Insurance coverage

Federal Court Accepted Wire Transfer Fraud Insurance Coverage

A federal court recently found that a policyholder adequately pleaded that a loss of hundreds of thousands of dollars due to wire fraud was covered by a commercial crimes insurance policy. In Landings, Yacht, Golf, and Tennis Club c. Travelers Casualty and Safety Company of America Case No. 2:22-cv-00459Landings Yacht, Golf, and Tennis Club (“Landings”) sued Travelers Casualty and Surety Company of America (“Travelers”) under a criminal policy for denying coverage for: (1) approximately $6,885.79 $ in unauthorized withdrawals (“First Withdrawal”) from users claiming to be Landings and (2) $575,723.95 in withdrawals made by a third party purporting to act on behalf of Landings (“Second Withdrawal”).[1]

Travelers decided to dismiss Landings’ complaint, arguing that the alleged wire fraud was not covered by the policy because the fraudulent transfers did not qualify to trigger coverage under the Crime Policy. Travelers have argued that the policy requires fraudulent wire transfer instructions to be transmitted or issued by someone claiming be insured, and the complaint alleged that the instructions were given by a person purporting to act from of the insured, not someone claiming to be the insured.

The Court granted the travelers’ motion for partial dismissal and dismissed it in part. The Court found that Landings’ allegations about the first withdrawal were sufficient to dismiss Travelers’ motion to dismiss, but found that the allegations about the second withdrawal were insufficient because Landings had alleged that the fraudulent instructions for the second withdrawal had been transmitted by a person acting on behalf of the insured and the policy defined “insured” to mean Landings or an official subsidiary, but not a separate entity acting on behalf of Landings. The Court, however, granted Landings leave to amend the allegations related to the second withdrawal. Ultimately, Landings filed an amended lawsuit, and the Court ruled that the amendment was sufficient to overcome Traveler’s motion to dismiss for the second takedown as well.

Landings highlights the increasingly common threat businesses face from wire transfer fraud. And while businesses often look to their insurance to recover the resulting loss, insurance companies largely deny coverage for wire fraud transactions on the grounds that certain actions – whether employee of the insured or fraudulent instructions from a bad actor that may not exactly match the policy requirements – breaking the chain of causation between the bad actor’s computer use and the loss of the assured. See our previous blog posts here and here where courts have found coverage under criminal policies for fraudulent wire transfers, and our blog post here where a court found that the fraudulent wire transfer was not covered.

Understanding policy language is key to avoiding the unpredictability associated with litigation. Although some policies have traditionally provided “silent cyber cover”, cover that is not primarily intended to cover cyber losses but nevertheless applies to cyber losses based on broadly worded insurance agreements, insurers introduce broad exclusions or restrictive language to reduce this coverage. it is all the more important for companies to ensure that their insurance portfolio specifically targets cyber risks. Waiting for an incident to happen may be too late. Policyholders should act now, reviewing their insurance policies with a trusted coverage advisor, to ensure their coverage expectations are met so they are protected and can maximize insurance recovery by case of loss.


[1] Landings also sued Swiss Re Corporate Solutions America Insurance Corp. and Peleus Insurance Co. for cyber insurance. See The Landings Yacht, Golf and Tennis Club Inc. v. Swiss Re Corporate Solutions America Insurance Corporation et al., no. 2:22-cv-00459 (MD Fla.). This case is pending a decision on Swiss Re and Peleus’ motion for judgment on the pleadings.

Copyright © 2022, Hunter Andrews Kurth LLP. All rights reserved.National Law Review, Volume XII, Number 297