Call Us (800) 460-6424 ☰ ˟
Information and Resources On The COVID-19 Pandemic: Click Here
Logo
(800) 460-6424
  • Home
  • Get A Quote
    • Agents E&O Quick Application
    • Commercial Crime Application
    • Commercial Crime Quick Application
    • Cyber Liability Application
    • Director's & Officer's Application
    • Director's & Officer's Quick Application
    • Employment Practices Liability Application
    • MGA/Wholesaler Application
    • Real Estate Professional Liability
  • Policy Review
  • Insurance for Your Agency
    • Errors & Omissions
    • D & O Insurance
    • Cyber Liability Insurance
    • Commercial Crime
    • Employee Dishonesty
    • Professional Liability Insurance
    • Punitive Damages
  • Resources
    • Articles
    • Refer a Friend
    • Insurance Glossary
    • Contact Us
    • Financial Ratings
  • About Us
    • About U.S. E & O Brokers
    • View our Blog
    • Our Locations
    • Employee Directory
    • Customer Testimonials
    • Privacy Policy
  • Blogs
real estate button
cyber liability button
master policy programs button
Home > Blog > No Crime Coverage for Social Engineering Fraud
TUESDAY, APRIL 18, 2017

No Crime Coverage for Social Engineering Fraud

man sitting in front of a computer distraught The United States Court of Appeals for the Ninth Circuit, applying California law, has held that a crime policy did not afford coverage for a loss caused by an insured’s initiation of wire transfers based on fraudulent email instructions.  Taylor & Lieberman v. Federal Ins. Co., 2017 WL 929211 (9th Cir. Mar. 9, 2017) .

The insured, an accounting firm, received several emails from a client’s email address with instructions for transferring client funds.  Believing the instructions to be genuine, the insured initiated the transfers.  The insured subsequently learned that a third party had gained access to the client’s email address and sent the payment instructions as part of a fraudulent scheme.  It then sought coverage for the loss under its crime policy, but the insurer denied coverage and coverage litigation ensued.  The district court granted summary judgment in favor of the insurer after concluding, as a threshold matter, that the insured could not show a “direct loss” because there were intervening causes between the initial fraudulent emails and the resulting loss.  (For the district court opinion, see here.)

On appeal, without addressing the “direct loss” issue, the court affirmed the decision on alternative grounds.

First, the court determined that the loss did not result “from Forgery or alteration of a Financial Instrument by a Third Party.”  The insured had contended that the words “financial instrument” only limited coverage for an alteration, and that a covered Forgery need not be of a financial instrument.  The court disagreed, holding that “under a natural reading of the policy, forgery coverage only extends to forgery of a financial instrument.”

Second, the court rejected the insured’s argument that the computer fraud coverage applied because the emails constituted an unauthorized “entry into” its computer system or “introduction of instructions” that “propogate[d] themselves” through the insured’s computer system.  The court reasoned that unwanted emails, without more, could not be considered an “unauthorized entry” into the recipient’s computer system.  In addition, “under a common sense reading of the policy,” the court found that the fraudulent emails were “not the type of instructions that the policy was designed to cover, like the introduction of malicious computer code.”  The court found the computer fraud coverage to be inapplicable on those grounds.

Third, the court ruled that the insured was not entitled to coverage for the “fraudulent written, electronic, telegraphic, cable, teletype or telephone instructions issued to a financial institution directing such institution to transfer, pay or deliver Money or Securities from any account maintained by an Insured Organization at such Institution, without an Insured Organization’s knowledge or consent.”  The court reasoned that, because the insured requested the wire transfers, the transfers were made with both its “knowledge” and “consent.”  The court also ruled that the coverage did not apply for the independent reason that the insured accounting firm was not a “financial institution.”

(Source: executivesummaryblog.com)
Posted 2:10 PM

Tags: crime coverage, social engineering fraud
Share |


No Comments


Post a Comment
Required
Required (Not Displayed)
Required


All comments are moderated and stripped of HTML.

NOTICE: This blog and website are made available by the publisher for educational and informational purposes only. It is not be used as a substitute for competent insurance, legal, or tax advice from a licensed professional in your state. By using this blog site you understand that there is no broker client relationship between you and the blog and website publisher.
Blog Archive
  • 2023
  • 2022
  • 2021
  • 2020
  • 2019
  • 2018
  • 2017
  • 2016
  • 2015
  • 2014

  • cyber liability insurance(30)
  • errors and omissions insurance(16)
  • e and o insurance(14)
  • business insurance(9)
  • directors and officers insurance(9)
  • d and o insurance(8)
  • eando insurance(7)
  • errors and omissions(7)
  • e&o insurance(6)
  • insurance(4)
  • coverage(4)
  • cyber insurance(3)
  • insurance agencies(3)
  • directors & officers insurance(3)
  • professional liability insurance(3)
  • directors and officer's insurance(2)
  • claims(2)
  • commercial crime insurance(2)
  • officers(2)
  • data breach(2)
  • small business owners(2)
  • small business insurance(2)
  • cyber liability(2)
  • omissions(2)
  • directors(2)
  • e & o(2)
  • tips to avoid scams(2)
  • errors(2)
  • policy(2)
  • covid-19(1)
  • ransomware(1)
  • phishing scams(1)
  • billing errors insurance(1)
  • dando insurance for insurance agencies(1)
  • fraud week(1)
  • crime coverage(1)
  • e and o(1)
  • cyber attacks(1)
  • eando insurance for insurance agencies(1)
  • storm surges(1)
  • finance(1)
  • cyber damage(1)
  • directors and officers insurance for the insurance industry(1)
  • social media(1)
  • white collar crime(1)
  • renewal(1)
  • insurance fraud(1)
  • commercial crime policy(1)
  • fraud(1)
  • fraud resources(1)

View Mobile Version

Featured Products

Featured Product Real Estate Featured Product Lawyers Featured Product Cyber Liability Featured Product Commercial Crime
Carrier
Carrier
Carrier
Carrier
Carrier
Carrier
Carrier
Logo
Social
Quick Links Home About Us Refer A Friend Contact Us
Location Corporate Headquarters
2050 W. Sam Houston Pkwy S Ste 1500, Houston, TX 77042
Contact O: 281-243-5755O: 713-984-1370F: 713-984-1152
© Copyright. All rights reserved. Powered by Insurance Website Builder