WIRE TRANSFER QUALIFIES AS COMPUTER FRAUD

WIRE TRANSFER QUALIFIES AS COMPUTER FRAUD

 

Crime

Computer Fraud

Money, Securities

Electronic data

 

American Tooling Center (ATC) was victimized through a set of emails to send several wire transfers to a fraudster. The latter party found a way to intercept information that allowed it to convince an ATC employee that it was one of its legitimate vendors. More than $800,000 was sent to the criminal. Once the expensive error was discovered, ATC filed a claim with its Crime Policy insurer, Travelers Casualty and Surety Company (Travelers), but the loss was denied. Travelers and ATC, after the latter’s raising a contract breach action, filed for summary judgment. ATC appealed when the trial court ruled in favor of its insurer.

Travelers disputed ATC’s claims on a number of grounds. Initially it asserted that the insured’s wire transfer loss was ineligible for coverage as the incident was not a direct loss, did not involve computer fraud nor was the loss directly due to computer fraud. The higher court examined and rejected each assertion. In its opinion ATC suffered a direct loss, the circumstances met a reasonable understanding of computer fraud and that such fraud definitely created the loss.

Travelers, in addition to its main argument, also provided the court with three different exclusions that, it argued, barred the loss. The exclusions involved the surrendering of Money, Securities, or Other Property, the input of electronic data into an insured’s computer system and the use of manipulated written information  that act as a source for preparing electronic data. The court rejected Travelers interpretations of electronic data, computer systems and monetary exchanges, therefore, also rejecting the applicability of the exclusions.

The lower court decision in favor of Travelers was reversed and remanded for rehearing.

American Tooling Center, Inc., Plaintiff-Appellant, v. Travelers Casualty and Surety Company of America, Defendant- Appellee. United States Court of Appeals, Sixth Circuit.  No.17-2014. Filed July 13, 2018. Affirmed. Westlaw 2018 WL3404708.