This is a false pretense question. Our insured is a used car dealer. He took a check from a customer, but later found out that the account had been closed for over a year. Will the following exclusion apply?
(2) False Pretense Coverage does not apply to a "loss" which, for any reason, a bank or any other drawee fails to pay.
Arkansas Subscriber
Unfortunately for the insured, this exclusion will apply to this situation. The exclusion means the bank or any other drawee (a credit card company, for example) is failing to honor the drawer's instructions to draw money out of the account to pay for the item, whether due to insufficient funds, closed account, or other reason.
This is a situation in which the insured is supposed to protect himself by using sound business practices; for example, checking credit reports and checking with a bank to see if the checking account is valid, or waiting for a check to clear before handing over the purchased item. False pretense coverage is not meant to protect an insured who does not follow sound and reasonable business practices—an insured who fails to take any responsibility upon himself to protect his property and interests.