On November 19, 2018, 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.  The decision represents a “sequel” to the Court’s 2017 decision arising out of the same claim (see our November 6, 2017 post).  The 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 has been referred to as a “reverse” social engineering fraud claim.  Numerous such claims have been advanced by intended payees recently, typically when it comes to light that the payor did not maintain its own social engineering fraud coverage.

The 2017 decision dismissed the claim of the insured, Posco Daewoo America Corp. (“Daewoo”), under Fed. R. Civ. P. 12(b)(6) for failure to state a claim upon which relief could be granted (this is similar to Ontario’s Rule 21.01(1)(b)).  However, the Court granted leave to Daewoo to re-plead its claim.  In so doing, Daewoo made some novel arguments concerning the scope of the ownership condition.

Continue Reading Posco Daewoo: U.S. District Court applies Ownership Condition in rejecting Creditor’s “Reverse” Social Engineering Fraud Claim under its own Crime Policy

Blaneys partners David Wilson and Chris McKibbin will attend the joint FLA/ABA FSLC Conference in Philadelphia.  The FLA Conference on November 7 has a solid emphasis on cybercrime, while also addressing other important contemporary issues.  Program Chairs Theresa A. Gooley and Samuel J. Arena, Jr. have assembled a series of timely presentations, covering the impact of digital technology on forgery coverage; ERISA fidelity insurance; the continuing problem of the application of the tort concept of “proximate cause” to the interpretation of causation language in fidelity policies; comparing and contrasting Insuring Agreements (D) and (E); and a panel discussion on cybercrime, covering prevention, available products, coverages and claims.

Chris will co-present Tales From The Crypt: Cryptocurrency Is Here — How Will Crime Insurers Respond? which examines potential loss scenarios involving cryptocurrency and how they compare and contrast with traditional fidelity loss scenarios.

  • To register, or for more information, click here.
  • A copy of the conference brochure may be accessed here.

The ABA FSLC Fall Meeting on November 8 is entitled “An Analysis of Fidelity Claims for the Modern World.”  The program will address important substantive and practical issues germane to today’s fidelity claims handling.  Program Chairs Robin Segal-Gonzalez and Justin Wear have designed a lineup of presentations that will update participants on recent developments and claims handling strategies. The focus will be on a pragmatic discussion and implementation of specific skills with an eye toward pressing legal issues, ethical issues, and strategy. The topics include developments in cybercrime; a comparison of employee dishonesty vs. theft wordings; policy conditions regarding notice and proof of loss, as well as filing of suit; and causation in the context of fictitious collateral cases.

Chris will participate in the panel entitled The Fidelity Recovery Playbook: Practical Strategies for Maximizing Recovery, which canvasses litigation strategies and tools carriers can use to maximize recoveries against defaulters, confederates, third-party beneficiaries, auditors and banks.

  • To register, or for more information, click here.
  • A copy of the conference brochure may be accessed here.

 

In the recent decision of CP Food & Beverage, Inc. v. United States Fire Insurance Company, the U.S. District Court for the District of Nevada held that coverage was not available under a crime policy where the insured’s employees had defrauded the insured’s customers through misuse of customer credit cards.  The decision makes important findings regarding the appropriate test for “direct loss” causation in a crime policy, and reaffirms the general principle that crime policies are not intended to indemnify insureds for their vicarious liability arising from employees’ theft of third parties’ property.

Continue Reading CP Food: U.S. District Court finds No Coverage under Crime Policy for Insured’s Vicarious Liability for Theft of Customers’ Funds

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 context of a social engineering fraud loss.

Continue Reading Aqua Star: Ninth Circuit applies Authorized Entry Exclusion to Social Engineering Fraud Claim

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 misrepresent the names of the owners/sellers.  The Court found that the insured’s complaint failed to plead that its losses had resulted directly from forgery or alteration of an “instrument”, which the bond in issue defined as an “original … document of title”.

Continue Reading 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 Ownership Condition | The Conclusion

On November 20, 2017, the Fifth Circuit Court of Appeals released its decision in Cooper Industries, Limited v. National Union Fire Insurance Company of Pittsburgh, PA.  The Court applied a crime policy’s ownership condition in ruling that the insured did not have coverage for the loss of funds incurred when an investment entity to which it had provided funds in exchange for promissory notes collapsed due to the entity’s principals’ Ponzi scheme.

The dispute arose out of the same Ponzi scheme that gave rise to the decision of the Eighth Circuit in 3M Company v. National Union Fire Insurance Company of Pittsburgh, PA (see our June 13, 2017 post).  Although there are important factual distinctions between the two losses, the Fifth Circuit reached the same conclusion as the Eighth Circuit in finding that the insured had not demonstrated that it owned the property in issue.

Continue Reading Cooper Industries: Fifth Circuit applies Crime Policy’s Ownership Condition in finding No Coverage for Loss of Funds in Ponzi Scheme

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 has been referred to as a “reverse” social engineering fraud claim. Numerous such claims have been advanced by intended payees recently, typically when it comes to light that the payor did not maintain its own social engineering fraud coverage.

The Court applied traditional concepts of ownership in finding that the intended payee did not “own” the funds at any time, and thus could not establish that its claim met the ownership condition in its policy.

Continue Reading Posco Daewoo: U.S. District Court rejects Creditor’s “Reverse” Social Engineering Fraud Claim under its own Crime Policy

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 subrogate against banks in respect of certain types of employee cheque frauds. The Supreme Court reversed the decision of the Court of Appeal for Ontario, which had found that the payees were either fictitious or non-existing. The Supreme Court’s decision places fidelity insurers in an excellent position to look to banks as subrogation targets in appropriate circumstances.

Continue Reading Teva: Supreme Court of Canada rejects Fictitious or Non-Existing Payee Defence in finding Collecting Banks Liable for Employee Cheque Fraud

Blaneys partners David Wilson and Chris McKibbin will attend the joint FLA/ABA FSLC Conference. The FLA Conference on November 8 will focus on contemporary fidelity insurance issues, including social engineering fraud claims, knowledge of prior dishonesty, rescission, forensic investigations and communications with claimants and witnesses. The curriculum is designed for fidelity claims professionals, underwriters and lawyers. Chris will moderate the panel entitled The Future Ain’t What It Used To Be: Challenges Facing Fidelity and Commercial Crime Insurers in the 2020s. This panel addresses developing fidelity risks and exposures such as social engineering fraud, ransomware and Bitcoin and other cryptocurrencies.

  • To register, or for more information, click here.
  • A copy of the conference brochure may be accessed here.

The ABA FSLC Fall Meeting on November 9-10 is entitled “Managing and Litigating the Complex Fidelity Claim.” The program is designed as a workshop that will help fidelity claims professionals and lawyers gather useful practical tips to employ in claims handling. The program will feature a number of panel discussions on topics such as effective communications with insureds, discoverability of insurance company documents, ethics considerations, confidentiality agreements and litigation strategies. Chris will participate in the panel entitled Criminal Prosecution of the Accused, which considers how the fidelity claim investigation is affected by parallel criminal investigation and prosecution.

  • To register, or for more information, click here.
  • A copy of the conference brochure may be accessed here.
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.

Continue Reading American Tooling Center: U.S. District Court finds no Coverage for Social Engineering Fraud Loss under Crime Policy’s Computer Fraud Insuring Agreement