In the
United States Court of Appeals
For the Seventh Circuit
No. 11-2082
N ORTH S HORE B ANK, FSB,
Plaintiff-Appellant,
v.
P ROGRESSIVE C ASUALTY INSURANCE C OMPANY,
Defendant-Appellee.
Appeal from the United States District Court
for the Eastern District of Wisconsin.
No. 10-CV-00071—Aaron E. Goodstein, Magistrate Judge.
A RGUED O CTOBER 19, 2011—D ECIDED M ARCH 28, 2012
Before F LAUM and M ANION, Circuit Judges, and M AGNUS-
S TINSON, District Judge.
M ANION, Circuit Judge. A new customer of North Shore
Bank named Russell Ott applied for a loan to finance the
purchase of a motor home from the dealership that Ott
The Honorable Jane E. Magnus-Stinson of the Southern
District of Indiana, sitting by designation.
2 No. 11-2082
himself owned. To secure the loan, Ott presented the
motor home’s certificate of origin to the Bank and pledged
the motor home as collateral. Unfortunately, when Ott
defaulted on the loan two years later, the Bank discov-
ered that it had been swindled: Ott’s certificate of origin
was a fake and the motor home pledged as collateral
did not exist. The Bank sought to recover the loss
from its insurance company, Progressive Casualty, but
Progressive denied the Bank’s request because Ott’s
fake certificate of origin did not meet the definition of
a “Counterfeit” as specified under the terms of the in-
surance bond. The Bank then filed a diversity suit
against Progressive in federal district court. Following
cross-motions for summary judgment, the court ruled
in Progressive’s favor, finding that because the certif-
icate of origin was not a counterfeit as defined in the
insurance agreement, the agreement did not cover
the Bank’s loss. We affirm.
I.
In October 2006, a man named Russell Ott applied
to North Shore Bank for a personal loan in order to pur-
chase what he described as a 2007 Beaver Marquis
motor home with a retail price of approximately $680,000.
The loan amount he applied for was $404,881, so on the
surface, it would appear that the loan would be well
secured. But the unusual circumstance here was that
Ott was purchasing the motor home from the Illinois
dealership that Ott himself owned, ProSource Motorsports.
At the time, every indication was that the dealership
No. 11-2082 3
was a successful business and would be a good new
customer for the Bank. So apparently the size of the
loan and the fact that Ott was buying the vehicle from
his own dealership was not too great a concern for the
Bank.
Still, because the Bank had no prior relationship with
Ott or ProSource Motorsports, the Bank conducted
some investigation of Ott and his dealership such as
reviewing personal financial statements and income
tax returns. On October 30, 2006, William Hintz, a repre-
sentative of the Bank, traveled to Ott’s dealership to
inspect the motor home and the dealership; if all was
well, Hintz was prepared to finalize the loan. Hintz
toured the dealership, and observed and photographed
the motor home represented by Ott to be the vehicle
Ott was purchasing. Regrettably for the Bank, Hintz
was not completely familiar with Beaver Marquis motor
homes, and he accepted from Ott a document that Ott
claimed was the original certificate of origin for the
2007 Beaver Marquis motor home Hintz was viewing.
Hintz compared the vehicle identification number (VIN)
on the certificate of origin Ott had given him with the
VIN plate located on the wall of the motor home
near the floor and behind the driver’s seat. The two iden-
tification numbers matched, and Hintz then finalized
the loan with Ott. Subsequently, the Bank submitted
paperwork to the State of Illinois seeking a security
interest on the 2007 Beaver Marquis motor home, and
the State issued a title with the Bank as lien holder.
For approximately two years, Ott made timely loan
payments, but in December 2008, Ott defaulted on the
4 No. 11-2082
loan. The Bank then sought to repossess the 2007
Beaver Marquis motor home on which it had a security
interest. During these attempts to recover the motor
home, the Bank learned that it had been fleeced by Ott:
the 2007 Beaver Marquis motor home did not exist and
the certificate of origin provided by Ott was a fabrica-
tion with a fake VIN. Monaco Coach, the manufacturer
of Beaver Marquis motor homes, confirmed that it had
never produced a vehicle with the VIN found on Ott’s
certificate of origin, nor had it ever issued a “Manufac-
turer’s Certificate of Origin” for a vehicle with that num-
ber. During its investigation, the Bank discovered that
Ott had defrauded several other financial institutions
of millions of dollars.
There is an unanswered question about the nature
and identity of the motor home inspected by Hintz when
he visited Ott’s dealership in October 2006. It is possible
that the motor home inspected by Hintz was an older
model 2003 Beaver Marquis motor home with a modified
VIN plate containing a fake number, and that Ott
then created a fraudulent certificate of origin with the
matching fake VIN. Fourteen out of the seventeen digits
from Ott’s fake identification number matched up
with the VIN of a 2003 motor home that existed at Ott’s
dealership at one time and was later repossessed by a
different bank. But regardless of the unknown identity
of the motor home inspected by Hintz, it is undisputed
that the underlying collateral for the Bank’s loan—a
2007 Beaver Marquis motor home with Ott’s fake
VIN—does not exist.
No. 11-2082 5
It is likely that if the Bank had taken certain addi-
tional steps it would have discovered Ott’s fraud before
the loan agreement was finalized. For example, when
Hintz inspected the motor home, he apparently did not
compare the features of the motor home he was viewing
with Monaco Coach’s manufacturer specifications for
a 2007 motor home, which would have revealed differ-
ences. Also, the Bank failed to compare Ott’s certificate
of origin with an authentic certificate of origin from
the manufacturer. If such a comparison had been made,
the fabrication of Ott’s certificate would have been ob-
vious because his certificate has a caption and a
signature of an unknown person different from those on
an authentic certificate from Monaco Coach. Finally, the
Bank did not verify with Monaco Coach that the VIN
for Ott’s 2007 motor home was legitimate. The question
of whether it was necessary for the Bank to take these
extra steps in order to make the loan to Ott in good faith
is a matter of dispute between the parties, but it is not
a deciding factor in this case.
After discovering the fraud, the Bank attempted to
recover its loss of more than $370,000 through its
insurance policy with Progressive. The relevant provi-
sion of the insurance bond states that Progressive agrees
to indemnify the insured Bank for:
(E) Loss resulting directly from the Insured having,
in good faith, for its own account or for the account
of others,
....
(3) acquired, sold or delivered, or given value,
extended credit or assumed liability, on the faith
6 No. 11-2082
of any item listed in (a) through (e) above which
is a Counterfeit.
Actual physical possession of the items listed in (a)
through (h) above by the Insured, its correspondent
bank or other authorized representative, is a condi-
tion precedent to the Insured’s having relied on the
faith of such items.
One of the items listed in (a) through (e) is a certificate
of origin. The bond also defines the term “Counterfeit”
as “a Written imitation of an actual, valid Original
which is intended to deceive and to be taken as the Origi-
nal.” 1
The Bank sought coverage for its loss from Progressive
on the grounds that Ott’s fraudulent certificate of origin
was a “Counterfeit” on which the Bank had relied in
granting the loan. Progressive disagreed with the Bank’s
interpretation of the bond and denied coverage. The
Bank then filed suit against Progressive in the United
States District Court for the Eastern District of Wisconsin
and the parties consented to have a magistrate judge
conduct all the proceedings in the case. After cross-
motions for summary judgment, the magistrate judge
determined that Ott’s fraudulent certificate of origin
was not a “Counterfeit” within the meaning of the bond,
and ruled in favor of Progressive. The Bank now appeals.
1
The term “Original” is defined in the bond as “the first
rendering or archetype and does not include photocopies
or electronic transmissions even if received and printed.”
No. 11-2082 7
II.
We review the district court’s grant of summary judg-
ment de novo. First Nat’l Bank v. Cincinnati Ins. Co., 485
F.3d 971, 976 (7th Cir. 2007). Summary judgment is ap-
propriate if “there is no genuine dispute as to any
material fact and the movant is entitled to judgment as
a matter of law.” Fed. R. Civ. P. 56(a). Also, we note that
there is no dispute between the parties that Wisconsin
law applies in this federal diversity suit.
The interpretation of an insurance policy is a question
of law that we review de novo. First Nat’l Bank, 485 F.3d
at 976. When interpreting an insurance policy, we seek
“to determine and give effect to the intent of the con-
tracting parties.” Am. Family Mut. Ins. Co. v. Am. Girl, Inc.,
673 N.W.2d 65, 73 (Wis. 2004). That means that the
policy language should be given “its common and
ordinary meaning, that is, the meaning understood by
a reasonable person in the position of the insured.” Siebert
v. Wis. Am. Mut. Ins. Co., 797 N.W.2d 484, 490 (Wis. 2011).
“However, we do not interpret insurance policies to
provide coverage for risks that the insurer did not con-
template or underwrite and for which it has not received
a premium.” Am. Family Mut. Ins. Co., 673 N.W.2d at 73.
In this case, the insurance bond that governs the cov-
erage relationship between the Bank and Progressive is
a standard financial-institution bond—namely, “Standard
Form No. 24, Revised to April 1, 2004,” a bond with
“a well-chronicled history.” Universal Mortg. Corp. v.
Württembergische Versicherung AG, 651 F.3d 759, 761
(7th Cir. 2011). “Over the last century, nearly every term
in the Form 24 bond has been developed in reaction to
8 No. 11-2082
court interpretations of prior versions of the bond. As
a result, certain terms within the bond carry nuanced
and well-established meanings.” Id.
As the magistrate judge ably discussed in his well-
reasoned opinion, this development has also happened
with the term “Counterfeit.” Earlier courts considering
prior versions of the bond discussed the requirement
that a counterfeit be not simply a fraudulent docu-
ment meant to deceive, but also “an imitation or duplicate
of a preexisting genuine original document.” Nat’l City
Bank v. St. Paul Fire & Marine Ins. Co., 447 N.W.2d 171,
178-79 (Minn. 1989).2 The current version of the
standard Form 24 bond is the result of such development
and contains a definition of “counterfeit” that “ ‘codifies’
the case law requirement that there be an actual, valid
original that the counterfeit document is imitating.” SURETY
A SSOC . O F A M ., Financial Institution Bond, Standard
Form No. 24, Form and Rider Filing, L OAN L OSS
C OVERAGE U NDER F INANCIAL INSTITUTION B ONDS 673, 688
(Gilbert J. Schroeder and John J. Tomaine eds., ABA 2007).
In his opinion, the magistrate judge quotes a helpful
2
See also, e.g., State Bank of the Lakes v. Kansas Bankers Sur. Co.,
328 F.3d 906, 909 (7th Cir. 2003) (“[S]everal decisions have
held that fake documentation pertaining to nonexistent
chattels is not ‘counterfeit.’ ”); Capitol Bank of Chicago v. Fidelity
& Cas. Co., 414 F.2d 986, 989 (7th Cir. 1969) (“Counterfeit means
the imitation of an instrument that is authentic such that a
party is deceived on the basis of the quality of the imitation.”).
No. 11-2082 9
passage describing the rationale for insurance coverage
based on this understanding of “counterfeit”:
[It] is to require that an insurance company cover
only non-business losses or insured risks, with a
bank responsible for ordinary business losses. An
insured bank is not covered for mere loan losses
resulting from a failure to follow sound business
practices, since a bank can easily verify through
minimal investigation if a fake document purports to
be something that never was in existence. On the
other hand, verifying the authenticity of a duplicate
or imitation of a genuine document is unlikely to
result in discovery of the fraud, a risk an insured
bank cannot control. . . . If a bank . . . chooses not
to follow sound business practices and fails to in-
vestigate, verify, examine, or even possess securities
before remitting loan proceeds, it cannot success-
fully claim this is an insured risk and not an
ordinary business loss.
Nat’l City Bank, 447 N.W.2d at 179 (internal citation omit-
ted).
As we stated above, the specific language of the bond
defines “Counterfeit” as “a Written imitation of an actual,
valid Original which is intended to deceive and to be
taken as the Original.” The question then is whether
Ott’s fraudulent certificate of origin qualifies as a “Coun-
terfeit” under this definition.
The Bank argues that Ott’s certificate is an imitation
of an actual, valid certificate of origin—namely, the
certificate of the older model motor home passed off by
Ott as the 2007 motor home he was supposedly pur-
10 No. 11-2082
chasing. But the Bank’s argument misses the mark. Cer-
tainly, Ott’s certificate of origin may imitate other certifi-
cates of origin in general, perhaps including that of the
unidentified older motor home inspected by Hintz
(though as best as we can tell, it is a poor imitation).
The real problem, however, is that Ott’s certificate of
origin does not imitate an actual, original certificate of
origin for a 2007 Beaver Marquis motor home because it
is undisputed that there never was “an actual, valid
Original” certificate of origin for the 2007 motor home
pledged to the Bank as collateral for the loan. The manu-
facturer never issued a certificate of origin for a 2007
Beaver Marquis motor home with Ott’s VIN because
the manufacturer never produced a 2007 motor home
with that identification number. Ott’s certificate of origin
is a complete fabrication and does not correspond to
any actually existing certificate of origin or motor home.
And without an actual, original certificate of origin, Ott’s
fraudulent certificate cannot be an imitation of “an
actual, valid Original,” and thus cannot qualify as a
“Counterfeit” under the terms of the bond.
This understanding of the bond’s language is further
confirmed by the fact that the “Counterfeit” definition
goes on to state that the “actual, valid Original” must be
a document “to be taken as the Original.” (emphasis
added) In his opinion, the magistrate judge correctly
observed that this wording strongly suggests that the
fraudulent document cannot appear generally as “an
Original” but instead must imitate a specific original
document—“the Original.” See N. Shore Bank FSB v. Progres-
sive Cas. Ins. Co., No. 10-C-71, slip op. at 11 (E.D. Wis.
Apr. 15, 2011).
No. 11-2082 11
A denial of coverage for the Bank’s loss in this case
corresponds with the rationale we described earlier:
“[A] bank can easily verify through minimal investiga-
tion if a fake document purports to be something that
never was in existence. On the other hand, verifying the
authenticity of a duplicate or imitation of a genuine
document is unlikely to result in discovery of the
fraud . . . .” Nat’l City Bank, 447 N.W.2d at 179. The par-
ties’ bond is intended to cover the risk of reliance on
an imitation of a genuine document; it is not intended
to cover the risk of reliance on a document that purports
to be something that has never existed.
In sum, under the plain language of the insurance
bond, Ott’s certificate of origin is not “a Written imita-
tion of an actual, valid Original which is intended to
deceive and to be taken as the Original.” Consequently,
the Bank’s loss as a result of Ott’s fraudulent certificate
does not qualify as a loss resulting from reliance on
a “Counterfeit.” Progressive is entitled to judgment as a
matter of law, and we A FFIRM .3
3
Progressive also makes the alternative argument that even if
Ott’s certificate of origin qualifies as a “Counterfeit” under
the bond, the Bank failed to act in good faith when granting
Ott the loan because it did not take the extra steps necessary to
confirm the loan’s legitimacy—and thus, the Bank is not
entitled to recover its loss. We agree with the magistrate
judge who found it unnecessary to consider this alternative
argument because the “Counterfeit” issue is dispositive.
3-28-12