Opinion ID: 1301364
Heading Depth: 1
Heading Rank: 2

Heading: Insuring Agreement (E)

Text: Insuring Agreement (E) is another exception to the bond's general exclusion of loan-related losses. As relevant here, Insuring Agreement (E) covers a loss resulting directly from OSB having extended credit or assumed liability on the faith of . . . [a] mortgage . . . creating . . . a lien upon, real property . . . which (i) bears a signature . . . which is a Forgery, or (ii) is altered, or (iii) is lost or stolen. Actual physical possession of the mortgage by OSB or its authorized representative is a condition precedent to [OSB] having relied on the faith of [the mortgage]. OSB argues that Insuring Agreement (E) covers its losses because the original mortgage documents were lost after the mortgages were assigned to OSB, preventing OSB from recording the mortgages. The district court rejected this claim, concluding that [t]he word `lost' unambiguously refers to a document that was lost by its true owner before OSB came into possession of the document. We agree. The plain language of Insuring Agreement (E) focuses on the point in time when OSB made a decision to extend credit. Actual physical possession of the mortgage is a condition precedent because a prudent bank will examine the document's authenticity, and the bankers blanket bond does not insure good management. Nat'l City Bank, 447 N.W.2d at 177 (quotation omitted); see Banclnsure, Inc. v. Marshall Bank, N.A., 453 F.3d 1073, 1075-76 (8th Cir.2006); Republic Nat'l Bank of Miami v. Fid. & Deposit Co. of Md., 894 F.2d 1255, 1263-64 (11th Cir. 1990). Insuring Agreement (E) provides coverage if the mortgage bears a forged signature, or is an altered instrument, or is lost or stolen. In this context, lost or stolen plainly refers to an instrument that has been lost by or stolen from its rightful owner and then used wrongfully to persuade an unsuspecting bank to extend credit. This interpretation is consistent with every court that has considered the issue. See Resolution Trust Corp. v. Aetna Cos. & Sur. Co. of III, 25 F.3d 570, 580 (7th Cir.1994) (this language, when read in its context, applies only to securities that have a defect in title at the time of acquisition by the insured); Bank of S.W. v. Nat'l Sur. Co., 477 F.2d 73, 77 (5th Cir.1973); Pine Bluff Nat'l Bank v. St. Paul Mercury Ins. Co., 346 F.Supp.2d 1020, 1028-29 (E.D.Ark.2004); Exeter Banking Co. v. N.H. Ins. Co., 121 N.H. 1083, 438 A.2d 310, 314-15 (N.H.1981). Here, the mortgages were not lost or stolen instruments when they were assigned to OSB. They were the borrowers' mortgages, and the original documents were not lost until after OSB relied on what was assigned in extending credit to the borrowers. Losing collateral documents after a loan has been made is precisely the sort of practice that is excluded from coverage by a bankers blanket bond. Thus, the district court correctly held that any financial loss to OSB caused by the post-acquisition loss of original mortgage documents signed by the borrowers was not covered by Insuring Agreement (E). Therefore, we need not consider Progressive's additional contentions that OSB did not satisfy the actual physical possession condition precedent to coverage under Insuring Agreement (E), and that OSB's financial losses did not result[] directly from the loss of the mortgage originals. The judgment of the district court is affirmed.