Court docket guidelines in opposition to Hartford entity in cyber fraud case – Enterprise Insurance
A federal appeals court overturned a lower court on Thursday ruling that a unit of Hartford Financial Services Insurance Group Inc. must compensate a financial services company that was victimized by a fraudster.
In January 2015, the chief financial officer of Austin-based HM International LLC received an email from a scammer posing as customer Greg Geib instructing the company to transfer $ 1 million to another bank account, according to the judgment of the 5th US Appeals Court in New Orleans in HM International, LLC v Twin City Fire Insurance Co.
HMI carried out the order, which resulted in Mr. Geib and his wife losing the $ 1 million, much of which they were judged to be unable to get back. The scam was discovered two days later when the scammer tried the system a second time without success.
Three months later, the lawyer sent Geibs HMI a letter accusing them of negligence and demanding compensation for the loss of the couple.
HMI applied to the Hartford Twin City unit for coverage under its directors and officers liability insurance.
Twin City refused to offer coverage due to exclusions, and HMI and the Geibs filed a lawsuit against the insurer to seek coverage.
While that litigation was ongoing, HMI and the Geibs settled their dispute, with HMI paying the couple $ 470,000 and receiving full indemnity and the right to reclaim the stolen funds.
The Geibs never filed their threatened negligence suit, and the settlement came more than two years after the negligence claim arose, which exceeded the statute of limitations of the Twin City policy.
Both HMI and Twin City moved summary judgment and the US District Court ruled in Twin City's favor.
The verdict was unanimously overturned by a three-person appeals court.
"The District Court of Twin City issued a summary judgment and concluded that the settlement payment was not a 'loss' because it was not an amount that HMI was 'only legally required to pay due to a claim'," it said.
The lower court has misinterpreted the policy, said the panel. "The policy covers 'Losses … as a result of a legal entity claim'" said quoting the policy.
"The settlement payment from HMI represents a loss, since it is an amount that HMI has to pay legally – in accordance with the contract – to Geibs due to the warning letter," said the committee in the repeal of the summary judgment of the lower court and the referral back Matter for further proceedings.
A Hartford attorney made no comment, while HMI attorneys did not respond to a request for comment.