In SJ Computers LLC v. Travelers Casualty and Surety Company of America, the U.S. District Court for the District of Minnesota recently addressed the scope of insurance available for a phishing scheme under the terms of a crime policy. The fact pattern leading to the insurance claim in SJ Computers is a familiar one: SJ Computers’ purchasing manager received fraudulent invoices from a bad actor purporting to be a legitimate vendor, ERI Direct. The invoices directed SJ ... Keep Reading »
Fidelity/Bond
Texas Federal Court Finds No Coverage Under Crime Policy for Phishing Scheme Because Insured Did Not “Hold” Diverted Funds and Suffered No Direct Loss
RealPage was the victim of a phishing scheme that resulted in the diversion of its client funds from the bank account of a third-party payment processer, Stripe Inc. In the ensuing insurance coverage litigation styled RealPage Inc. v. National Union Fire Insurance Company of Pittsburgh, the court ultimately concluded that RealPage was not entitled to coverage for its loss because RealPage did not “hold” the diverted funds and because RealPage did not suffer a direct loss ... Keep Reading »
Years of Embezzlement Precluded From Coverage Under E&O Policy’s Commingling Exclusion
A federal district court in North Dakota recently granted an insurer’s motion to dismiss in Campbell Property Management LLC v. Lloyd’s Syndicate 3624, finding that both prongs of a “commingling exclusion” to coverage applied. The court granted the insurer’s motion to dismiss the breach of contract and bad faith claims asserted by Campbell Property Management, finding that there was no coverage for the subject acts, and thus there could be no bad faith. Lloyd’s issued ... Keep Reading »
Crime Policy Won’t Cover Strip Club That Overcharged for Undressing, Says Nevada District Court
In CP Food & Beverage, Inc. v. United States Fire Insurance Company, No. 2:16-cv-024210APG-GWF (D. Nev. Aug. 6, 2018), the U.S. District Court in Nevada found that a commercial crime policy’s coverage for loss “resulting directly” from employee theft did not cover the insured’s liability to reimburse its customers who were overcharged by employees. Instead, the court followed the “direct means direct” approach and ruled that the policy provided coverage only for the ... Keep Reading »
New Opinions From Second and Sixth Circuit Courts Rock Phishing Loss Coverage Landscape
On July 6, the Second Circuit Court of Appeals set off some fireworks in the insurance coverage litigation field when it found coverage for a “social engineering”/phishing scheme loss, bucking the trend among its sister courts. The appellate court affirmed a Southern District of New York decision that had been a relative outlier, finding coverage under a crime/fidelity policy for a scheme where fraudsters used spoof emails to trick company employees into changing wiring ... Keep Reading »
Fidelity Coverage for Social Engineering Scams: The Ninth Circuit Upholds an Authorized Use Exclusion
Losses from social engineering schemes continue to grow exponentially. According to FBI data published in early 2017, losses from these schemes totaled over $3 billion between 2013, when the FBI started tracking data, and the end of 2016. One recent estimate suggests projected growth to over $9 billion in 2018 alone. The problem is not going away; it's getting much, much worse. Under these schemes, perpetrators trick company employees into believing that they have ... Keep Reading »
Eighth Circuit Orders Coverage For Hackers’ Fraudulent Wire Transfer
Financial institution bonds come in various forms, depending on the nature of the insured business (e.g. bank, broker, insurance company). Common forms are fidelity bonds and commercial crime policies. These policies provide first party coverage against losses caused by employee dishonesty, forgery, kidnap, ransom & extortion, computer fraud and other specified financial frauds. These policies are common, and in some cases required by law, for banks, insurers, and ... Keep Reading »
Arise and Exclude: Artful Pleading Fails to Circumvent Contractual Liability Exclusion
Awake, arise or be forever fall'n. - John Milton It's not uncommon for plaintiffs to couch their pleadings in terms that attempt to avoid exclusions in defendants' liability coverage. The plaintiffs in Bond Safeguard Ins. Co. v. National Union Fire Ins. Co. of Pittsburgh, Pa., No. 14-15233 (11th Cir. Oct. 5, 2015), appear to have had this goal in mind when they sought to recover payments it had made under certain surety bonds. The plaintiffs sued for negligence, but ... Keep Reading »