The following is redacted correspondence we received from the carrier:

I received a faxed copy of a check issued by your company to XX Agency. This was one example of the 115 you have that you thought perhaps might show a forgery with regard to the endorsement block on the check. We agreed to examine the copy and research the policy to see if we could find some coverage for your loss.

As we discussed last week, the Crime Protection Policy contains several insuring agreements, the first one being Employee Dishonesty, the second being Forgery or Alteration. The policy #SAA 268-75-98-03 insures XX for loss of money, securities and other property from covered causes of loss.

It appears that XX, Jr., while working at his father's XX Agency in XX, caused 115 fraudulent applications for premium financing to be created, resulting in premium loans to be advanced by (our client) to the Agency where the younger Mr. XX apparently siphoned off money in some manner for his own personal benefits.

Your policy extends the definition of “employee” to all non-compensated officers, all directors and trustees, volunteer workers, leased workers, students and interns working for our client. However, it appears that Mr. XX, Jr. was employed directly by his father, Mr. XX, Sr. in his father's company, a client or customer of (our client). No Employee Dishonesty on policy #SAA 268-75-98-03, exists in your policy, by definition:

“4. Employee means:

a.  Any natural person:

(1) while in your service or for 30 days after termination of service; and

(2) whom you compensate directly by salary, wages or commissions; and

(3) whom you have the right to direct and control while performing services for you.” (SAA 268-75-98-03, form SP 0001, page 7 of 19)

Mr. XX's dishonesty might be covered by a similar policy purchased by the XX Agency, if one was in force at the time. If you haven't yet checked on that, it might be a good idea.

Our discussion then considered whether or not coverage for Forgery (or Alteration) on policy #SAA 268-75-98-03 might apply to your loss circumstances. You thought it might, and so we asked to see an example of a “forged instrument.” The example you provided us is a copy of check #126903, drawn on theXX Bank on behalf of (our client), Inc. The check appears to been endorsed by hand on the proper lines on the reverse of the check. The endorsement appears to be the same entity or payee that (our client) was intending to pay: “XX Agency.” While the hand-written endorsement is a little hard to read, the endorsement does not vary from what one might expect to see from a small company cashing any business check. The policy defines “forgery:”

“Forgery means the signing of the name of another person or organization with intent to deceive; it does not mean a signature which consists in whole or in part of one's own name signed with or without authority, in any capacity, for any purpose.” (SAA 268-75-98-03, form SP 0001, page 8 of 19)

We therefore do not see any “forgery” involved, based upon your faxed example. If there is a better example or if you have additional corroborative proof of forgery, please provide it to us as soon as possible.

It appears from what we have learned from you so far, that there does not seem to be any coverage for your loss from either the Employee Dishonesty or Forgery or Alteration insuring agreements on your Crime Protection Policy. We would, of course, invite you to present any additional information or evidence that would, in your reasonable belief, prove a claim under this policy.

The policy form is a SP-0001.

I then sent the following response to the carrier:

Attached is a copy of a TWIA Application with the signature a Steven Dougherty, principle in Dougherty, LTD, 10212 Shore Line Dr., Freeport, TX 77541 . In a search of the Brazoria County Appraisal District, we find no Shoreline Dr in Freeport, Texas and the only Shoreline in the county is near Clute, Texas . There is only one property on this short street and it is a private residence owned by XXX, 27 Shoreline Dr., Clute, Texas . See attached map and aerial photo.

This appears to be a fraudulent Application and Premium Assignment Clause in which Mr. XX forged the signature of a fictional insured. Payment to XX Agency was made based on these forged documents. It is our understanding from XX, Sr. that these (our client) checks were endorsed by his son, XX, Jr. and deposited into the sons own account.

It appears to me this falls within the Insuring Agreement under Forgery or Alteration as XX, Jr. forged the name of a fictional insured and used a fictional address on the Application and Premium Assignment Clause (… or similar written promises), causing XX to issue payment for Premium Financing. This act also appears to fall under the definition of Forgery in the policy (Forgery means the signing of the name of another person or organization with intent to deceive.).

My correspondence was met with the following for the adjuster:

We regret that do not see a case for forgery in what XXX has shown us. The basic facts are that, even though XXX relied upon bogus loan documents, XXX intended the checks to be issued to the XX Agency, and the checks were deposited by someone at that Agency. In this case, bogus documents were created and they were relied upon by XXX for an otherwise legitimate transaction. The promises in the loan documents are contingent upon other actions, and therefore the loss is not direct, and the documents are not “similar” to a check, draft, etc.

Our client will be pursuing the father and son but in the mean time, believe they should be able to collect under their policy. I can not find anything in FC&S addressing a forgery claim.

Subscriber

A

You have a sticky situation. We agree with the carrier that son is not an employee of the finance company, but an employee of his father's in a separate agency.

The forgery issue is where this gets difficult. As the carrier states, the policy defines forgery as “the signing of the name of another person or organization with intent to deceive; it does not mean a signature which consists in whole or in part of one's own name signed with or without authority, in any capacity, for any purpose.”

The intent in this language is to provide coverage for the signing of someone's name without authorization, not the creation of fictitious people. If the son had completed an application under the name of George W. Bush and signed it as such, that would be a forgery. However the son did not do that; he created fictitious people, people who exist on paper only and signed for them as if they were real people. As they don't exist, the signature cannot be a forgery. There's no true signature to compare it to; if someone steals my charge card, uses it and signs my name to it, when upon discovery I look at sales receipts from different stores, that signature will not match mine. The thief has forged my name. But since the son created names and addresses of non-existent people, no one exists with whom to compare an original signature; the son's signature is the real signature of Abe Scond. While he indeed intended to deceive, he technically did not forge anyone's signature.

In your situation, the son created plausible, but artificial names and addresses and submitted them as valid. Your client, the finance company issued checks believing the applications were legitimate, and the son absconded with quite a large sum of money.

This does not qualify as a forgery under the policy. Having reviewed your policy, I am unable to find any coverage for this situation. Your insured is very unlucky in that the son's actions aren't covered under any of the insuring agreements.