Dragnet Clause Is Enforceable

The U.S. Court of Appeals for the Seventh Circuit has held that a dragnet clause within a master security agreement was effective, even though a subsequent loan agreement remained silent as to whether pre-existing collateral secured the new advance. Universal Guaranty Life Ins. Co. v. Coughlin, 481 F.3d 458 (7th Cir., March 14, 2007).

On April 30, 2002, Marine Bank entered into a loan and security agreement with debtor Health Management Limited Partnership (the "Debtor"), granting Marine Bank a first priority security interest in, among other things, the Debtor's accounts receivable, to secure all "obligations" between the parties. The definition of "obligations" included all indebtednesses between the parties "now existing or hereafter arising" (i.e., a "dragnet" clause). Plaintiff Universal Guaranty Life Insurance Company ("Universal") held a junior lien against the Debtor's accounts receivable.