(Article from Insurance Law Alert, March 2015)
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The Eleventh Circuit ruled that a property, liability, and crime policy did not provide coverage for losses resulting from the electronic theft of funds by cyber hackers. Metro Brokers, Inc. v. Transp. Ins. Co., 2015 WL 925301 (11th Cir. Mar. 5, 2015).
Metro Brokers maintained bank accounts with Fidelity Bank. In 2011, thieves used a computer virus to gain access to Metro Brokers employee identification numbers and passwords, and illegally authorized the transfer of payments from a Metro Brokers client’s account to other accounts. Metro Brokers sought coverage from Transportation Insurance Company ("TIC") pursuant to a Fraud and Alteration endorsement. TIC denied coverage, citing a "malicious-code and system penetration exclusion." In ensuing litigation, a Georgia district court granted TIC’s summary judgment motion. The Eleventh Circuit affirmed.
The Eleventh Circuit ruled that the loss was not covered by the Fraud and Alteration endorsement, which provided coverage for "loss resulting directly from ‘forgery’ or alteration of, on, or in any check, draft, promissory note, bill of exchange, or similar written promise, order or direction to pay a sum certain." The term "forgery" was defined as "the signing of the name of another person or organization with intent to deceive." The court held that the electronic fund transfers did not involve any of the written instruments listed in the endorsement and could not be characterized as a "written promise, order or direction to pay." In so ruling, the court noted that under federal and Georgia law, electronic fund transfers are distinguished from and treated differently than fund transfers made by check, draft, or bill of exchange. The court also held that because the theft did not involve the "signing of [a] name," there was no forgery under the policy. In this context, the court held that the use of stolen identification numbers and passwords is not equivalent to the signing of another person’s name. Although a Georgia appellate court has held that the theft of a bank card and personal identification number constituted a "forgery" under a homeowners policy, the Metro Brokers court distinguished that decision on the basis that the term "forgery" was undefined in the policy at issue in that case, whereas here, the term was "expressly and unambiguously" defined.