(February 2014)
INTRODUCTION
Most insurance companies
take the position of providing coverage for counterfeit money orders but not
for counterfeit cashier’s checks. Coverage depends on the terms the coverage
form or policy uses. Definitions may help determine the issue.
- A cashier's check is drawn
against the bank that issues it. It is a bank obligation that an
authorized officer of a bank issues. It is considered more reliable than a
regular check because a bank officer confirms that the amount on the check
is actually in the check writer’s account. However, it remains a personal
check and is honored only up to the amount in the check writer’s account when
the check is presented.
Recent
cashier check scams on various, popular Internet sites make cashier’s check
less attractive to many sellers.
- A money order is
a type of negotiable draft that banks, post offices, telegraph companies,
express companies and certain retail businesses issue. The purchaser uses
it as a substitute for a check. It is a form of credit instrument that
calls for money to be paid to a named payee that involves three parties, the remitter,
the payee, and the drawee.
Cashier’s checks are
considered to have a slightly higher degree of confidence than money orders.
CASHIER’S CHECKS DEFINED
The Federal Deposit
Insurance Corporation (FDIC) defines different types of negotiable instruments
as follows:
I. 229.2(i) Cashier’s
Check
1. The regulation adds to the second item in the Act's definition of
cashier's check the phrase, "on behalf of the bank as drawer," to
clarify that the term cashier's check is intended to cover only checks that a
bank draws on itself. The definition of cashier's check includes checks
provided to a customer of the bank in connection with customer deposit account
activity, such as account disbursements and interest payments. The definition
also includes checks acquired from a bank by noncustomers for remittance
purposes, such as certain loan disbursement checks. Cashier's checks provided
to customers or others are often labeled as "cashier's check,"
"officer's check," or "official check." The definition
excludes checks that a bank draws on itself for other purposes, such as to pay
employees and vendors, and checks issued by the bank in connection with a payment
service, such as a payroll or a bill-paying service. Cashier's checks generally
are sold by banks to substitute the bank's credit for the customer's credit and
thereby enhance the collectibility of the checks. A check issued in connection
with a payment service generally is provided as a convenience to the customer
rather than as a guarantee of the check's collectibility. In addition, such
checks are often more difficult to distinguish from other types of checks than
are cashier's checks as defined by this regulation.
K. 220.2(k) 6.
2. The fifth category of instrument included in
the definition of check is U.S. Postal Service money orders. These instruments
are defined as checks because they often are used as a substitute for checks by
consumers, even though money orders are not negotiable under Postal Service
regulations. The Board has not provided specific rules for other types of money
orders; these instruments generally are drawn on or payable through or payable
at banks and are treated as checks on that basis.
This leads to a
conclusion. While similar in many respects, cashier’s checks and money orders
are two different types of negotiable instruments and are treated differently
by both issuing institutions and state laws and regulations. Because of these
distinctions, cashier's checks must be specifically mentioned in the coverage
form or policy’s insuring agreement(s) in order to be covered.
MONEY ORDERS AND COUNTERFEIT MONEY COVERAGE
Commercial crime coverage
forms and policies specifically refer to money orders and counterfeit money.
The relatively recent broadening of coverage beyond paper currency to money is
important. In addition to counterfeit currency, it now includes counterfeit coins,
bank notes, traveler’s checks, and money orders. However, this broadened
coverage still does not include cashier’s checks. As stated above, cashier’s
checks are distinct from any other type of check.
CONCLUSION
The Money Orders and
Counterfeit Money Insuring Agreement does not cover counterfeit cashier’s
checks.
