Corporate Fiduciary Act Tolls Contractual Termination Provision of Financial Institution Crime Bond Insurance Policy
The insured, an Illinois corporate fiduciary organization that served as a custodian for various trust assets, held a crime bond in which the insurer agreed to indemnify the insured for various losses, including those incurred from fraudulent acts committed by employees, forgeries, and securities. The bond had a termination provision that would terminate the bond immediately after the appointment of a receiver. On March 10, 2000, the insured sent the insurer a letter notifying them of a potential loss caused by fraudulent acts, forgeries, and securities. On April 14, 2000, a receiver was appointed by the Illinois Commissioner of Banks and Real Estate (“CBRE”). The receiver sued the insured for certain causes of action, including breach of contract, fraud, and breach of fiduciary duty and won damages. The insured then sought a declaratory judgment that the insurer must indemnify the losses under the suit. The central issue was whether the claims were barred by the termination provision because of the appointed receiver. The provision contradicted Section 6-7.1 of the Corporate Fiduciary Act, which tolls “any period of limitations fixed by . . . agreement which would otherwise expire on a claim or right of action in favor of or against the beneficiary” for a period of six months after the appointment of a receiver.
The court held that under Section 6-7.1 a claim or right of action in existence on the date the receiver is appointed tolls the operation of the bond by six months. Because Intrust notified Kansas Bankers Surety Company (“KBS”) of a claim or right of action on March 10, 2000, a month before the receiver was appointed, Section 6-7.1 tolled the termination provision on April 14, 2000, the date the receiver was appointed.
Independent Trust Corp. v. Kansas Bankers Sur. Co., 2011 WL 2623344, —N.E.2d —- (Ill.App. 1 Dist., 2011).
