Morris v. Ohio Casualty Insurance
5 U.C.C. Rep. Serv. 2d (West) 849, 35 Ohio St. 3d 45, 517 N.E.2d 904 (1988)
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Rule of Law:
An insurance company, as the drawee of a settlement draft, is liable for the tort of conversion when it authorizes its bank to pay the draft over a forged or unauthorized endorsement. An attorney does not have inherent authority, arising solely from the attorney-client relationship, to endorse a client's name on a settlement instrument.
Facts:
- An insurance company (appellant) issued settlement drafts to an estate and a guardianship (appellees).
- The drafts were made payable to the respective fiduciaries, Orin Morris as administrator and Tom Swope as guardian.
- The insurance company delivered the drafts to James Whitney, the attorney representing both the estate and the guardianship.
- Someone placed typewritten, restrictive endorsements on the back of the drafts without the authorization of either Morris or Swope.
- The drafts were then deposited into one of attorney Whitney's general office accounts, not a client trust or escrow account.
- The insurance company, acting as the drawee on the drafts which were 'payable through' its bank, authorized payment on the instruments despite the unauthorized endorsements.
- The estate and guardianship never received the funds from the settlement drafts.
Procedural Posture:
- The estate and guardianship (appellees) sued the insurance company (appellant) in the trial court, alleging conversion.
- The appellees filed a motion for summary judgment, which the trial court granted.
- The insurance company appealed the trial court's decision to the intermediate court of appeals.
- The court of appeals affirmed the trial court's grant of summary judgment in favor of the estate and guardianship.
- The insurance company then appealed to the Supreme Court of Ohio for review.
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Issue:
Does an insurance company commit conversion when it, as the drawee, authorizes its bank to pay a settlement draft over a forged endorsement made without the payee's authority?
Opinions:
Majority - Douglas, J.
Yes, an insurance company commits conversion when it, as the drawee, authorizes payment on a draft with a forged endorsement. The court reasoned that under Ohio statute R.C. 1303.55(A)(3), an instrument is converted when it is paid on a forged endorsement, creating absolute liability for the drawee. The court first established that an attorney lacks the inherent authority to endorse a client's settlement draft absent express authorization; therefore, the endorsements here were unauthorized. An 'unauthorized' signature is legally equivalent to a forgery. Because the drafts were designated 'payable through' a bank, the insurance company was the drawee, not the bank. As the drawee that accepted and authorized payment on an instrument with a forged endorsement, the insurance company exercised wrongful dominion over the payees' property and is liable for conversion.
Analysis:
This decision reinforces the UCC's strict liability framework for conversion, placing the ultimate risk of loss from a forged endorsement on the drawee. By clarifying that an attorney's general retainer does not include the power to endorse a client's settlement check, the ruling protects clients from potential malfeasance and unauthorized actions by their counsel. The case solidifies the principle that the party in the best position to verify an endorsement's authenticity—the drawee authorizing payment—bears the liability for failing to do so. This precedent provides a clear remedy for rightful payees whose funds are misappropriated through forged instruments.
