23 Jan No Comments Remik Expert Matters

Facts:  The plaintiff was a small business that purchased “key man” life insurance.  To pay the premiums, the plaintiff authorized the insurance company to electronically debit its account at the defendant bank though the automated clearing house (ACH) network.  The plaintiff later cancelled the insurance policy but the insurance company sent a subsequent ACH debit for a premium to the bank.  The plaintiff noticed the debit to its account and notified the bank that the debit was unauthorized.  The plaintiff at the bank’s request completed a “written statement of unauthorized debit” form as required by the Rules of the National Automated Clearing House Association. (NACHA).  The bank re-credited the plaintiff’s account and returned the unauthorized ACH debit to the insurance company.  However, unknown to the plaintiff, the defendant bank also placed a code in its computer system that would block and return unpaid all future electronic debits from that insurance company directed to the plaintiff’s account.

Shortly thereafter, an executive of the plaintiff purchased a $1 million life insurance policy on himself from the same insurance company.  He authorized the insurance company to electronically debit the company’s account at the defendant bank to pay the insurance premiums.  The first ACH debit to pay the initial premium was blocked and returned unpaid to the insurance company by the bank.  The insurance company responded by asking the executive to execute another authorization to debit the plaintiff’s account.  The executive executed the new authorization and the ACH debit for the premium was re-sent but the defendant bank again rejected the ACH debit.  The insurance company then cancelled the policy for non-payment of premiums. Within a very short time thereafter, the executive unexpectedly died.  The plaintiff company and the beneficiaries of the cancelled insurance policy then filed a lawsuit against the bank for wrongfully refusing to pay the ACH debit entries for the insurance premiums.

Issue for the Expert:  Whether or not the defendant bank acted properly and consistently with the Rules of the NACHA when it placed a permanent block on the account of the plaintiff to prevent any future ACH debits from the insurance company from posting to the account of the plaintiff.

Client:  The plaintiff small business.

Outcome:  At the conclusion of discovery, the parties agreed to mediate the dispute before a retired judge.  The matter settled at the mediation.