In a recent brief filed in the Sixth Circuit, American Tooling Center, Inc. argued that the appellate court should reverse the district court’s decision finding no insurance coverage for $800,000 that American Tooling lost after a fraudster’s email tricked an employee into wiring that amount to the fraudster. As we previously reported here, the district court found the insurance policy did not apply because it concluded that American Tooling did not suffer a “direct loss” that was “directly caused by computer fraud,” as required for coverage under the policy. The district count pointed to “intervening events” like the verification of production milestones, authorization of the transfers, and initiating the transfers without verifying the bank account information and found that those events precluded a “finding of ‘direct’ loss ‘directly caused’ by the use of any computer.”
American Tooling’s brief focuses on the meaning of the word “direct,” highlights the better-reasoned case law supporting its position that it suffered a direct loss directly caused by computer fraud, and distinguishes the cases relied upon by the district court. We will continue to keep our readers updated on this appeal, and other social engineering cases, as we expect this area of the law, and relevant insurance products, to evolve quickly as fraudulent transfers and related claims for coverage become more prevalent. In the meantime, policyholders should review their cyber and crime insurance policies with experienced coverage counsel to determine what revisions may be necessary before, or at, renewal to avoid a similar result.