(a) Scope of indemnity.
(1) A bank that transfers, presents, or
returns a substitute check or a paper or electronic representation
of a substitute check for which it receives consideration shall indemnify
the recipient and any subsequent recipient (including a collecting
or returning bank, the depositary bank, the drawer, the drawee, the
payee, the depositor, and any indorser) for any loss incurred by any
recipient of a substitute check if that loss occurred due to the receipt
of a substitute check instead of the original check.
(2) A bank that rejects a check submitted
for deposit and returns to its customer a substitute check (or a paper
or electronic representation of a substitute check) shall indemnify
the recipient as described in paragraph (a)(1) of this section regardless
of whether the bank received consideration.
(b) Indemnity amount.
(1) In general. Unless otherwise indicated by paragraph (b)(2) or (b)(3) of this
section, the amount of the indemnity under paragraph (a) of this section
is as follows:
(i) If the loss resulted from a breach
of a substitute-check warranty provided under section 229.52, the
amount of the indemnity shall be the amount of any loss (including
interest, costs, reasonable attorney’s fees, and other expenses of
representation) proximately caused by the warranty breach.
(ii) If the loss did not
result from a breach of a substitute-check warranty provided under
section 229.52, the amount of the indemnity shall be the sum of—
(A) the amount of the loss, up to the amount of the substitute check;
and
(B) interest and expenses
(including costs and reasonable attorney’s fees and other expenses
of representation) related to the substitute check.
(2) Comparative negligence.
(i) If a
loss described in paragraph (a) of this section results in whole or
in part from the indemnified person’s negligence or failure to act
in good faith, then the indemnity amount described in paragraph (b)(1)
of this section shall be reduced in proportion to the amount of negligence
or bad faith attributable to the indemnified person.
(ii) Nothing in this paragraph (b)(2)
reduces the rights of a consumer or any other person under the UCC
or other applicable provision of state or federal law.
(3) Effect of producing the original check or a
sufficient copy.
(i) If an indemnifying bank produces
the original check or a sufficient copy, the indemnifying bank shall—
(A) be liable under this section only for losses that are incurred
up to the time that the bank provides that original check or sufficient
copy to the indemnified person; and
(B) have a right to the return of any funds
it has paid under this section in excess of those losses.
(ii) The production
by the indemnifying bank of the original check or a sufficient copy
under paragraph (b)(3)(i) of this section shall not absolve the indemnifying
bank from any liability under any warranty that the bank has provided
under section 229.52 or other applicable law.
(c) Subrogation of rights.
(1) In general. An indemnifying bank shall be subrogated to the
rights of the person that it indemnifies to the extent of the indemnity
it has provided and may attempt to recover from another person based
on a warranty or other claim.
(2) Duty of indemnified
person for subrogated claims. Each indemnified person shall have
a duty to comply with all reasonable requests for assistance from
an indemnifying bank in connection with any claim the indemnifying
bank brings against a warrantor or other person related to a check
that forms the basis for the indemnification.
