Chris McKibbin, Author at Fidelity Blog

Starr: New York Supreme Court applies Termination condition in finding No Coverage under Fidelity Bond for Loss caused to Insurer by Managing General Agent

In the recent decision of Starr Insurance Holdings, Inc. v. United States Specialty Insurance Company, the Supreme Court of the State of New York held that the termination condition applied to terminate coverage in respect of losses allegedly caused to an insured insurance company (itself a holder of a fidelity bond issued by two other carriers) by the insured’s managing general agent (“MGA”)/broker. Finding that the insured knew of the MGA’s dishonest acts prior to obtaining fidelity coverage, the Court applied the bond’s termination condition to hold that coverage terminated in respect of the MGA as of the inception of

Posco Daewoo: U.S. District Court applies Ownership Condition in rejecting Creditor’s “Reverse” Social Engineering Fraud Claim under its own Crime Policy

On November 19, 2018, the U.S. District Court for the District of New Jersey released its decision in Posco Daewoo America Corp. v. Allnex USA, Inc. and Travelers Casualty and Surety Company of America. The decision represents a “sequel” to the Court’s 2017 decision arising out of the same claim (see our November 6, 2017 post). The case features an interesting twist on the usual social engineering fraud claim scenario, in that it was the intended payee of the funds, not the payor, which asserted a claim under its own crime policy for recovery of funds which the payor had

CP Food: U.S. District Court finds No Coverage under Crime Policy for Insured’s Vicarious Liability for Theft of Customers’ Funds

In the recent decision of CP Food & Beverage, Inc. v. United States Fire Insurance Company, the U.S. District Court for the District of Nevada held that coverage was not available under a crime policy where the insured’s employees had defrauded the insured’s customers through misuse of customer credit cards. The decision makes important findings regarding the appropriate test for “direct loss” causation in a crime policy, and reaffirms the general principle that crime policies are not intended to indemnify insureds for their vicarious liability arising from employees’ theft of third parties’ property. The Facts CP Food & Beverage Inc.

Aqua Star: Ninth Circuit applies Authorized Entry Exclusion to Social Engineering Fraud Claim

Jump To: The Facts | The Decision | The Conclusion On April 17, 2018, the Ninth Circuit Court of Appeals released its decision in Aqua Star (USA) Corp. v. Travelers Casualty and Surety Company of America, affirming the decision of the U.S. District Court for the Western District of Washington (see our July 19, 2016 post). The decision offers guidance to fidelity insurers with respect to the application of the “authorized entry” exclusion found in the base wording of many commercial crime policies (sometimes referred to as the “authorized access” exclusion), and illustrates how this exclusion may operate in the

Hudson Heritage: U.S. District Court dismisses Fraudulent Loans claim where Credit Union failed to plausibly plead Alteration of Original Documents of Title

JUMP TO: THE FACTS | THE CUMIS COVERAGE | THE CONCLUSION On January 22, 2018, the U.S. District Court for the Southern District of New York released its decision in Hudson Heritage Federal Credit Union v. CUMIS Insurance Society, Inc., dismissing the insured credit union’s claim pursuant to Federal Rule 12(b)(6) for failure to state a claim upon which relief could be granted. According to its amended complaint, the insured had granted several vehicle finance loans on the strength of photocopies or electronic copies of New York State Department of Motor Vehicles (“DMV”) title documents. The copies received by the insured had been falsified to

Cooper Industries: Fifth Circuit applies Crime Policy’s Ownership Condition in finding No Coverage for Loss of Funds in Ponzi Scheme

Jump To: The Facts | The Ownership Condition | The Conclusion On November 20, 2017, the Fifth Circuit Court of Appeals released its decision in Cooper Industries, Limited v. National Union Fire Insurance Company of Pittsburgh, PA. The Court applied a crime policy’s ownership condition in ruling that the insured did not have coverage for the loss of funds incurred when an investment entity to which it had provided funds in exchange for promissory notes collapsed due to the entity’s principals’ Ponzi scheme. The dispute arose out of the same Ponzi scheme that gave rise to the decision of the

Posco Daewoo: U.S. District Court rejects Creditor’s “Reverse” Social Engineering Fraud Claim under its own Crime Policy

Jump To: The Facts | The Travelers Coverage | The Conclusion On October 31, 2017, the U.S. District Court for the District of New Jersey released its decision in Posco Daewoo America Corp. v. Allnex USA, Inc. and Travelers Casualty and Surety Company of America. This case features an interesting twist on the usual social engineering fraud claim scenario, in that it was the intended payee of the funds, not the payor, which asserted a claim under its own crime policy for recovery of funds which the payor had been duped into paying to an impostor. This type of claim

Teva: Supreme Court of Canada rejects Fictitious or Non-Existing Payee Defence in finding Collecting Banks Liable for Employee Cheque Fraud

Jump To: The Facts | The Tort of Conversion and the Bills of Exchange Act | The Conclusion On October 27, 2017 the Supreme Court of Canada released its long-awaited decision in Teva Canada Ltd. v. TD Canada Trust. In a 5:4 decision, the Supreme Court held that two banks that accepted fraudulent cheques procured by a dishonest employee were strictly liable in conversion to the employer, and could not establish the “fictitious or non-existing payee” defence afforded by subsection 20(5) of the Bills of Exchange Act. The decision is a welcome development for Canadian fidelity insurers who seek to

American Tooling Center: U.S. District Court finds no Coverage for Social Engineering Fraud Loss under Crime Policy’s Computer Fraud Insuring Agreement

JUMP TO: THE FACTS | THE COMPUTER FRAUD COVERAGE | THE CONCLUSION On August 1, 2017, the U.S. District Court for the Eastern District of Michigan released its decision in American Tooling Center, Inc. v. Travelers Casualty and Surety Company of America. The Court held that a vendor impersonation fraud loss did not fall within the terms of a crime policy’s computer fraud coverage. In coming to this conclusion, the Court found there was no direct causal link between the receipt of fraudulent emails by an insured requesting payment to the fraudster’s bank account, and the insured’s authorized transfer of funds to that bank account.

The Brick: Alberta Court of Queen’s Bench finds no Coverage for Social Engineering Fraud Loss under Crime Policy’s Funds Transfer Fraud Insuring Agreement

JUMP TO: THE FACTS | THE FUNDS TRANSFER FRAUD COVERAGE | THE CONCLUSION On July 4, 2017, the Alberta Court of Queen’s Bench released its decision in The Brick Warehouse LP v. Chubb Insurance Company of Canada. The Court found that a vendor impersonation loss did not fall within the terms of a crime policy’s Funds Transfer Fraud coverage. The case represents the first social engineering fraud decision in Canada since the widespread introduction of discrete social engineering fraud coverage, and confirms the principles adopted in several recent American social engineering fraud decisions, including the Ninth Circuit’s decision in Taylor & Lieberman (see our April

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