Ernst & Haas Mgmt. Co. v. Hiscox, Inc.

• Published date: 11 April 2022
• Subject Matter: Insurance, Criminal Law, Insurance Laws and Products, White Collar Crime, Anti-Corruption & Fraud
• Law Firm: Lewis Brisbois Bisgaard & Smith LLP
• Author: Mr Michael Velladao

(Insured Entitled to Coverage Under Crime Policy's "Computer Fraud" and "Funds Transfer Fraud" Provisions for Employee's Wiring of Funds in Response to Fraudulent Actor's Email Request)

(April 2022) - In Ernst & Haas Mgmt. Co. v. Hiscox, Inc. (9th Cir. Jan. 26, 2022, No. 20-56212) 2022 U.S. App. LEXIS 2372, the United States Court of Appeals for the Ninth Circuit reversed the district court's dismissal of insured property management company Ernst & Hass' coverage action seeking coverage under a Crime policy for a mistaken wire transfer caused by fraudulent impersonation of a managing broker. An accounts payable clerk for the insured who regularly disbursed funds according to protocol received an email purporting to be from her superior, a managing broker, directing her to make wire transfers. The sender was an imposter. However, the clerk, under the mistaken belief that the sender was her superior, effectuated two wire transfers totaling $200,000 before becoming suspicious and requesting verification.

When the bank declined to reverse the transactions, the insured sought coverage under a Crime Insurance Policy. Hiscox denied coverage under a 2019 policy in whose period the loss occurred. The insured filed suit against the carrier for breach of contract and bad faith among others. The court granted the Hiscox's motion to dismiss and entered judgment against the plaintiff, finding that the loss did not fall within the applicable policy's "Computer Fraud" and "Funds Transfer Fraud" coverages.

The Computer Fraud coverage provided:

1. Computer Fraud

[The insurer] will pay for loss of or damage to [currency, coins, bank notes, bullion, checks, money orders], [negotiable or nonnegotiable instruments or contracts representing either currency, [etc.], or property], and/or [any other tangible property] resulting directly from the use of any computer to fraudulently cause a transfer of that property from inside the [interior of any building Ernst or a subsidiary occupies in conducting Ernst's business] or [the interior of that portion of any building containing a financial institution or similar safe depository]:

i) To a person (other than [Ernst, a Partner, a Member, or an Employee]) outside [the interior of any building Ernst or a subsidiary occupies in conducting Ernst's business] or [the interior of that portion of any building containing a financial institution or similar safe depository]; or

ii) To a place outside [the interior of any building Ernst or a...