Forgery Archives : Fidelity Blog

Brooks & Derensis: U.S. District Court finds No Coverage for Cheque Fraud Loss under Forgery Insuring Agreements

By Chris McKibbin and Daniel Silla On September 19, 2023, the U.S. District Court for the District of Massachusetts released its decision in Brooks & Derensis, P.C. v. Twin Cities Fire Insurance Co. The Court held that no coverage was available to a law firm that transferred funds out of its trust account on the strength of a cashier’s cheque which turned out to be forged. The Court reviewed two discrete, but similar, forgery coverages in the insured’s package policy, and concluded that the cashier’s cheque in issue did not meet the elements of coverage for either insuring agreement

Cachet Financial Services: U.S. District Court finds No Coverage under Commercial Crime Policy for Alleged ACH Kiting and Related Frauds

By Chris McKibbin and Daniel Silla In the recent decision of Cachet Financial Services v. Berkley Insurance Company, the United States District Court for the Central District of California found no coverage under a commercial crime policy in respect of several alleged frauds involving a payroll processor. The decision is instructive for fidelity claims professionals as to the meaning of “alteration” in the Forgery insuring agreement found in commercial crime and financial institutions coverages. The decision also reinforces existing jurisprudence that restricts the Computer Fraud insuring agreement to situations involving “hacking” and unauthorized access, rather than fraudulent misuse of

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

C.S. McCrossan Inc.: Eighth Circuit applies Crime Policy’s Authorized Representative Exclusion in finding No Coverage for loss caused by Insured’s Property Manager’s Employee

On August 6, 2019 the Eighth Circuit Court of Appeals released its decision in C.S. McCrossan Inc. v. Federal Insurance Company. The decision addresses a host of coverage issues, including the application of the “Authorized Representative” exclusion and the definitions of “Subsidiary” and “Contractual Independent Contractor.” The case is instructive for fidelity claims and underwriting professionals, as well as brokers and corporate risk managers. The Facts C.S. McCrossan Inc. (“McCrossan”) maintained a subsidiary, Blakeley Properties, LLC (“Blakeley”). One of McCrossan’s owners also owned a separate company, Stewart Properties, LLC (“Stewart”). Blakeley and Stewart owned commercial rental properties. Through intermediate

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

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

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

Citizens Bank: U.S. District Court rejects contra proferentem reading of Financial Institution Bond in finding No Coverage for Forged USDA Guarantees

On November 16, 2016, the U.S. District Court for the Eastern District of Wisconsin released its decision in Citizens Bank Holding Inc. v. Atlantic Specialty Insurance Co. The Court held that forged business loan guarantees purportedly issued by the U.S. Department of Agriculture (USDA) did not qualify for indemnity under Insuring Agreements D or E of a Financial Institution Bond. The decision is notable in that it reaffirms the interpretive principle that the Bond is not to be interpreted contra proferentem, as it is a product of negotiation between the banking and fidelity insurance industries. The Facts Citizens Bank maintained

Tesoro Refining: Fifth Circuit analyzes scope of “Unlawful Taking” and “Forgery” in Commercial Crime Policy’s Employee Theft Coverage

In our April 14, 2015 post, we analyzed the decision of the U.S. District Court for the Western District of Texas in Tesoro Refining & Marketing Company LLC v. National Union Fire Insurance Company of Pittsburgh, Pennsylvania and its implications for what constitutes “unlawful taking” for the purposes of the Employee Theft coverage. The Fifth Circuit Court of Appeals recently affirmed the District Court’s grant of summary judgment in favour of National Union. The Facts The insured (“Tesoro”) was a refiner and marketer of petroleum products. In 2003, Tesoro began selling fuel to Enmex, a petroleum distributor, on credit. The manager

Tesoro Refining: U.S. District Court analyzes scope of “Unlawful Taking” and “Forgery” under Employee Theft Coverage in Commercial Crime Policy

On April 7, 2015, the U.S. District Court for the Western District of Texas released its decision in Tesoro Refining & Marketing Company LLC v. National Union Fire Insurance Company of Pittsburgh, Pennsylvania. The decision analyzes what constitutes “unlawful taking” for the purposes of the Employee Theft coverage, and also provides guidance with respect to the forgery clause now found in some forms of that coverage. The Facts The insured (“Tesoro”) was a refiner and marketer of petroleum products. In 2003, Tesoro began selling fuel to Enmex, a petroleum distributor, on credit. The alleged defaulter, Leavell, was the manager of