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Insurance Coverage for Power of Attorney Transactions

Insurance Coverage for Power of Attorney Transactions

Most financial institutions carry “first party” forgery/alteration coverage which provides some loss protection when one person (“A”) signs the name of another person (“B”) without B’s authority.

What is a “Forgery”? A typical policy defines it as: “affixing the handwritten signature, or a reproduction of the handwritten signature, of another natural person without authorization or ratification, and with the intent to deceive.” [emphasis added]

That seems pretty straightforward, right? But what happens when the document in question (a check, withdrawal slip, etc.) was signed via a power of attorney (“POA”)?

With a POA, person A (the “principal”) grants person B (the “attorney-in-fact”) the power to transact for A. B can sign documents in a variety of legally valid ways… but only one way will likely trigger insurance coverage for Forgery.

For example, B signs his own name and then indicates his capacity as an agent for A (i.e. “John Jones, attorney-in-fact for Nora Jones”), there is no coverage if B exceeds his legal authority. Why? Because John Jones signed his own name, not that of the principal.

But consider this alternative – the instrument is signed “Nora Jones, by her attorney-in-fact John Jones.” Here, the attorney-in-fact has signed the name of another natural person, and coverage would (arguably) be triggered.

As you can see, how an attorney-in-fact signs can impact coverage. While your financial institution probably cannot reject a validly signed POA document, to the extent you can influence how the attorney-in-fact signs, encourage him or her to use the “Nora Jones, by her attorney-in-fact John Jones” format; this approach will place you in the best position to argue for Forgery coverage.