A decision by a panel of the 9th Circuit Court of Appeals on Wednesday will make it more difficult for insurers to deny claims by victims of phishing scams, which one industry group says have more than doubled in frequency since the advent of COVID-19.
The appellate panel reversed a decision by the US District Court in Los Angeles that found a wire transfer induced by a spoofed email was not a direct loss as defined by a crime insurance policy issued by Hiscox. The opinion says the trial court had misinterpreted a previous appellate court ruling to require a more literal interpretation of “directly” than was required by the insurance contract.
District Court Judge Andre Birotte Jr. dismissed Ernst & Haas Management Co.’s claim to Hiscox because no money had been directly stolen from the company’s bank account — it was transferred by an employee who followed instructions in an email that she thought had been sent by her boss.
“The district court’s interpretation overlooks the express language of the policy, which states that funds transfer fraud includes not only fraudulent instructions sent directly to a bank, but also fraudulent instructions initially received by an employee,” the 9th Circuit’s opinion says. “Either type of fraudulent instruction that results in ‘directing’ a financial institution to transfer funds is covered by the policy.”
Numerous industry groups have reported that cybercrime has exploded during the COVID-19…
