Hunton Insurance Recovery Blog

A federal court recently found that a policyholder adequately plead that a loss of hundreds of thousands of dollars through wire fraud is covered under a commercial crime policy. In Landings, Yacht, Golf, and Tennis Club v. Travelers Casualty and Surety Company of America Case No. 2:22-cv-00459, Landings Yacht, Golf, and Tennis Club (“Landings”) sued Travelers Casualty and Surety Company of America (“Travelers”) under a crime policy for denying coverage for: (1) about $6,885.79 in unauthorized withdrawals (“First Withdrawal”) from users purporting to be Landings and (2) $575,723.95 in withdrawals made by a third-party purporting to act on behalf of Landings (“Second Withdrawal”).^[1]

As businesses continue to increase their reliance on technology, they are bound to face the inevitable risks associated with online transactions and other cyber exposures. This, in turn, emphasizes the importance of having the proper insurance policies and compliance methods in place to prevent or, at least, mitigate losses that ensue from these risks. In this context, many insurance policies require that there be a “direct” loss for there to be coverage, which has spawned numerous lawsuits about what the word “direct” means. The latest court to weigh in has sided with the insured and interpreted that term broadly to essentially mean proximate causation.

Recently, the Ninth Circuit dealt with a case involving a scenario that is becoming all too common. In Ernst & Haas Mgmt. Co., Inc. v. Hiscox, Inc., 23 F.4th 1195 (9th Cir. 2022), a property management company’s accounts payable clerk received several e-mails from her supervisor instructing her to pay some invoices. Unbeknownst to the clerk, these e-mails did not originate with her supervisor, but were actually part of a fraudulent scheme to elicit fraudulent bank transfers. The clerk paid off hundreds of thousands of dollars in “invoices” before becoming suspicious but, by then, it was too late and the damage was done.

On December 9^th, the Eleventh Circuit held that a loss of over $1.7 million to scammers was covered under a commercial crime insurance policy’s fraudulent instruction provision.

A federal judge in Georgia held last week that a Commercial Crime Policy must cover a $1.7 million wire-transfer of funds precipitated by a fraudulent e-mail, purportedly authored by one of the insured's managing directors. The decision marks yet another attempt by insurers to improperly narrow the scope of coverage afforded for cyber and technology-related losses.