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National Union Fire Ins. Co. of Pittsburgh, Pa. v. Riggs Nat. Bank of Washington

August 18, 1994

NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA., PETITIONER
v.
THE RIGGS NATIONAL BANK OF WASHINGTON, D.C., RESPONDENT



On Certification from the United States Court of Appeals for the District of Columbia Circuit

Before Steadman, Schwelb and Farrell, Associate Judges.

The opinion of the court was delivered by: Steadman

STEADMAN, Associate Judge: Before the court is a certified matter from the United States Court of Appeals for the District of Columbia Circuit relating to the applicability of the so-called "superior equities doctrine" in an action against a drawee bank by an insurance company as a conventional subrogee and assignee of its insured, a depositor in the bank. National Union Fire Ins. Co. v. Riggs Nat'l Bank, 303 U.S. App. D.C. 302, 5 F.3d 554 (1993). We conclude, given the facts described below, that under District of Columbia law, the superior equities doctrine does not apply to this action.

I.

The facts relevant to the questions certified are as follows. *fn1 Between April 20, 1990, and May 14, 1990, unknown individuals cashed 14 fraudulent checks, *fn2 totaling $640,712.38, drawn on the account of NHP Property Management, Inc. ("NHP") at the defendant Riggs National Bank ("Riggs"). On June 22, 1990, NHP requested that Riggs recredit its account for the loss. After Riggs formally denied the request on November 15, 1990, NHP submitted its proof of loss to National Union Fire Insurance Company ("National Union") and was paid $597,980 ($640,712.38 less $32,732.38 recovered from a third-party bank and a $10,000 deductible).

Section 14 of NHP's policy with National Union provides in relevant part:

In the event of any payment under this Policy, the Company shall be subrogated to all the Insured's rights of recovery therefor against any person or organization and the Insured shall execute? and deliver instruments and papers and do whatever else is necessary to secure such rights.

Pursuant to this provision, NHP assigned National Union all its rights against Riggs and agreed to be bound by the result of the suit.

National Union filed this suit against Riggs as an assignee and, by virtue of Section 14 of the policy, as a conventional subrogee of NHP. After a bench trial, the district court found that Riggs had complied with reasonable commercial standards in processing the checks and therefore was not negligent. The district court further held that, despite the clear presumption in the Uniform Commercial Code ("UCC") favoring the depositor against the bank, *fn3 District of Columbia law requires a balancing of the equities when the depositor's insurer brings suit to recover from a bank, either by way of assignment or subrogation. Therefore, under the superior equities doctrine, as between two innocent parties -- National Union and Riggs -- the equities balanced in favor of Riggs. National Union appealed, asserting that the superior equities doctrine does not apply when the insurer sues as an assignee and conventional subrogee, as opposed to an equitable subrogee.

Pursuant to D.C. Code § 11-723 (1989), the United States Court of Appeals for the District of Columbia Circuit certified the following questions to us:

I. Under District of Columbia law, and given the facts described, does the superior equities doctrine apply to an action by an insurer as an assignee and conventional subrogee of its insured?

II. Under District of Columbia law, and given the facts described, does the adoption of the Uniform Commercial Code abrogate or modify the superior equities doctrine?

II ...


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