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U.S. Code as of:
01/19/04
Section 5005. Indemnity
(a) Indemnity
A reconverting bank and each bank that subsequently transfers,
presents, or returns a substitute check in any electronic or paper
form, and receives consideration for such transfer, presentment, or
return shall indemnify the transferee, any subsequent collecting or
returning bank, the depositary bank, the drawee, the drawer, the
payee, the depositor, and any endorser, up to the amount described
in subsections (b) and (c), as applicable, to the extent of 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.
(b) Indemnity amount
(1) Amount in event of breach of warranty
The amount of the indemnity under subsection (a) shall be the
amount of any loss (including costs and reasonable attorney's
fees and other expenses of representation) proximately caused by
a breach of a warranty provided under section 5004 of this title.
(2) Amount in absence of breach of warranty
In the absence of a breach of a warranty provided under section
5004 of this title, the amount of the indemnity under subsection
(a) shall be the sum of -
(A) the amount of any 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).
(c) Comparative negligence
(1) In general
If a loss described in subsection (a) results in whole or in
part from the negligence or failure to act in good faith on the
part of an indemnified party, then that party's indemnification
under this section shall be reduced in proportion to the amount
of negligence or bad faith attributable to that party.
(2) Rule of construction
Nothing in this subsection reduces the rights of a consumer or
any other person under the Uniform Commercial Code or other
applicable provision of Federal or State law.
(d) Effect of producing original check or copy
(1) In general
If the indemnifying bank produces the original check or a copy
of the original check (including an image or a substitute check)
that accurately represents all of the information on the front
and back of the original check (as of the time the original check
was truncated) or is otherwise sufficient to determine whether or
not a claim is valid, the indemnifying bank shall -
(A) be liable under this section only for losses covered by
the indemnity that are incurred up to the time that the
original check or copy is provided to the indemnified party;
and
(B) have a right to the return of any funds it has paid under
the indemnity in excess of those losses.
(2) Coordination of indemnity with implied warranty
The production of the original check, a substitute check, or a
copy under paragraph (1) by an indemnifying bank shall not
absolve the bank from any liability on a warranty established
under this chapter or any other provision of law.
(e) Subrogation of rights
(1) In general
Each indemnifying bank shall be subrogated to the rights of any
indemnified party to the extent of the indemnity.
(2) Recovery under warranty
A bank that indemnifies a party under this section may attempt
to recover from another party based on a warranty or other claim.
(3) Duty of indemnified party
Each indemnified party 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 party related to a check that forms the basis
for the indemnification.
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