Chicago, IL – April 3, 2012 – Insurance wasn’t enough to protect Wisconsin’s North Shore Bank in its attempts to obtain settlement on a $370K RV fraudulent RV loan. Apparently, a fake VIN wasn’t enough to qualify as they lost another round in a long legal fight for insurance coverage over the bad loan on a motor home that never existed.
As the result of the court’s decision, an insurer does not have to cover a $400,000 loss suffered by a bank because falsified loan documents upon which the lender relied do not qualify as counterfeit, the 7th Circuit ruled.
In October 2006, Russell Ott applied for a personal loan at North Shore Bank in Wisconsin to finance the purchase of a 2007 Beaver Marquis motor home. Ott, who had never done business with the bank before, planned to buy the vehicle for $600,000 from a dealership that he owned. He requested a $400,000 loan, presenting the home’s certificate of origin as collateral.
Bank employee William Hintz inspected the motor home and dealer, taking photos of the vehicle and accepting Ott’s original certificate of origin for the home. Hintz confirmed that the vehicle identification number on the certificate matched the VIN number on the vehicle and Illinois issued a title with North Shore as the lien holder.
But when Ott defaulted two years later and North Shore went to repossess the pricey wheels, they discovered a big problem: it didn’t exist. The manufacturer said it had never made a 2007 Beaver Marquis with the listed VIN. It appeared Ott had faked a VIN and put it on a 2003 model, then made up the certificate with the same number.
North Shore filed a claim with Progressive Casualty, but the insurer said the bad certificate didn’t meet the bond’s definition of counterfeit. A federal magistrate found that a counterfeit in that context is a duplicate of an actual, valid, orginal document; in this case, Ott created a wholly new bogus document about a specific motor home that didn’t exist.
Last week, the U.S. 7th Circuit Court of Appeals agreed.
U.S. District Judge Aaron Goodstein agreed with Progressive, and the 7th Circuit affirmed last week.
“Certainly, Ott’s certificate of origin may imitate other certificates of origin in general, perhaps including that of the unidentified older motor home inspected by Hintz,” Judge Daniel Manion wrote for a three-judge panel.
“The real problem, however, is that Ott’s certificate of origin does not imitate and 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 2008 motor home pledged to the Bank as collateral for the loan,” he added.
The court pointed out that the bank could have taken additional steps that would have revealed Ott’s fraud: comparing the motor home it inspected with the manufacturer’s listed features, comparing the certificate Ott presented with one from the manufactuer; or checking the listed VIN with the manufacturer.
North Shore’s only comfort might be in knowing it wasn’t Ott’s only victim. “During its investigation, the bank discovered that Ott had defrauded several other financial institutions of millions of dollars,” according to the appellate decision.