(Article from Insurance Law Alert, July/August 2019)
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A Washington federal district court ruled that a Fraudulent Transfer Request exclusion barred coverage for losses stemming from a wire transfer initiated by a fraudulent email, rejecting arguments that the exclusion was ambiguous. Tidewater Holdings, Inc. v. Westchester Fire Ins. Co., 2019 WL 2326818 (W.D. Wash. May 31, 2019).
A Tidewater accounts payable clerk altered payment details for a contractor after receiving an email from an imposter directing him to do so. As a result, Tidewater issued four payments to the imposter’s bank account totaling approximately $568,000. Tidewater sought coverage from Westchester Fire Insurance Company under a Computer Fraud provision in its corporate indemnity package policy. Instead, the insurer offered coverage under a Supplemental Funds Transfer provision, which covered loss “resulting directly from the Company having transferred . . . any Money or Securities as the direct result of a Fraudulent Transfer Request committed by a person purporting to be an Employee, customer, client, or vendor.” Because this provision limited Tidewater’s recovery to virtually nil, Tidewater deemed this offer to effectively constitute a denial of coverage, rejected payment, and brought suit.
The court assumed, without deciding, that Tidewater’s loss was covered by the Computer Fraud provision, which applied to loss “resulting directly from the use of any computer to fraudulently cause a transfer of that property.” However, the court held that coverage was nonetheless barred by an exclusion that stated that “the Insurer shall not be liable for any loss resulting from any Fraudulent Transfer Request.” The court rejected Tidewater’s assertion that the exclusion was ambiguous, noting that it expressly applied to “every clause that provides coverage.”
Notably, the court rejected Westchester’s assertion that Ninth Circuit precedent establishes that computer fraud provisions do not encompass wire transfers initiated by fraudulent emails. See Taylor & Lieberman v. Fed. Ins. Co., 681 F. App’x 627 (9th Cir. 2017) (discussed in March 2017 Alert) and Aqua Star (USA) Corp. v. Travelers Cas. & Sur. Co. of Am., 719 F. App’x 701 (9th Cir. 2018) (discussed in April 2018 Alert). The court explained that the coverage denials in those matters was based on interpretation of specific policy language not at issue in the present case.