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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
1996 LC CASE SUMMARIES 921 F. Supp. 1506 (E.D. Ill. 1996)
Topics:
Fraud, (improper issuance of L/C); (insurance coverage for); Insurance (improper issuance of L/C).
Type of Lawsuit:
Third party claim by issuer against its insurer to recover on insurer's policy for the actions of issuer's officer in issuing a L/C to beneficiary without issuer's knowledge.
Parties:
Beneficiary: First National Bank
Plaintiff/Issuer: First Financial of L.A.
Defendant/Issuer's Insurer: American Casualty Insurance Co.
Defendant/Issuer Senior V.P.: Mr. Farmigoni
Underlying Transaction:
No mention in opinion of the underlying transaction.
LC:
Letter of credit in the amount of US$ 200,000. No mention in opinion of whether L/C is subject to the UCP.
Procedural History:
Upon insurer's motion for summary judgment in response to issuer's third party claim against it, the United States District Court for the Eastern District of Louisiana, Porteous, Jr., J, denied the motion.
Rule:
Nolo Contendere plea cannot be used against a party aligned with the interests of the person pleading.
Article
Factual Summary: Issuer's senior vice president issued a letter of credit in favor of beneficiary without the knowledge of issuer. On two occasions timely presentation was dishonored by issuer on this basis. Beneficiary sued for payment, and issuer filed a third party claim against its senior vice president based on fraud and improper issuance, and amended the third party claim to include its insurer. The insurer filed for summary judgment based on exclusions in the insurance policy for the issuer's actions that are dishonest or otherwise illegally entered into for personal profit. The court denied the motion.
Legal Analysis:
1. Issuer's Insuranc: The insurer argued that a nolo contendere plea entered by issuer's vice president in the related criminal action by issuer against the vice president for fraud and/or negligent misrepresentation was conclusive evidence that the issuer's officer was guilty of fraud. Because the insurance policy excluded coverage for dishonest actions or those entered into for personal profit, the insurer argued that it was not liable. The court held that a party aligned with the interest of a defendant who enters a plea of nolo contendere should, such as issuer, not have the plea used against it in a connected case. The court based its decision on its interpretation of Rule 410 of the Federal Rules of Evidence which it held to mean that, "in subsequent proceedings, whether arising from the same facts or not, neither the nolo plea nor the conviction based on the plea may be admitted as an admission or proof of guilt. Because the insurer's motion for summary judgment was based solely on its ability to use the nolo contendere plea against the issuer, the court ruled that the insurer had not offered sufficient evidence to resolve the issues of material fact concerning the applicability of the insurance policy exclusions.
©1997 INSTITUTE OF INTERNATIONAL BANKING LAW & PRACTICE
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