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(Article from Insurance Law Alert, March 2020)

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A Virginia federal district court ruled that losses arising from a wire transfer induced by a fraudulent email were excluded by a “voluntary parting” exclusion, and were not otherwise covered by a Forgery endorsement.  Midlothian Enterprises, Inc. v. Owners Ins. Co., 2020 WL 836832 (E.D. Va. Feb. 20, 2020). 

A Midlothian employee received an email, purportedly from the company president, instructing her to wire money to a bank account in Alabama.  After the transfer was made, the company discovered that the email was fraudulent.  Owners Insurance denied coverage based on an exclusion that barred coverage for “[l]oss resulting from your, or anyone acting on your express or implied authority, being induced by any dishonest act to voluntarily part with title to or possession of any property.”  The court agreed and granted the insurer’s summary judgment motion.

The court rejected Midlothian’s contentions that the exclusion was ambiguous and that a victim of fraud can never act voluntarily.  Additionally, the court dismissed Midlothian’s assertion that the exclusion did not apply because the employee did not act with express or implied authority when she effectuated the wire transfer.  The court explained that “[t]he fact that another individual pretended to authorize the transaction does not negate the voluntariness of the transfer.”  Finally, the court ruled that there was no coverage under a separate Forgery or Alteration Endorsement.  The endorsement defined “covered instruments” as “checks, drafts, promissory notes, or similar written promises, orders or directions to pay a sum certain in money.”  The court held that an email directing a wire transfer is not a “covered instrument” because it is not “of the same import as that of the specific item[s] posted.”