RWR said: "No government ever voluntarily reduces itself in size. Government programs, once launched, never disappear. Actually, a government bureau is the nearest thing to eternal life we'll ever see on this earth!" NOW ... what next to this rare and inspiring chopping block? Well, the Commission on Gender and Race (but not religion!?!) is way overdue. And some other Board's could be cut with a positive for State and the reputation of the Indiana judiciary.

  5. During a visit where an informant with police wears audio and video, does the video necessary have to show hand to hand transaction of money and narcotics?

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