Courts Rule That Crime Policies Cover Wire Fraud

This information originally appeared in an article by Steve Gottheim for ALTA on August 28, 2018

Recently, two federal circuit courts found coverage under a crime policy’s computer fraud provision for losses from a spoofing attack. Here’s a look at some of the recent court rulings affecting cyber coverage.

• In American Tooling Center, Inc. v. Travelers Casualty and Surety Co. of America, No. 17-2014, 2018 WL 3404708 (6th Cir. July 13, 2018), the Sixth Circuit found a crime policy that covered direct losses due to computer fraud covered $800,000 in losses for payments made by a manufacturer intended for its supplier. The Sixth Circuit rejected arguments by Travelers that coverage did not exist because American Tooling did not suffer a “direct loss”.
• In Medidata Solutions Inc. v. Federal Insurance Co., No. 17-2492, 2018 WL 3339245 (2d Cir. July 6, 2018), the Second Circuit found that fraudsters crafted a computer-based attack to manipulate Medidata’s email system, resulting in Medidata’s finance team transferring $4.8 million to a fraudulent bank account. This as akin to hacking in the court’s view and within the coverage of the policy.
• In contrast, in Apache Corp. v. Great American Ins. Co., 662 F. App’x 252 (5th Cir. 2016) the Fifth Circuit reversed a lower court and denied coverage, stating that the loss did not result directly from the use of any computer as required under the policy. The court explained that while it was part of the scheme the email was incidental to the wire transfer. The rationale was the that the transfer of funds was made only because the employees ‘‘failed to investigate accurately’’ the false instructions.

Read the full article:

• ALTA: Two Courts Rule Crime Policies Cover Wire Fraud, Business Email Compromise