Banc of California National Association v. Federal Insurance Company

NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
BANC OF CALIFORNIA NATIONAL
ASSOCIATION,
Plaintiff-Appellant,
v.
FEDERAL INSURANCE COMPANY,
Defendant-Appellee.
No. 21-56179
D.C. No.
8:20-cv-00132-DOC-DFM
MEMORANDUM*
Appeal from the United States District Court
for the Central District of California
David O. Carter, District Judge, Presiding
Argued and Submitted November 10, 2022
Pasadena, California
Before: MURGUIA, Chief Judge, and PARKER** and LEE, Circuit Judges.
Banc of California National Association (“Banc”) appeals the district court’s
order granting Federal Insurance Company’s (“Federal”) motion for summary
judgment. This dispute stems from a forgery insurance policy (the “Policy”) Banc
* This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
** The Honorable Barrington D. Parker, Jr., United States Circuit Judge
for the U.S. Court of Appeals for the Second Circuit, sitting by designation.
FILED
DEC 12 2022
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS

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purchased from Federal. The Policy provides Banc with coverage from losses
suffered by forgery provided that the Policy’s conditions—consisting of six
elements—are met.1 After purchasing the Policy, Banc made a fifteen-million-dollar
loan in reliance on a document, a Bank Account Control Agreement (the “Control
Agreement”), later determined to be forged.
The Control Agreement gave Banc the ability to control the borrower’s bank
account at Northern Trust, a different bank, in the event the borrower defaulted on
its loan repayment obligations. Unbeknownst to Banc, the Northern Trust account
was fictitious, and the Control Agreement bore the forged signature of a Northern
Trust employee. After Banc contacted Federal to obtain coverage for the losses
suffered from the forgery under the Policy, Federal denied coverage. Banc then sued
Federal asserting breach of contract and breach of the covenant of good faith and
fair dealing claims. After discovery, both parties moved for summary judgment.
The district court granted summary judgment on the breach of contract claim
in favor of Federal, because it found Banc had not met the Policy’s first element.2
1 The six elements required to obtain coverage under the Policy are: (1) the forgery
appeared on one of the eight listed types of collateral, including, a “Security
Agreement” or an “Evidence of Debt”; (2) the loan was issued “in good faith”; (3)
the forged document was “original”; (4) the loss was one “resulting directly” from
giving the loan; (5) the document “b[ore] a Forgery”; and (6) the insured relied on
the forged document in making a loan.
2 Banc only appeals the district court’s grant of summary judgment on the breach of
contract claim.

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The district court found that as to the first element, the Control Agreement did not
qualify as an Evidence of Debt or as a Security Agreement, as Banc contended, so
the forgery did not appear on one of the eight permitted types of collateral. The
district court also discussed the “result[ed] directly” element (element (4)), and
reasoned that contrary to Federal’s position, the loss did “result[] directly” from the
Control Agreement forgery. Nevertheless, the district court ruled in favor of Federal
because it found Banc did not establish the first element. The district court did not
reach the other four elements.
We review the district court’s grant of summary judgment de novo. Branch
Banking & Tr. Co. v. D.M.S.I., LLC, 871 F.3d 751, 759 (9th Cir. 2017). We reverse
the district court’s conclusion that the Control Agreement did not constitute a
Security Agreement, and remand for the district court to consider the other elements
required for coverage in the first instance, including the “resulting directly” element.
Because this is a California breach of contract claim grounded on diversity
jurisdiction, this Court must apply California law when interpreting the Policy. PMI
Mortg. Ins. Co. v. Am. Int’l Specialty Lines Ins. Co., 394 F.3d 761, 764–65 (9th Cir.
2005), opinion amended on denial of reh’g, No. 03-15728, 2005 WL 553004 (9th
Cir. Mar. 10, 2005). Under California law, this Court “must construe insurance
policy terms so as to give effect to the ‘mutual intention’ of the parties at the time
the policy was issued, and this intent should be inferred, to the extent possible,

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‘solely from the written provisions of the [policy] contract.’” Id. at 764 (quoting
MacKinnon v. Truck Ins. Exch., 31 Cal. 4th 635, 647 (2003). “The California
Supreme Court has consistently held that insurance policies are to be ‘interpreted
broadly so as to afford the greatest possible protection to the insured.’” Id. at 765
(quoting MacKinnon, 31 Cal. 4th at 648).
Under element one, the Policy states that to be reimbursed for forgery, the loss
must result from the insured’s reliance on an original of one of eight listed examples
of collateral. The Policy defines Security Agreement as “an agreement which
creates an interest in personal property or fixtures and which secures payment or
performance of an obligation.” But the Policy does not specify what sort of
“interest” has to have been retained in the personal property or fixture in order for
the Control Agreement to qualify as a Security Agreement.
Because “California law instructs that such interpretive quandaries be
resolved in favor of the insured and against the insurer,” this Court must resolve the
ambiguity around the type of interest required in the Security Agreement definition
in favor of Banc. Id. Contrary to the district court’s conclusion, the Control
Agreement constitutes a Security Agreement because it creates an interest—a
possessory interest—in the Northern Trust account. This Court therefore reverses
the district court’s summary judgment ruling on this ground, and remands for the
district court to consider the five other elements.

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REVERSED and REMANDED.

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