(Article from Insurance Law Alert, December 2020)
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A New Jersey federal district court ruled that an insurer had no duty to indemnify losses arising out of an email spoofing scam, finding that a theft exclusion unambiguously barred coverage. Authentic Title Services, Inc. v. Greenwich Ins. Co., 2020 WL 6739880 (D.N.J. Nov. 17, 2020).
Authentic, a title insurance agent, participated in a real estate transaction in which Quicken Loans was the mortgage lender. During the course of the transaction, the parties exchanged emails concerning a wire transfer of funds from Authentic to Quicken. Several emails sent to Authentic purported to be from Quicken employees, but in actuality were sent by criminals using email addresses nearly identical to those of Quicken employees. The spoofed emails instructed Authentic to follow certain wiring instructions. After the transfer of funds, the parties discovered the fraud and Authentic sought coverage under an Errors and Omissions policy. The insurer denied coverage based on an exclusion that applied to losses “arising out of . . . the commingling, improper use, theft, stealing, conversion, embezzlement or misappropriation of funds or accounts.”
In ensuing litigation, the court granted the insurer’s summary judgment motion seeking a declaration of no coverage. The court held that the “claim for coverage undeniably originated from, grew out of, or had a substantial nexus to funds belonging to Quicken that were transferred into the Fraudulent Account.” In addition, the court concluded that the scenario involved “theft,” “stealing,” “misappropriation” or “conversion,” rejecting Authentic’s contention that the terms are ambiguous as to whether they include conduct by the insured, or are limited to conduct by third parties. In so ruling, the court noted that other policy exclusions contain language specifying to whom they apply, indicating that the parties intended the theft exclusion to apply regardless of whether the insured was involved.