The U.S. Eleventh Circuit Court of Appeals has held that a bank's loss stemming from reliance on erroneously issued stock certificate as loan collateral is not covered by a financial institution bond because the certificate is not a counterfeit document. Bank of Brewton v. Travelers Companies, Inc., 777 f.3d 1339 (11th Cir. Feb. 9, 2015).

A bank loan was secured by the assignment of a certificate of 180 shares of stock the customer held in a company. Unbeknownst to the bank, the certificate had been obtained by the customer under false pretenses and was worthless. When the bank realized this, it asked that the customer replace it with other collateral. The customer did not replace the collateral and defaulted on the loan. The bank then made a claim for the loss under its financial institution bond.

The insurer investigated the loss for several years before being sued by the bank for breach of contract, alleging that its loss was based on a forged or counterfeit stock certificate. The insurer moved for summary judgment, arguing that the certificate, though worthless, was authentic, not a counterfeit. The trial court granted the motion and the bank appealed.

The Eleventh Circuit affirmed. It held that the certificate was not counterfeit because it was an authentic document issued by the company, numbered, dated and signed by the appropriate official. The bank's loss, according the appeals court, was due to the fact that the certificate was obtained under false pretenses and therefore worthless. That it was a worthless document when issued, however, did not make it a counterfeit document, according to the court. The Eleventh Circuit held that because the certificate was authentic, it was not a counterfeit and the loss was not covered by the bond.