FCL Fidelity Blog

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Star Title Partners: Eleventh Circuit finds No Coverage for Social Engineering Fraud Loss under Cybercrime Endorsement to Cyber Protection Policy

By Chris McKibbin and Devra Charney On September 6, 2022, the Eleventh Circuit Court of Appeals released its decision in Star Title Partners of Palm Harbor, LLC v. Illinois Union Insurance Company.  In deciding that a social engineering fraud (SEF) loss did not fall within the coverage afforded under a Deceptive Transfer Fraud insuring clause, the Court construed the terms “employee,” “customer,” “client” and “vendor” according to their ordinary meanings.  As the entity impersonated by the fraudster did not qualify as an employee, customer, client or vendor of Star Title, no coverage was available.  The decision is notable as

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

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

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

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

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

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)