Foreign Check Rider

The Foreign Check Rider expands Forgery coverage under Insuring Agreement D of the Financial Institution Bond to include forged or altered checks drawn upon Canadian financial institutions, by modifying exclusion (o).

Domestic banks are subject to the Uniform Commercial Code (UCC’s) Midnight Deadline as well as Federal Reserve Rule CC--both limit the amount of time a bank has to revoke settlement. Foreign banks, such as Canadian banks, are not subject to the UCC or the Federal Reserve Rule CC. Canadian banks’ right to revoke settlement may be as long as one year from the date that the item is discovered as fraudulent, regardless of when the fraud is discovered. Because the discovery period can be indefinite, an item is never finally paid like domestic items. Therefore, foreign checks are unavoidably subject to Exclusion (o) of the Financial Institution Bond. The Foreign Check Rider remedies this issue with the following conditions:

  • The customer’s account must have been opened continuously for no less than sixty (60) days with the insured bank at the time of the fraudulent deposit.
  • The Canadian banking institution on which the Foreign Check is drawn must have initially paid the item even if it is subsequently returned or payment reversed after the insured bank releases the funds.

Sample Rider

Claims Examples
  • A customer deposits a Canadian check of $65,000 into her savings account, which she has had at her (U.S.) community bank for 6 months. After the Canadian institution pays the check and her bank receives the funds, the customer withdraws the funds out of her account. Subsequently, the Canadian institution discovers that the check is counterfeit and returns it. Because the customer does not have sufficient deposited funds to offset the amount the bank is required to return, the bank suffers the consequential financial loss.

Features
  • Foreign Check refers to checks or negotiable instruments drawn on Canadian banking institutions only.
  • Finally Paid is a “term of art” referring to an item being finally paid as defined by Section 4-215 of the UCC.
  • Midnight Deadline is defined in UCC Section 4-104 as “…midnight on its next banking day following the banking day on which it receives the relevant item….”

Notwithstanding any language to the contrary, nothing contained herein constitutes nor is intended to constitute an offer, inducement, promise, or contract of any kind. All coverage descriptions and claims examples are provided for informational and educational purposes only and are not a representation as to coverage for any particular claim and are not represented to be error free. Coverage for any claim is determined upon the specific facts of the claim, the terms and conditions of the policy and applicable law. For details on the coverage provided by your specific contract of insurance, please refer to your policy. Coverage is subject to underwriting guidelines and may not be available in all states. Limits may be capped for underwriting reasons. Any links to any sites which are not originated by ABA Insurance Services Inc. (ABAIS) are provided only as a courtesy and are not intended to nor do they constitute an endorsement by ABAIS of the linked materials.