Foreign Check Rider

Currently not available in AK, CA, CO, NY, TX and WA.

Losses resulting from items of deposit that are not “Finally Paid,” are not covered under Insuring Agreement D of the Financial Institution Bond, because they are precluded by the Bond’s exclusion (o). This exclusion frequently bars coverage when domestic banks honor fraudulent checks issued by financial institutions outside of the United States. The Foreign Check Rider expands Forgery coverage under Insuring Agreement D 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. These statutes and rules limit the amount of time a bank has to revoke settlement. However, foreign banks, such as Canadian banks, are not subject to the UCC or the Federal Reserve Rule CC. Instead, 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.

Key Definitions
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….”