By Doug Young
Policyholder Insurance Coverage Attorney and Member at Wilson Young Costello PLC
On Friday the 13th, our client won its appeal at the U.S. Sixth Circuit Court of Appeals on the very current issue of whether successful Business Email Compromise (BEC) scams (a/k/a “email phishing”) are covered losses under the computer fraud provisions found in some crime insurance policies. See American Tooling Center, Inc. v Travelers Casualty and Surety Company of America, ___ F.3d___; 2018 WL 3404708 (6th Cir. July 13, 2018). www.opn.ca6.uscourts.gov/opinions.pdf/18a0138p-06.pdf
This case is an object lesson to all policyholders, claimants, insurance agents and risk managers, not to accept an insurer’s claim denial as correct on its face. The policyholder, insured and/or claimant must get their own analysis of the insurance coverage available for any claim. Many insurers implicitly rely on the fact that some of these stakeholders will not take the time and expense to contest the insurer’s initial claim denial. This case arose because of an insured that refused to accept what it believed was an improper denial of its claim. This insured lost at the district court level, but pressed on despite contrary (distinguishable) case law and very poor legal analysis in other jurisdictions. This perseverance ultimately paid off.
This Opinion is legally significant in that it is the first federal published opinion with a detailed analysis finding that the BEC scam can cause the insured to suffer a direct loss of its money caused directly by computer fraud (without any hacking into the insured’s computer system) which can be a covered loss under the computer fraud coverage found in some crime insurance policies.