Insurance Coverage for Phishing and Scamming Losses: Policy Interpretation, Circuit and State Law Splits

Description

Phishing and online scams--email impersonation of a known contact designed to part a company with its money--are an all too common reality in today's business world. As the litigated disputes make clear, though an insured may believe that its crime policy is adequate protection, insurers continue to take a different view and the decisions stemming from the disputes have yielded divergent outcomes based on differences in state law, policy language, and factual circumstances.

Crime insurance policies often require that the loss result directly from a fraudulent act. Insurers contend, however, that because there are multiple acts between the initial fraudulent communication and the release of funds, causation is too unclear to support coverage. A federal circuit court split offers little guidance. For example, the Eleventh Circuit rejected this position in Principle Solutions Group v. Ironshore Indemnity (applying Georgia law). The Second and Sixth Circuits (also applying state law) concur. The Fifth and Ninth Circuits, however, have taken the insurer's side of the dispute.

While disputes over existing policies make their way through the courts, the search for drafting solutions is emerging. There is demand in the industry to add specific definitions applicable to social engineering. Further, as fraudsters move on from simple identity spoofing to more complex forms of fraud, counsel must stay current on drafting and courtroom arguments to keep pace.

Listen as this panel of technology-savvy insurance law experts provides education and guidance on the nuances of this incredibly complex set of issues.