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(Article from Insurance Law Alert, April 2018)

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The Ninth Circuit ruled that an exclusion in a crime policy barred coverage for losses arising from a wire transfer of funds initiated by a fraudulent email.  Aqua Star (USA) Corp. v. Travelers Casualty & Surety Co. of America, 2018 WL 1804338 (9th Cir. Apr. 17, 2018).

Aqua Star, a seafood importer, purchased shrimp from Zhanjiang Longwei Aquatic Products Industry Co. Ltd. (“Longwei”).  Longwei’s computer system was hacked, allowing individuals to send fraudulent emails to Aqua Star about invoice payments.  In certain emails, the hackers directed Aqua Star employees to transfer funds to their own bank accounts.  After the fraud was discovered, Aqua Star sought coverage under a crime policy, which covered loss caused by computer fraud.  The insurer denied coverage, arguing that the loss was not directly caused by computer fraud and that several exclusions applied.  In ensuing litigation, a Washington federal district court granted the insurer’s summary judgment motion.  The Ninth Circuit affirmed.

The Ninth Circuit ruled that even assuming that Aqua Star’s losses were covered by the computer fraud provision, coverage was barred by an exclusion that applied to “loss or damages resulting directly or indirectly from the input of Electronic Data by a natural person having the authority to enter the Insured’s Computer System.”  The court found that the exclusion squarely applied because Aqua Star’s losses resulted from authorized entry into its computer system by employees who changed the bank wiring information and sent payment to the hackers’ account.