Cybersecurity: $ 1.4 million stolen not covered by fraud policy
June 5, 2021
Arnold and Porter
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Recently, the U.S. District Court for the Eastern District of Pennsylvania ruled that a $ 1.4 million bank transfer fraud was not covered in the commercial crime policy of Ryeco, LLC, a fruit distributor. Ryeco, LLC v. Selective Ins. Co., núm. 2: 20-cv-03182 (Pa ED. May 13, 2021). A South African hacker had accessed Ryeco’s network, had fraudulently applied the company’s vice president’s signature to bank transfer forms and emailed these forms to Ryeco’s bank, prompting the transfer of funds to a fake account.
Ryeco uncovered the fraud, conducted a forensic investigation and obtained a denial of selective insurance company coverage. Ryeco then sued Selective for coverage and breach of contract, and urged that it be covered for the loss under the “Falsification or Alteration” crime policy it purchased from Selective. This policy explicitly covered “loss arising directly from the“ forgery ”or alteration of checks, drafts, promissory notes or similar promises, orders or instructions to pay a certain amount in“ money. ”Selective coverage has been denied because Counterfeit bank transfer forms did not activate the unequivocal terms of the policy, which includes “check, draft, promissory note or similar written promise.” The court agreed, differentiating between fake emails and forms from checks and written promises. to such, he introduced summary judgment for Selective.
It should be noted, arguably, that if Ryeco had acquired the “Fund Transfer Fraud” coverage, it would have been reimbursed for the losses, a lesson worth taking in this atmosphere of increasing cybersecurity, phishing and ransomware attacks.
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