With developments in technology, new forms of fraud have arisen that are leading to more business insurance claims. Coverage disputes for losses caused by fraud are becoming more complicated, and courts have differed when defining what exactly constitutes a “direct loss.” To best protect themselves, insurance companies and their insurance lawyers need to take a look at the policy language and the types of technology that contribute to fraud.
Recent Cases Regarding Fraud
In American Tooling Center, Inc. v. Travelers Casualty and Surety Co., 2017 WL 3263356 (E.D. Mich., August 1, 2017), American Tooling was a victim of fraud when a fake email from a vendor asked for payment. American Tooling authorized and initiated a wire transfer, which went to the fraudulent source. Although American Tooling did have computer crime coverage under its business insurance coverage, a court ruled the incident wasn’t covered because it wasn’t considered a “direct loss.” The court explained that emails themselves did not directly cause the transfer of funds but rather ATC authorized the transfer based upon the information received in the emails. To hold otherwise would be to convert the computer crime policy to a “General Fraud” policy.
However, in Medidata Solutions, Inc. v. Federal Insurance Co., 2017 WL 3268529 (S.D.N.Y. July 21, 2017), the outcome was different. Medidata received fraudulent emails appearing to come from the company’s president requesting a multimillion-dollar wire transfer. The employee who received the emails followed company protocols for payment, and eventually the payment was authorized. Medidata’s computer crime coverage was specific, and only covered losses caused by a “computer violation,” which was defined as “fraudulent (a) entry of Data into a Computer System . . . and (b) change to Data elements or program logic of a Computer System.” The court decided hacking was not necessary to trigger coverage. Coverage could be triggered by the fact that the perpetrator violated the integrity of a computer system through unauthorized access to it.
Preparing For New Developments In Business Insurance
Business insurance policies must be reexamined to prepare for new developments in insurance law. Because courts have differed on coverage for business fraud, insurance companies must work with experienced insurance lawyers who are on the forefront of changes in insurance law. At MehaffyWeber, our attorneys have been working with insurance companies for decades to help them write clear policies and to enforce them when necessary in court. Don’t wait until litigation happens to get coverage advice. Contact us today to schedule an appointment.