Social Engineering Attacks May Be Insured by Commercial Crime Coverage - American Bar Association
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Summer 2021
COMMITTEE NEWS
Insurance Coverage Litigation
Social Engineering Attacks May Be Insured
by Commercial Crime Coverage
It has become a truism in the cyber-security industry that even the most secure
computer systems have a fatal flaw—the human beings who operate them.
Over the past decade, hackers have increasingly exploited this weakness with
sophisticated “social engineering” schemes that combine computer fraud with
personal manipulation. In a typical social engineering fraud, the attackers will
reach out to a well-researched employee—pretending to be an important vendor,
Samuel W. Wardle
company executive, or even a good friend. Often the first step is an email, but it
Frost Brown Todd LLC
can also be a letter, fax, or telephone call. The imposter will ask the employee to
download a file, change a creditor’s banking information, or contact an attorney Sam Wardle is a managing associate
in Frost Brown Todd LLC’s product,
about a top-secret new corporate deal. These messages will often include links to
tort, and insurance group. Sam
fake websites, telephone numbers controlled by the fraudsters, and other legitimate- represents and advises insurers in a
looking details, such as signature blocks and photos of the purported sender. wide variety of insurance-coverage
disputes.
Often enough, by the time the employee realizes the mistake, it is too late, and the
company has lost thousands or, sometimes, even millions of dollars.
Read more on page 12
In This Issue
• Social Engineering
Attacks May Be Insured
by Commercial Crime
Coverage 1
• Chair Message 2
• Member Spotlight:
Jennifer Meeker 4
• At Sea Without a Rudder
or Compass: 11th Circuit
Opinion Demonstrates
the Challenges of
Wilburn Boat Concerning
Breaches of Marine
Insurance Warranties 7
Uniting Plaintiff, Defense, Insurance, and Corporate Counsel to Advance the Civil Justice System
Insurance Coverage Litigation Summer 2021
Chair Message
We are pleased to share with you the Summer 2021 edition of the TIPS Insurance
Coverage Litigation Committee’s newsletter. In this newsletter:
Samuel W. Wardle of Frost Brown Todd LLC in Kentucky writes about case law
addressing coverage for social engineering attacks under commercial crime
coverage.
Matthew Moeller of The Moeller Firm in New Orleans writes about a recent marine
insurance coverage decision by the 11th Circuit Court of Appeals in which the court
ultimately deferred to Florida state law - not maritime law - in determining coverage. Timothy M. Thornton
Gray•Duffy LLP
This edition’s “Member Spotlight” features the ICLC 2022 Midyear Meeting Program
Chair Jennifer Meeker of Nossaman, LLP in Los Angeles.
There are many ways for you to become active in and contribute to the ICLC.
Contributing to the newsletter is one of those ways. Whether you are interested
in speaking, writing, serving in a leadership role, assisting with CLE and other
programming, or simply attending meetings and relevant CLE programming, there is
a place for you in the ICLC. We are looking for motivated committee members who
are interested in getting involved in committee leadership, whether by working on
membership and diversity initiatives, helping out with publications and social media,
serving on our program committee, or helping in any other way that aligns with your
interests. We can also help you get published in other TIPS publications and through
our partnership with IRMI. The Summer edition of the TIPS TortSource newsletter
will feature articles by four ICLC members, please look for that.
The ICLC also prides itself on providing quality CLE content through webinars,
regional CLE events around the country, the TIPS Section Conference, and the
annual ICLC Mid-Year Meeting. We hope you will be able to join us our Midyear
Meeting, February 24-26, 2022, at the Arizona Biltmore in Phoenix, Arizona.
If you are interested in learning more about any of this, or in becoming a member
of the ICLC, please do not hesitate to reach out to me at tthornton@grayduffylaw.
com or to our Chair-Elect Seth Lamden at slamden@blankrome.com. We welcome
and encourage your involvement in and contributions to the ICLC.
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Insurance Coverage Litigation Summer 2021
Editors
Jason Reichlyn
Dykema Gossett PLLC
Jason Reichlyn is a Senior Attorney in Dykema Gossett PLLC’s Washington, D.C., office.
He represents insurers in complex professional and management liability coverage disputes
and related litigation in state and federal courts nationwide. In addition to serving as Co-
Editor of the ICLC Newsletter, Jason is the ICLC Diversity Vice-Chair and a member of TIPS’
Diversity & Inclusion Standing Committee.
Marci Kokalas
Goldberg Segalla
Marci Goldstein Kokalas focuses her practice on complex insurance coverage matters and
disputes arising under general liability and property policies, including both first-party and
third-party liability actions. She regularly represents insurers through trial and appeal, as well
as in arbitration and mediation, and provides coverage opinions, policy analysis, reservation
and declination letters, and pre-litigation counseling. She also devotes a significant portion
of her practice to complex commercial litigation, liability claims, and employment matters.
Marci draws on experience as an assistant district attorney in the New York County District
Attorney’s Office, where she prosecuted felony criminal cases. In this role, she was
responsible for pre-trial proceedings, drafting search warrants, oral argument on motions, ©2021 American Bar Association, Tort
Trial & Insurance Practice Section, 321
plea negotiations, Grand Jury presentations, and trials by jury for various crimes, including
North Clark Street, Chicago, Illinois
assault, robbery, burglary, larceny, forgery, and narcotics sale and possession. 60654; (312) 988-5607. All rights
reserved.
The opinions herein are the authors’
and do not necessarily represent the
views or policies of the ABA, TIPS
or the Insurance Coverage Litigation
Committee. Articles should not be
Connect with Insurance reproduced without written permission
from the Copyrights & Contracts office
Coverage Litigation website copyright@americanbar.org.
Editorial Policy: This Newsletter
publishes information of interest to
members of the Insurance Coverage
Litigation Committee of the Tort
Stay Connected Trial & Insurance Practice Section
of the American Bar Association —
with TIPS including reports, personal opinions,
practice news, developing law and
practice tips by the membership, as
We encourage you to stay up-to-date on important Section news, TIPS meetings well as contributions of interest by
and events and important topics in your area of practice by following TIPS on nonmembers. Neither the ABA, the
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and visiting our YouTube page! In addition, you can easily connect with TIPS any specific legal, personal, or other
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of the links. Copies may be requested by contacting
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number listed above.
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Insurance Coverage Litigation Summer 2021
Member Spotlight: Jennifer Meeker
Name/Firm Affiliation
Jennifer Meeker; Nossaman LLP
Policyholder/insurer/both
Policyholder
Role with ICLC/years of involvement?
I am currently the Vice-Chair of ICLC and Program Chair for the 30th Annual Mid-
Year Meeting. I have been involved with the committee for seven years, since 2014. Jennifer serves as Co-Chair of
Nossaman’s Insurance Recovery
How did you first learn about ICLC? Group and leads the firm’s Writs &
Appeals practice. In her insurance
I learned about ICLC from a former insurance recovery partner at Nossaman who
practice, she counsels and litigates
invited me to attend the Mid-Year Meeting in February 2014. a wide variety of insurance claims
on behalf of her public and private
What advice would you offer to practitioners considering joining the policyholder clients in state and
committee and to those who have recently joined? federal court. She has experience
Be proactive about seeking out opportunities to speak, write, or otherwise get with commercial general liability
(CGL) policies, Directors & Officers
involved. The friendships I have developed through the organization did not happen (D&O), Errors & Omissions (E&O)
overnight. These relationships were a result of showing up and actively volunteering; and other forms of liability coverage,
and I have learned so much from my insurance friends who I met through TIPS. I am as well as property and other first-
so appreciative of the organization. party insurance recoveries, including
title insurance. She serves as a Vice-
Chair of the Insurance Coverage
How/why did you first become interested in insurance practice? Litigation General Committee & Self
I did not graduate law school thinking that I would become an insurance recovery Insurance and Risk Management
lawyer, but I did graduate law school hoping to become an appellate practitioner. As Committee of the American Bar
Association’s Tort & Trial Insurance
an associate at Nossaman, I volunteered to work on just about every appeal that I
Practice Section. In this capacity,
could get my hands on. In 2013, my partner Tom Long (who is now the Honorable she was selected to the Committee’s
Tom Long) asked me to work with him on an appeal in the Ninth Circuit involving an leadership ladder and will Chair
insurance dispute over interrelated wrongful acts and a number of cases that were the Committee’s annual seminar in
Phoenix, Arizona, in 2022.
filed after IndyMac Bank failed during the banking crisis. I was hooked!
What keeps you interested in insurance practice?
While there is a pretty well-established body of insurance law in California, the
industry and issues continue to evolve and new issues come up (e.g., COVID). My
cases are also often complex and fact-specific, which is always more interesting
than repeatedly seeing the same set of facts. In addition, I like representing
policyholders, who are usually very appreciative of our efforts. Finally, at least in Los
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Insurance Coverage Litigation Summer 2021
Angeles, there are great insurance coverage lawyers on both sides. While litigation
seems to be getting more contentious these days, it is always a joy to work with
(against) some of my colleagues on the other side of an insurance dispute who are
professional and civil yet zealous advocates.
What is the most interesting insurance-related issue currently on your desk?
Oh goodness! I do not think I could limit it to just one issue! I have several
insurance disputes for a public agency involving construction activities that
implicate additional insured issues, contractual indemnity, and different towers of
insurance. There are many moving pieces in these disputes, which keep me on
my toes. I also have an interesting matter right now involving interrelated wrongful
acts and notice issues.
How has COVID-19 impacted your clients’ business or your practice?
I think COVID has impacted everyone in one way or another. I will say my practice
has not slowed down, but instead, has really increased because of COVID.
When you are not focused on insurance matters, what interests you and
keeps you busy?
I am the head of Nossaman’s appellate practice (in addition to co-leading our
Insurance Recovery Practice Group), so my appellate matters always keep me
busy and interested. I just had my first filing in the United States Supreme Court,
which was exciting! Outside of practicing law, I enjoy spending time with my
horse, dogs, and husband.
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Insurance Coverage Litigation Summer 2021
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Insurance Coverage Litigation Summer 2021
At Sea Without a Rudder or Compass: 11th
Circuit Opinion Demonstrates the Challenges
of Wilburn Boat Concerning Breaches of
Marine Insurance Warranties
For nearly 70 years, since the United States Supreme Court decided Wilburn Boat
Co. v. Fireman’s Fund Insurance Co., 348 U.S. 310 (1955), courts have repeatedly
struggled with the question of whether state law or maritime law applies to a breach
of a particular warranty in a marine insurance policy. A recent decision by a three-
judge panel of the Eleventh Circuit Court of Appeals brought renewed interest to that
Matthew A. Moeller
struggle, detailed the difficult jurisprudential history that has led courts to this point,
The Moeller Firm
and even attempted to entice the U.S. Supreme Court to take the case in order to
simplify the determination of whether to apply state law or maritime law in a dispute Matthew is the Managing Attorney
and Owner of The Moeller Firm in
over a breach of a specific warranty.
New Orleans. His practices focuses
on maritime, construction, and
In Wilburn Boat, the plaintiff’s small houseboat, which was used for the commercial
business litigation.
carriage of passengers on an artificial inland lake between Texas and Oklahoma,
was destroyed by a fire while moored on the lake. Prior to the loss, the vessel was
transferred from three individual owners into a wholly owned corporation. The
insurers refused to pay for the loss citing the policy’s warranties that the boat would
not be transferred and would only be used for private purposes. Consequently, the
plaintiff corporation filed suit, alleging that since the policy was delivered in Texas,
Texas law should apply which potentially invalidated the warranty. The district court
found for Fireman’s, holding that there was an established admiralty rule that required
literal fulfillment of all warranties, and any breach barred recovery regardless of
whether it impacted the loss. After the Fifth Circuit affirmed the district court’s ruling,
the Supreme Court granted certiorari, noting the importance of the questions posed
by the dispute.
In resolving the case, the Supreme Court posed two questions: (1) was there a
judicially established admiralty rule governing the warranties at issue, and (2) if
not, should the Court fashion one? In answering no to both questions, the Court
reflected on the sparse jurisprudence requiring strict fulfillment of marine insurance
warranties as well as the vast judicial and legislative history leaving the regulation
of insurance companies and insurance policies to the states. Specifically, the Court
emphasized that there were very few judicial decisions where a strict breach of
warranty rule was even considered, and only two circuits incorporated such a rule
into the general admiralty law. However, there were numerous decisions dating back
to the late 1800s and early 1900s demonstrating a court’s unwillingness to regulate
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Insurance Coverage Litigation Summer 2021
the terms of marine insurance policies through judicial rule making. Moreover, the
Merchant Marine Act of 1920, the District of Columbia Model Insurance Act of 1922,
and the Limitation of Liability Act of 1935, all included a tenor of opposition to the
regulation of marine insurance, and the McCarran-Ferguson Act declared that
regulation of insurance by the states was in the public interest.
That brings us to the dilemma recently faced by the Eleventh Circuit in Travelers v.
Ocean Reef, 996 F.3d 1161 (11th Cir. 2021). In Travelers, a 92-foot Hatteras yacht
broke free from its mooring lines as a result of Hurricane Irma and suffered damage
that resulted in a constructive total loss of the vessel. Travelers denied coverage
because Ocean Reef breached the policy’s captain and crew warranties. The
warranties required that: (1) Ocean Reef employ a full-time approved captain; and
(2) Ocean Reef have one full- or part-time professional crewmember onboard. At the
time of the loss, Ocean Reef had neither. However, it argued that Florida law should
apply, and under Florida law, the breach would not preclude coverage because it
was unrelated to the loss since the yacht sank due to an unforeseeable dock piling
failure. The district court granted summary judgment for Travelers, concluding that
the Eleventh Circuit had established a rule of admiralty law requiring that marine
insurance policy warranties be strictly construed in the absence of other limiting
provisions in the policy.
The Eleventh Circuit reversed, with plenty to say concerning the guidance (or lack
thereof) provided by the Supreme Court’s Wilburn Boat decision. Before reaching
the merits of the case, the court identified several problems with Wilburn Boat. The
court explained that the peculiar facts of the case, a dispute involving a houseboat on
an artificial inland lake, bore no resemblance to facts of previous controversies that
formed the basis of traditional admiralty jurisprudence. Furthermore, the Supreme
Court’s desire to leave the regulation of marine insurance in the hands of the states
fostered a lack of uniformity in maritime law. Wilburn Boat was decided at a time
when the appellate courts all accepted the literal performance rule. Since decisions
reflected a shift away from that rule, it has made it difficult to resolve choice-of-
law questions concerning express warranties because the Supreme Court failed to
fashion a new rule and instead instructed courts to look to see if one exists.
In observing the Supreme Court’s failure to deal with the issues created by its
decision in Wilburn Boat, the Eleventh Circuit articulated that “the Supreme Court
has left the lower federal courts at sea without a rudder or compass” and further
explained that if it was not for its fidelity to Wilburn Boat, it would consider fashioning
a uniform rule on express warranties. However, given the Supreme Court’s apparent
directive, and its own interpretive history, the court explained that it must determine
if the warranty at issue is or should be the subject of a uniform entrenched federal
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Insurance Coverage Litigation Summer 2021
admiralty rule. While there are Eleventh Circuit decisions dealing with breach of
the warranties of seaworthiness and navigation limits that contain generalized
statements regarding breaches of express warranties in marine insurance policies,
taking those statements too literally and affirming the district court’s decision which
would signify a subversive attempt to overrule Wilburn Boat, would be improper
since only the Supreme Court has the power to overrule itself.
In adhering to a strict stare decisis approach in reaching its conclusion, the court
reviewed previous cases addressing the breach of a captain or crew warranty
and found an absence of any adopted, entrenched, or established maritime
rule governing either warranty. The court identified only three cases addressing
the captain warranty. While two of them alluded to an alleged maritime rule of
strict warranty compliance, neither adopted such a rule. A third case held that
all warranties had to be literally fulfilled, but the court in that case relied on two
pre-Wilburn cases; therefore, the Travelers court refused to give it much weight.
Turning to the crew warranty, the court found no American cases and considered
an often-cited English case from the late 1700s, holding that the breach of a crew
warranty voided the policy even though it was cured before and was unrelated
to the loss. However, the court was unwilling to rely on that case since it was
considered by the Wilburn Court in determining that there was no entrenched
maritime rule requiring strict compliance with marine insurance warranties.
Therefore, the court found that Florida law governed Ocean Reef’s breaches of
the captain and crew warranties and remanded the case for the application of
Florida law and consideration of other arguments.
The Eleventh Circuit’s decision illuminates the confusion and difficulty faced by
lower courts in applying Wilburn Boat. The rule from the case, which the lower
courts are tasked to apply, is ambiguous and leads to a highly subjective analysis
and has resulted in inconsistency among the federal circuits. For example, in Albany
Insurance Co. v. Anh Thi Kieu, 927 F.2d 882 (5th Cir. 1991), the Fifth Circuit interpreted
Wilburn Boat as a pronouncement from the Supreme Court that the regulation of
marine insurance should primarily be left to the states. However, in Kamta AS v.
Royal Insurance Co., 21 P.3d 1150 (Wash. Ct. App. 2001), the court expressed an
inclination to apply federal or even English law instead of state law. Other courts
have taken yet a different approach by considering the need for uniformity, holding
that state law only applies in the absence of a federal statute or judicially established
admiralty rule or where there is a need for uniformity. See, e.g., Kalmbach, Inc. v.
Ins. Co. of the State of Pa, 422 F.Supp. 44 (D. Alaska 1976).
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Insurance Coverage Litigation Summer 2021
Practitioners face an equally arduous task in advising clients concerning the
application of Wilburn Boat to a potential dispute regarding whether maritime
law or state law should govern a client’s dispute over breach of a warranty. Key
considerations include the federal circuit in which the dispute is pending, which
state’s law might apply in the absence of maritime law, and the specific warranty
at issue. In Wilburn Boat, the Supreme Court established a default position, that
in the absence of congressional action or a very clearly established judicial rule,
the regulation of marine insurance policies should be left to the states. That default
position permeates most federal circuits, and marine insurance coverage lawyers
should be mindful of such in advising clients. However, that does not make the job
any easier since the inherent ambiguity, subjectivity, and even dicta often included in
a court’s Wilburn Boat analysis leads to an inconsistent patchwork of jurisprudence.
Unless the Supreme Court or Congress acts to establish a consistent analytical
framework for determining whether state law or maritime law applies to a breach of a
specific warranty, lawyers and judges will continue to be left “at sea without a rudder
or compass.”
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americanbar.org/tips 10Insurance Coverage Litigation Summer 2021
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Social.. continued from page 1
Losses arising from these clever frauds raise thorny issues of insurance coverage
and have resulted in a host of arguably inconsistent nationwide rulings applying a
standard Commercial Crime | Computer Fraud coverage form. A decision comes
from Indiana. In G&G Oil Co. of Indiana, Inc. v. Continental Western Insurance
Co., No. 20S-PL-617, 2021 WL 1034982 (Ind. Mar. 18, 2021), the insured was a
midwestern petroleum distributor whose employee was targeted by a fraudulent
email. The attack led the employee to download a file that included a ransomware
virus (a code that locks the victim’s computer systems until the victim agrees to pay
a ransom to the attacker). The insured, after consulting with the FBI and a cyber-
security expert, agreed to pay the anonymous hacker four bitcoins worth a total of
$35,000 to regain access to its systems.
After paying the ransom, the insured sought indemnity from its insurer under a
standard Commercial Crime coverage form, which states as follows:
. . . Computer Fraud
We will pay for loss or damage to “money”, “securities” and “other property”
resulting directly from the use of any computer to fraudulently cause a transfer
of that property from inside the “premises” or “banking premises”:
a. To a person (other than a “messenger”) outside those “premises”; or
b. To a place outside those “premises”.
Id. at *1.
The G&G Oil insurer denied coverage for two reasons. First, the insurer reasoned
that the insured had voluntarily transferred the bitcoin ransom to the hacker, and
consequently, the hacker did not “fraudulently cause a transfer” directly from the
insured. Second, the insurer contended that the insured’s loss did not “result[]
directly from the use of any computer” (emphasis added) because the insured’s
voluntary decision to pay the ransom constituted an intervening cause of loss.
The insurer’s arguments were accepted by an Indiana trial court—which granted
summary judgment to the insurer—and the Indiana Court of Appeals, which
unanimously affirmed. But the insurer’s luck ran out at the state’s highest court,
which reversed and remanded.
Recognizing that “the interplay between computer fraud coverage and computer
hacking is an emerging area of the law,” id. at *4, the Indiana Supreme Court held
that, under the plain language of the Commercial Crime coverage form, a question
of fact on coverage should have precluded summary judgment. First, the court held
that the policy’s coverage for a computer attack that “fraudulently caus[es] a transfer”
is, essentially, a requirement that the hacker initiate the loss by using trickery. This
americanbar.org/tips 12Insurance Coverage Litigation Summer 2021
requirement could have been met, in the court’s view, with evidence that the initial
ransomware virus was downloaded into its system by a “spear phishing” (i.e., an email
targeted to a well-researched victim) fraud. Id. at *5. And second, the court held that
it was inappropriate to grant summary judgment on the issue of whether the loss
“result[ed] directly from the use of a computer[.]” The court reasoned that the insured’s
“transfer of Bitcoin was nearly the immediate result—without significant deviation—
from the use of a computer,” and thus the proximate result of the trick. Id. at *6. The
court remanded for further discovery on the scope and means of the fraud.
The G&G Oil decision follows a decade’s worth of judicial interpretations of similar
policy language—often with conflicting and inconsistent results. These decisions,
like G&G Oil, typically turn on two key questions. First, does a sophisticated social
engineering scheme, which uses a computer to trick the victim into doing something
voluntarily, qualify as a computer attack that fraudulently causes a transfer of
money? And second, does human decision-making (such as the G&G Oil insured’s
decision to pay the ransom) sever the chain of causation between the computer
attack and the loss?
While the G&G Oil court answered both questions in favor of the possibility of
coverage, many others courts have reached divergent conclusions on similar facts
and policy language.
Fraudulently cause a transfer
Insurers faced with claims for coverage arising from social engineering, spear
phishing, and ransomware attacks frequently argue that such attacks are
distinguishable from the kind of pure “hacking” that Commercial Crime coverage
forms are intended to cover. For example, in American Tooling Center, Inc. v.
Travelers Casualty and Surety Company of America, 895 F.3d 455 (6th Cir. 2018),
a hacker “spoofed” (tech-speak for a sophisticated counterfeit email) a vendor’s
email address and asked the victim to pay the vendor’s invoices to a new bank
account, which belonged to the fraudster rather than to the vendor. The victim
did not realize the fraud until it had sent approximately half a million dollars to the
fraudster’s account.
The American Tooling Center insurer argued that its policy form “requires a computer
to fraudulently cause the transfer. It is not sufficient to simply use a computer and
have a transfer that is fraudulent.” Id. at 461 (internal quotations omitted). That
is, the insurer asserted that the Computer Fraud form was designed to insure a
loss entirely caused by a computer hack or virus, with no intervening conduct by a
human being. The Sixth Circuit rejected that interpretation of the form, holding that
it was sufficient that “the impersonator sent [the insured] fraudulent emails using a
americanbar.org/tips 13Insurance Coverage Litigation Summer 2021
computer and these emails fraudulently caused [the insured] to transfer the money
to the impersonator.” Id. at 461–62.
Faced with similar policy language, the Ninth Circuit Court of Appeals reached an
entirely different result. In Pestmaster Serices, Inc. v. Travelers Casualty & Surety
Company of America, 656 F. App’x 332 (9th Cir. 2016), the court held that the policy
phrase “fraudulently cause a transfer” would not cover a voluntary automated
payment—even if it was made under false pretenses. “Because computers are used
in almost every business transaction, reading this provision to cover all transfers that
involve both a computer and fraud at some point in the transaction would convert
this Crime Policy into a ‘General Fraud’ Policy.” Id. at 333.
Directly from the use of a computer
The causation element of Computer Fraud coverage forms has been even more
hotly disputed. Several courts—like the G&G Oil court—have held that an
intervening human decision to pay funds does not sever the chain of causation
between a fraudulent email or hack and a loss. Others, meanwhile, have ruled that
policy language requiring a “direct” connection between computer fraud and loss is
not satisfied in social engineering cases.
The Fifth Circuit Court of Appeals’ decision in Apache Corp. v. Great American
Insurance Co., 662 F. App’x 252 (5th Cir. 2016) is the leading case for the “narrow”
view of Computer Fraud coverage form causation standards. In Apache Corp.,
an employee of the insured received an email purporting to be from a vendor and
requesting that the insured make all future payments to a new bank account (again,
belonging to the imposter). After “confirming” the provenance of the request with a
call to a fake telephone number provided by the imposter, the employee changed the
vendor’s payment information. The insured paid nearly $7 million to the imposter’s
bank account before realizing the mistake. The insurer denied coverage for the loss.
The Fifth Circuit affirmed the insured’s coverage denial, concluding that the email
was only “part of the scheme” and therefore insufficient to establish a “direct”
relationship between computer use and the loss. Id. at 258. In so holding the court
examined each intervening step in the fraud, which included telephone calls between
the insured and the fraudster, and concluded that “the computer-use was but one
step in Apache’s multi-step, but flawed, process that ended in its making required
and authorized, very large invoice-payments, but to a fraudulent bank account.” Id.
at 259. Borrowing the Ninth Circuit’s reasoning from the Pestmaster ruling cited
above, the Apache Corp. court held that “[t]o interpret the computer-fraud provision
as reaching any fraudulent scheme in which an email communication was part of the
process would . . . convert the computer-fraud provision to one for general fraud.”
americanbar.org/tips 14Insurance Coverage Litigation Summer 2021
Applying similar reasoning, the Eleventh Circuit Court of Appeals held in Interactive
Communications International, Inc. v. Great American Insurance Co., 731 F. App’x
929 (11th Cir. 2018), that the insured’s $11 million loss following a hack of its prepaid
debit card system was not covered. The Interactive court, while agreeing that “the
fraudsters’ manipulation of [the insured’s] computers set into motion the chain of
events that ultimately led to [the insured’s] loss,” ultimately held that there was no
“direct” causation because “several steps typically intervened between the fraudulent
manipulation of the [] system . . . and [the insured’s] ultimate loss[.]” Id. at 934.
Notably, a year later, the same court issued another ruling on Computer Fraud
coverage causation standards, and applied an arguably broader standard. In Principle
Solutions Group, LLC v. Ironshore Indem., Inc., 944 F.3d 886 (11th Cir. 2019), the
insured lost $1.7 million after an employee wired funds in response to an imposter’s
email that appeared to be from the company’s managing director. While the Eleventh
Circuit held in Interactive that intervening actions can break the causal chain, the
Principle Solutions Group court held that neither the insured’s post-email telephone
communications nor the voluntary order for the bank to wire the funds defeated
coverage because “both were foreseeable consequences of the email.” Id. at 892.
The Principle Solutions Group decision is consistent with the decisions reached by
the Sixth Circuit in American Tooling Center and the Indiana Supreme Court in G&G
Oil, as well as a number of other recent cases. Those rulings, similarly, held that a
chain of events initiated by a fraudulent spear-phishing email arises “directly from
the use of a computer”—even if there are subsequent voluntary decisions by the
insured and other non-fraudulent intervening acts. See G&G Oil, 2021 WL 1034982
at *6; Am. Tooling Ctr., Inc., 895 F.3d at 463 (“[B]ecause the loss occurred once
[the insured] transferred the money in response to the fraudulent emails . . . the
computer fraud ‘directly caused’ [the insured’s] ‘direct loss.’”); Cincinnati Ins. Co.
v. Norfolk Truck Ctr., Inc., 430 F. Supp. 3d 116, 130 (E.D. Va. 2019) (holding that
intervening events did not sever causal connection between imposter email and
the insured’s loss of money because “[c]omputers were used in every step of the
[process]”); Medidata Sols., Inc. v. Fed. Ins. Co., 268 F. Supp. 3d 471, 479 (S.D.N.Y.
2017) (holding that the insured’s “employees only initiated the transfer as a direct
cause of the thief sending spoof emails posing as [the insured’s] president”).
Conclusion
As readily noted by the G&G Oil court, Computer Fraud coverage for sophisticated
social engineering attacks and spear phishing schemes is a developing and unsettled
area of the law. Such cases are heavily fact-intensive and, as noted above, can turn
on extremely minute factual distinctions as well as individual courts’ differences in
interpreting common policy terms.
americanbar.org/tips 15Insurance Coverage Litigation Summer 2021
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americanbar.org/tips 16Insurance Coverage Litigation Summer 2021
americanbar.org/tips 17Insurance Coverage Litigation Summer 2021
americanbar.org/tips 18Insurance Coverage Litigation Summer 2021
Member Roster
Chair Membership Lyndon Bittle Michelle Lafferty
Timothy Thornton Vice-Chairs Carrington Coleman Arthur J Gallagher
Gray•Duffy LLP 901 Main St, Ste 5500 2850 Golf Rd
Gregory Giometti Dallas, TX 75202-3767 Chicago, IL 60008
15760 Ventura Blvd, 16th Fl Giometti & Mereness P.C.
Encino, CA 91436 (214) 855-3096 (630) 634-4081
501 S Cherry St, Ste 1000 Fax: (214) 758-3796 michelle_lafferty@ajg.com
(818) 907-4023 Denver, CO 80246-1310
Fax: (424) 442-2779 lbittle@ccsb.com
(303) 333-1957
tthornton@grayduffylaw.com Fax: (303) 377-3460 Ari Magedoff
ggiometti@giomettilaw.com William Black Axis Insurance
Chair-Elect Cassatt RRG Holding Co 300 Connell Dr, Ste 8000
1200 Atwater Dr, Ste 180 Berkeley Heights, NJ 07922-2820
Seth Lamden Teresa Milano Malvern, PA 19355-8782 (908) 508-4353
Blank Rome LLP Woodruff Sawyer (610) 296-2558 ari.magedoff@axiscapital.com
444 West Lake St, Ste 1650 1 Liberty Sq Ste 600, Fax: (610) 296-9406
Chicago, IL 60606 Boston, MA 02109-4876 wblack@cassattrrg.com
(312) 776-2524 (914) 474-6351 Jennifer Meeker
slamden@blankrome.com tmilano@woodruffsawyer.com Nossaman LLP
Erica Dominitz 777 S Figueroa St, Fl 34
Aon Corp Los Angeles, CA 90017-5800
Immediate Social Media 2001 K Street NW, te 625 North (213) 612-7800
Past Chair Vice-Chair, Washington, DC 20006 jmeeker@nossaman.com
Brandi Burke Technology (202) 464-5811
Charter Communications, Inc. Fax: (202) 420-2201 Christopher Mosley
Vice-Chair erica.dominitz@aon.com Sherman & Howard
12405 Powerscourt Dr
Saint Louis, MO 63131 Steven Corhern 633 17th St, Ste 3000
(314) 602-6598 Balch & Bingham LLP Benjamin Fliegel Denver, CO 80202-3622
Fax: (314) 552-7598 1901 Sixth Ave N, Ste 1500 Reed Smith (303) 299-8466
brandi.burke@charter.com Birmingham, AL 35203 355 S. Grand Ave, Ste 2900 Fax: (303) 298-0940
(205) 226-8765 Los Angeles, CA 90071 cmosley@shermanhoward.com
scorhern@balch.com (213) 4578000
Council bfliegel@reedsmith.com
Representative Bradford Moyer
Vice-Chairs Plunkett Cooney
Gary Gassman David Anderson David Heintz 333 Bridge St NW, Ste 530
Cozen O’Connor Anderson Coverage Group LLC Travelers Grand Rapids, MI 49504-5365
123 N Wacker Dr, Ste 1800 2032 W Irving Park Rd 1 Tower Sq (269) 382-5935
Chicago, IL 60606-1770 Chicago, IL 60618-3910 Hartford, CT 06183 Fax: (269) 382-2506
(312) 474-7994 (773) 6612303 (860) 277-3643 bmoyer@plunkettcooney.com
Fax: (312) 474-7898 Fax: (312) 575-8599 dheintz@travelers.com
ggassman@cozen.com dave@andersoncoveragegroup.com Maureen Mulligan
Eric Hermanson Peabody & Arnold LLP
Diversity Samuel Arena White and Williams LLP 600 Atlantic Ave, Ste 600
Vice-Chair Stradley Ronon Stevens 101 Arch St, Ste 1930 Boston, MA 02210-2261
Jason Reichlyn & Young LLP Boston, MA 02110-1103 (617) 951-2100
Dykema Gossett PLLC 2005 Market St, Ste 2600 (617) 748-5226 Fax: (617) 742-2355
1301 K St NW, Ste 1100W Philadelphia, PA 19103-7098 Fax: (617) 748-5249 mmulligan@peabodyarnold.com
Washington, DC 20005-7013 1 (215) 5648093 hermansone@whiteandwilliams.com
(202) 906-8650 Fax: (215) 564-8120 Lisa Oonk
Fax: (202) 496-7756 sarena@stradley.com Chauntis Jenkins Floyd IRMI
jreichlyn@dykema.com Travelers 12222 Merit Dr, Ste 1600
Damian Arguello 1000 Windward Concourse, Ste 210 Dallas, TX 75251-2266
Law Student Colorado Insurance Law Center Alpharetta, GA 30005 (972) 687-9375
8181 Arista Place, Ste 100 (678) 317-8563 Fax: (727) 497-7911
Vice-Chair Broomfield, CO 80021 cjfloyd@travelers.com lisaoonk@gmail.com
Brooke Hansen (303) 427-2454
8510 S State Street, 38 Damian@ColoradoInsuranceLaw- Jeff Kichaven James Paskell
Midvale, UT 84047 Center.com Jeff Kichaven Commercial Mediation Litigation and Liability
bhansen6@luc.edu 515 South Flower St, Fl 18 Management LLC
Jill Berkeley Los Angeles, CA 90017 5159 Hemmington Blvd
Neal Gerber & Eisenberg (310) 721-5785 Solon, OH 44139-6901
2 N La Salle St, Ste 1700 Fax: (877) 230-0777 (440) 498-0171
Chicago, IL 60602-4000 jk@jeffkichaven.com Fax: (440) 498-0171
(312) 269-8024 jpaskell@llmconsult.com
Fax: (312) 980-0836
jberkeley@ngelaw.com
americanbar.org/tips 19Insurance Coverage Litigation Summer 2021
Member Roster | continued
Micalann Pepe William Reed Michael Steinlage Agnieszka Wilewicz
3200 N Central Ave, Flr 20 Sherman & Howard Larson King LLP Hurwitz & Fine, P.C.
Phoenix, AZ 85012 633 Seventeenth St, Ste 3000 30 7th St E, Ste 2800 1300 Liberty Building
(602) 248-1000 Denver, CO 80202 Saint Paul, MN 55101-4904 Buffalo, NY 14202
mcp@jaburgwilk.com (303) 299-8120 (651) 312-6520 (716) 849-8900
wreed@shermanhoward.com Fax: (651) 312-6618 Fax: (716) 853-3801
Ginny Peterson esteinlage@comcast.net aaw@hurwitzfine.com
Kightlinger & Gray LLP George Rockas
211 N Pennsylvania St, Ste 300 Wilson Elser Craig Stewart Antony Woodhouse
Indianapolis, IN 46204-1965 260 Franklin St, Fl 14 White and Williams LLP DWF LLP
(317) 968-8182 Boston, MA 02110-3112 101 Arch St, Ste 1930 20 Fenchurch St
Fax: (317) 636-5917 (617) 422-5301 Boston, MA 02110 London, EC3M3AG
gpeterson@k-glaw.com Fax: (617) 423-5363 (617) 748-5216 442072808834
george.rockas@wilsonelser.com Fax: (617) 748-5249 Fax: 44 442071738987
Charles Platto stewartc@whiteandwilliams.com antony.woodhouse@dwf.law
Law Offices of Charles Platto David Rosenbaum
1020 Park Ave, Ste 6B Fasken Charles Stoia Christopher Yetka
New York, NY 10028-0913 Bay Adelaide Centre, Box 20 Porzio Bromberg & Newman PC Larkin Hoffman Daly & Lindgren Ltd
(212) 423-0579 333 Bay Street, Ste 2400 PO Box 1997 8300 Norman Center Dr, Ste 1000
Fax: (212) 423-0590 Toronto, ON M5H 2T6 Morristown, NJ 07962-1997 Minneapolis, MN 55437
cplatto@plattolaw.com (416) 868-3516 (973) 889-4106 (612) 367-8748
Fax: (416) 364-7813 Fax: (973) 538-5146 Fax: (612) 333-6798
David Pryce drosenbaum@fasken.com cjstoia@pbnlaw.com cyetka@larkinhoffman.com
Fenchurch Law Ltd
40 Lime St Alan Rutkin R Wade Vandiver Joanne Zimolzak
London, EC3M7AW Rivkin Radler LLP Argo Group US Inc Dykema Gossett PLLC
44(20)30583072 477 Madison Ave, Fl 20 175 E Houston St, Ste 1300 1301 K Street NW
Fax: 44 0044 20 7469 4001 New York, NY 10022-5843 San Antonio, TX 78205 Washington, DC 20005
david.pryce@fenchurchlaw.co.uk (516) 357-3277 (210) 321-8433 (202) 906-8607
Fax: (516) 357-3333 rvandiver@argogroupus.com Fax: (202) 496-7756
Jose Ramirez alan.rutkin@rivkin.com jzimolzak@dykema.com
Holland & Hart LLP Jonathan Walton
555 17th St Ste 3200, Ste 500 BatesCarey, LLP
Denver, CO 80202-39 191 N Wacker Dr, Ste 2400
(303) 290-1605 Chicago, IL 60606
Fax: (303) 290-1606 (312) 474-1636
jramirez@hollandhart.com jwalton@batescarey.com
americanbar.org/tips 20Insurance Coverage Litigation Summer 2021
Calendar
20th National Trial Academy National Judicial College
September 18-22, 2021
Contact: Danielle Daly – 312/988-5708 Reno, NV
TIPS Annual Fall Meeting Four Seasons Resort
October 13-16, 2021
Contact: Danielle Daly – 312/988-5708 Dallas, TX
Aviation Litigation Conference Ritz Carlton Hotel
October 28-29, 2021
Contact: Danielle Daly – 312/988-5708 Washington, DC
FSLC & FLA Joint Fall Meeting Westin Times Square
November 11-12, 2021
Contact: Danielle Daly – 312/988-5708 New York, NY
Fidelity & Surety Law
Grand Hyatt
January 19-21, 2022 Midwinter Conference
Nashville, TN
Contact: Danielle Daly – 312/988-5708
ABA Midyear
February 9-14, 2022 Seattle, Washington
Contact: Danielle Daly – 312/988-5708
Insurance Coverage Litigation Midyear
Biltmore
February 24-26, 2022 Conference
Scottsdale, AZ
Contact: Danielle Daly – 312/988-5708
Workers Compensation Conference The Westin
March 3-5, 2022
Contact: Danielle Daly – 312/988-5708 New Orleans, LA
Cybersecurity Conference
March 3-4, 2022 TBD
Contact: Theresa Beckom – 312/988-5672
Motor Vehicle Products Liability Conference Omni Montilucia
April 6-8, 2022
Contact: Danielle Daly – 312/988-5708 Scottsdale, AZ
Toxic Torts & Environmental Law
Omni Montilucia
April 7-9, 2022 Conference
Scottsdale, AZ
Contact: Theresa Beckom – 312/988-5672
TIPS Annual Section Conference Hyatt Regency
April 27-30, 2022
Contact: Danielle Daly – 312/988-5708 Baltimore, MD
Fidelity & Surety Law Spring Meeting Marriott Hilton Head
May 5-7, 2022
Contact: Danielle Daly – 312/988-5708 Hilton Head, SC
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