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A New Jersey district court ruled that a crime policy does not cover losses arising out of a fraudulent wire transfer because the insured never had ownership of the funds.  Posco Daewoo Am. Corp. v. Allnex USA, Inc., 2017 WL 4922014 (D.N.J. Oct. 31, 2017).

The dispute arose out of a wire transfer that originated with a series of fraudulent emails.  Allnex owed Posco money for a shipment of chemicals.  An imposter posing as a Posco employee sent emails to Allnex requesting that payment be sent to certain bank accounts.  Without confirming the authenticity of the imposter’s email or bank accounts, Allnex wired numerous payments to the imposter.  After the fraud was discovered, some but not all of the money was recovered and sent to Posco.  When Allnex refused to pay the remainder of the amount due, Posco sought coverage from Travelers pursuant to a crime policy, which the insurer denied.  In ensuing litigation, the court granted Travelers’ motion to dismiss the complaint.

The parties disputed whether the losses arose out of “computer fraud” and whether there was a “direct loss” given the intervening acts of Allnex prior to transferring the funds.  However, the court declined to address either of these issues, instead ruling that there was no coverage based on the “Ownership of Property” provision, which requires Posco to “own or lease” the property at issue.  The court concluded that Posco did not plead sufficient facts to establish that it possessed or had legal title to the money that Allnex had transferred to the fraudulent accounts.  The court explained that although Allnex had intended Posco to receive the money, intention does not establish ownership.  The court stated that Posco “owned a receivable, or a right to payment, as well as a potential cause of action for payment if it was not made,” but it did not legally own the money that had been wrongfully sent to the imposter’s account, and thus could not seek coverage for its loss.