Phishing scheme is covered under a commercial crime policy.

The district court held that the loss of more than $1.7 million to a sophisticated phishing scheme was covered under the commercial crime insurance policy and granted summary judgment to Principle Solutions Group, LLC (Principle). The 11th Circuit affirmed, holding that the policy unambiguously covered the claim because the wire transfer scam was a “‘loss resulting directly from a fraudulent instruction directing a financial institution to debit [Principle’s] transfer account and transfer, pay or deliver money or securities from that account.’” The 11th Circuit reasoned that the series of emails instructing a controller for Principle to make a wire transfer qualified as the “fraudulent instruction” that unambiguously fell within the policy’s coverage. In addition, the 11th Circuit concluded that the fraudulent emails proximately caused Principle’s loss because the scammers could have reasonably foreseen that Wells Fargo (i.e., the fraud prevention service) may get involved, and as evidence of reasonable foreseeability, the scammers preemptively set up a system designed to circumvent this risk. Therefore, the controller’s communications with a fake attorney to effectuate the transfer to a Chinese bank and Wells Fargo, operating within its fraud prevention services, were not considered intervening events that severed the link between the fraudulent email instructions and the loss.

Case Law Alerts, 1st Quarter, January 2020 is prepared by Marshall Dennehey Warner Coleman & Goggin to provide information on recent developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. Copyright © 2020 Marshall Dennehey Warner Coleman & Goggin, all rights reserved. This article may not be reprinted without the express written permission of our firm.