Federal Court Rejects Insurer’s Narrow Interpretation of Securities Insuring Agreement and Applies Notice-Prejudice Rule to Financial Institution Bond

A federal court last month turned away an insurer’s legal arguments seeking to avoid financial institution bond coverage for a bank’s losses resulting from a borrower’s use of forged documents to obtain a $3.6 million loan.  In doing so, the Arizona court rejected Everest National Insurance Company’s narrow construction of the bond’s “Securities” insuring agreement and ruled that the notice-prejudice rule applies to a financial institution bond. In MBP Collection LLC v. Everest National Insurance Co., No. CV-17-04022-PHX-GMS, 2019 WL 110987 (D. Ariz. Jan. 4, 2019), the bank loaned $3.6 million to Global Medical Equipment of Arizona, Inc. to fund part of its purchase of two other medical equipment companies.  Because the loan did not cover the entire purchase price, the bank required the borrower to agree that it would not make any additional payments to the sellers for a four-year period.  The bank also obtained…

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