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.


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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.


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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.


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JUMP TO: THE FACTS | THE OWNERSHIP CONDITION | THE CONCLUSION

Guest Co-Author: John Tomaine

On May 31, 2017, the Eighth Circuit Court of Appeals released its decision in 3M Company v. National Union Fire Insurance Company of Pittsburgh, PA. The Court affirmed the decision of the U.S. District Court for the District of Minnesota (see our October 13, 2015 post), which had applied a crime policy’s ownership condition in ruling that the insured did not have coverage for the loss of investment earnings incurred when an investment entity in which it had a limited partnership interest collapsed due to the entity’s principals’ Ponzi scheme. The Eighth Circuit’s decision provides a good illustration of the interaction between the ownership condition and statutory and common law concepts of “ownership” as they relate to partnerships.


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Guest Co-Author: John Tomaine

[Editors’ note: Our guest co-author John Tomaine is the owner of John J. Tomaine LLC, a fidelity insurance and civil mediation consultancy in New Jersey. After over thirty-one years with the Chubb Group of Insurance Companies, he retired as a Vice President in 2009. He is an attorney admitted