Owens, Schine & Nicola, P.C. v. Travelers Casualty & Surety Co. of America,

2010 Conn. Super. LEXIS 2386 (Conn. Super. Ct. Sept. 17, 2010)

In Owens, Schine & Nicola, P.C. v. Travelers Casualty & Surety Co. of America, 2010 Conn. Super. LEXIS 2386 (Conn. Super. Ct. Sept. 17, 2010), the insured (a law firm) brought a coverage action against its insurer after the insurer declined coverage under a crime insurance policy for a loss that resulted from the insured’s representation of a foreign client allegedly involved in a collection action. Id. at *1 and *2. Specifically, the insured was fraudulently induced to electronically wire approximately $200,000 from its IOLTA account to a bank account in South Korea after the insured received several emails from the client and a fraudulent check from Wachovia Bank. Id. at *3. When the insured learned of this fraud, it submitted a claim to the insurer for coverage. Id. at *4. When the insurer denied the claim, the insured brought this action. Id. at *4-*5.

The insurer raised several arguments in moving for summary judgment. Id. at *5-*6. First, the insurer argued that the policy did not provide coverage because the claim did not constitute “Computer Fraud” under the terms of the policy. Specifically, the insurer argued that although the client communicated with the insured exclusively by email and the fraudulent check may have been created with a computer, this activity did not constitute computer fraud because the policy required a computer to be used to cause the transfer of money, which did not occur. Id. at *18-*19. The insured argued that the policy required only the “use of any computer” and the word “use” was not defined; thus, according to the insured, the policy was ambiguous and such ambiguity should be resolved in its favor. Id. at *19. The court agreed that the policy was ambiguous as to the amount of computer usage necessary to constitute computer fraud. Id. The court further found that a “computer hacking incident” was not required in order to trigger coverage. Id.

Second, the insurer argued that the insured’s alleged loss was not directly caused by computer fraud. Id. at *19-*20. The insurer claimed that the alleged loss was caused by the insured’s own initiative in wiring funds to South Korea. Id. at *20. Further, the insurer claimed that the insured’s receipt of the fraudulent check constituted an intervening cause between the insured’s receipt of emails and the insured’s transfer of the funds. Id. The court disagreed, finding that the emails were the proximate cause and efficient cause of the insured’s loss “because the emails set the chain of events in motion that led to the entire loss.” Id. at *22.

Next, the insurer argued that the insured’s loss fell within the exclusion for loss resulting directly or indirectly from the insured’s acceptance of “money orders” or “Counterfeit Money,” and/or the exclusion for losses resulting directly or indirectly from the giving or surrendering of money, securities or other property in an exchange or purchase. Id. at *23, *25. The court found that the fraudulent check did not constitute counterfeit money or money orders, and that the exclusion cited by the insurer was ambiguous. Id. at *25. Similarly, the court found that the exclusion for losses resulting directly or indirectly from the giving or surrendering of money, securities or other property was ambiguous and should be construed against the insurer. Id. at *27.

Finally, the insurer argued that summary judgment should be granted in its favor because its denial of the claim was correct as a matter of law and, even if the declination of coverage was incorrect, its investigation and denial were not made in bad faith. Id. at *27-*28. The court explained that while an insurer is under an obligation to conduct a proper investigation, “a deficient investigation is not, by itself, sufficient to support a finding of bad faith.” Id. at *30. However, the court denied the insurer’s summary judgment motion, finding that genuine issues of material fact existed as to the handling and investigation of the insured’s claim. Id. at *33.