FCL Fidelity Blog

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SJ Computers: U.S. District Court finds No Coverage for Business Email Compromise Loss under Computer Fraud Coverage

By Chris McKibbin and Daniel Silla On August 12, 2022, the U.S. District Court for the District of Minnesota released its decision in SJ Computers, LLC v. Travelers Casualty and Surety Company of America.  In finding that an alleged business email compromise loss did not fall within a crime policy’s Computer Fraud coverage, the Court provided instructive commentary regarding the policy’s direct loss requirement.  The decision is notable in holding that the alleged hacking of an insured’s email system did not bring the loss within the Computer Fraud coverage grant, as the immediate cause of the loss was the

Mississippi Silicon: Fifth Circuit finds No Coverage for Social Engineering Fraud Loss under Crime Policy’s Computer Fraud Coverage

On February 4, 2021, the Fifth Circuit Court of Appeals released its decision in Mississippi Silicon Holdings, LLC v. AXIS Insurance Company. In affirming the lower court’s grant of summary judgment in favour of AXIS, the Fifth Circuit made important findings regarding the proper scope of the Computer Fraud coverage; whether a fraudster’s opening of a “fraudulent channel” in an insured’s email system meets the requirements of that coverage; and whether it is appropriate to consider a policy’s Social Engineering Fraud (SEF) coverage in interpreting the scope of the Computer Fraud coverage. The Facts Mississippi Silicon Holdings, LLC (“MSH”) is

Sanderina: U.S. District Court Finds No Coverage for Social Engineering Fraud Loss under Crime Policy

In the recent decision of Sanderina, LLC v. Great American Insurance Company, the U.S. District Court for the District of Nevada rejected an insured’s claim that a social engineering fraud loss arising from a “phony executive” email scam was covered under a commercial crime policy. Following leading U.S. authorities such as the Ninth Circuit’s Taylor & Lieberman decision (see our April 3, 2017 post), the Court found that none of the Forgery, Computer Fraud or Funds Transfer Fraud insuring agreements responded in respect of the email scam. The Facts In 2017, an unknown third party sent a series of emails

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.

Taylor & Lieberman: Ninth Circuit finds No Coverage under Crime Policy for Client Funds lost in Social Engineering Fraud

In the recent decision of Taylor & Lieberman v. Federal Insurance Company, the Ninth Circuit Court of Appeals affirmed a decision of the U.S. District Court for the Central District of California holding that a business management firm did not have coverage in respect of client funds which it was fraudulently induced to wire overseas. While the District Court had held that the insured had failed to establish that it had sustained any “direct” loss at all (see our July 14, 2015 post), the Ninth Circuit affirmed the result on other grounds, holding that the insured had also failed to

InComm: U.S. District Court holds that Computer Fraud Coverage does not respond in Prepaid Debit Card Scheme

Guest Co-Author: John Tomaine On March 16, 2017, the U.S. District Court for the Northern District of Georgia released its decision in InComm Holdings, Inc. v. Great American Insurance Company. The Court held that Great American’s computer fraud coverage did not respond where holders of prepaid debit cards used multiple simultaneous telephone calls to exploit a coding error in the insured’s computer system, thereby fraudulently increasing the balances on the cards. The Court also applied the recent appellate decisions in Apache (see our October 24, 2016 post) and Pestmaster (see our August 4, 2016 post) in holding that the loss scenario

Apache Corporation: Fifth Circuit holds that Commercial Crime Policy’s Computer Fraud Coverage does not extend to Social Engineering Fraud Loss

On October 18, 2016, the U.S. Court of Appeals for the Fifth Circuit released its opinion in Apache Corporation v. Great American Insurance Company.  This is one of the first appellate decisions to consider coverage for a social engineering fraud loss under “traditional” commercial crime policy wording since the widespread introduction of social engineering fraud endorsements.  In holding that the loss did not trigger indemnity under the Computer Fraud coverage, the Fifth Circuit adopted the interpretive approach to Computer Fraud coverage taken by the Ninth Circuit in Pestmaster Services v. Travelers (which we discussed in our August 4, 2016 post)

Pestmaster: Ninth Circuit affirms Fidelity Insurer’s Intent on Scope of Computer Fraud and Funds Transfer Fraud Coverages

In our January 6, 2015 post, we analyzed the decision of the U.S. District Court for the Central District of California in Pestmaster Services, Inc. v. Travelers Casualty and Surety Company of America and its implications for the interpretation of the Computer Fraud and Funds Transfer Fraud coverages.  On July 29, 2016, the Ninth Circuit Court of Appeals released a brief opinion affirming the District Court’s interpretations of these coverages. The Facts Pestmaster, a pest control business, was insured under a Travelers Wrap+ policy.  In 2009, Pestmaster hired a payroll company, Priority 1, to handle its payroll and payroll tax

Aqua Star: U.S. District Court applies “Authorized Entry” Exclusion to claim under Computer Fraud Coverage

On July 8, 2016, the U.S. District Court for the Western District of Washington released its decision in Aqua Star (USA) Corp. v. Travelers Casualty and Surety Company of America.  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 context of a social engineering fraud loss. The Facts The insured, Aqua Star (USA) Corp. (“Aqua Star”), is a seafood importer that had a pre-existing relationship with a

Pestmaster: U.S. District Court affirms Fidelity Insurer’s Intent on Scope of Computer Fraud and Funds Transfer Fraud Coverages

In Pestmaster Services, Inc. v. Travelers Casualty and Surety Company of America, the U.S. District Court for the Central District of California granted partial summary judgment in favour of Travelers on a claim advanced under its Computer Fraud and Funds Transfer Fraud coverages.  The decision provides valuable guidance regarding the scope of these coverages. The Facts Pestmaster, a pest control business, was insured under a Travelers Wrap+ policy.  In 2009, Pestmaster hired a payroll company, Priority, to handle its payroll and payroll tax obligations.  Pestmaster executed an ACH authorization which authorized Priority to obtain payment of Priority’s approved invoices by