Chubb Owes $4.8M for Medidata Social Engineering Loss

A federal judge in New York awarded summary judgment on Friday in favor of Medidata Solutions, Inc., finding that Medidata’s $4.8 million loss suffered after Medidata was tricked into wiring funds to a fraudulent overseas account, triggered coverage under a commercial crime policy’s computer fraud provision and funds transfer fraud provision. The award comes after District Judge Andrew L. Carter, Jr., ruled in March 2016 that additional expert discovery was needed concerning the manner in which the fraudsters manipulated Medidata’s computer systems.

The lawsuit, discussed in an August 18, 2016, Hunton & Williams blog post, arose after employees in Medidata’s finance department were deceived into transferring $4.8 million to a Chinese bank account based on emails that falsely appeared to come from a Medidata executive. Federal Insurance Company, a unit of Chubb Corp., insured Medidata under a policy providing coverage for, among other things, computer fraud, forgery and funds transfer fraud. Federal argued that Medidata’s claim was not covered because, among other things, there was no manipulation of Medidata’s computers and Medidata “voluntarily” transferred the funds.

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Insurer Report Predicts Increasing Global Risk, Up to $53 Billion in Losses, Following Major Cyber Event

As discussed in prior posts, recent cyber events, such as the “Wanna Cry” ransomware attack, serve as important reminders to policyholders that cyber insurance should remain a priority for any business facing potential exposure from a cyber event. A recent report further underscores the potential impact of a major global cyber event, estimating that the resulting loss could exceed $53 billion worldwide, on par with the damage caused by catastrophic natural disasters such as hurricanes.

Earlier this week, Lloyd’s of London issued an emerging risk report, co-authored with risk-modeling firm Cyence, that examines several plausible cyber-risk scenarios to help insurers and policyholders understand cyber liability and risk exposures in an area that the report concludes is relatively underdeveloped compared with other classes of insurance. Continue Reading

Examining the Restatement of the Law, Liability Insurance

In 2015 and 2016, we discussed certain provisions of the then drafts of the Restatement of the Law, Liability insurance, including the Duty to Cooperate, here, and Duty to Defend, here and here. In late May 2017, the American Law Institute met to approve the Proposed Final Draft—the culmination of over seven years of work on this project. Not surprisingly, many of the issues discussed in the Restatement have been hotly contested by insurers. While in many instances, the reporters simply opted for the majority rule, in a few instances, the Restatement may seek to move the law on key issues to align the law and the incentives underlying insurance and claims-handling. In a recent article for Risk Management Magazine, Lorie Masters, Syed Ahmad, and I address some of the most hotly debated sections of the proposed Restatement, including: policy interpretation principles, such as when a term is deemed ambiguous; the standard for determining the insurer’s duty to defend; the insurer’s duty to make reasonable settlement decisions; and the allocation of liability in long-tail environmental claims. The article can be found here. We will also be speaking at the upcoming Florida RIMS Conference in Naples, Florida on this subject on July 28th. Please see the Florida RIMS website for more information on that conference.

The vote on the final draft has been pushed to the American Law Institute’s next annual meeting in May 2018. In the meantime, policyholders may consider submitting comments on sections of interest and can look to the current Proposed Final Draft as guidance on what the law may be should they encounter a coverage dispute with their liability insurer.

 

Eleventh Circuit Affirms $8 Million Jury Award for Insurer’s Negligent Failure to Settle

In the linked Client Alert, my colleague, Geoff Fehling, discusses the recent federal appellate decision in Camacho v. Nationwide Mutual Insurance Co., No. 16-14225, 2017 WL 2889470 (11th Cir. July 7, 2017), where the Eleventh Circuit affirmed a Georgia district court’s refusal to disturb a jury award for the policyholder arising from the insurer’s failure to accept a time-limited settlement demand, holding that the lower court’s order was “thorough and well-reasoned.”

 

New Jersey App. Court Affirms Post-Loss Assignment of Policy Rights

In the linked Client Alert, my colleagues, Lorie Masters and Brittany Davidson, discuss the recent New Jersey appellate court decision in Haskell Prop., LLC v. Am. Ins. Co., No. A-1452-14T2 (N.J. Super. Ct. App. Div. June 29, 2017), where the court again confirmed that, in “occurrence” policies, an insured can assign its policies after a loss even if the policy has an anti-assignment provision.

 

Fear of the Unknown [Cause of Contamination]: Whether an Unknown Cause of Loss Constitutes an “Occurrence”

Commercial general liability policies typically provide coverage to insureds for losses resulting from property damage caused by an “occurrence,” usually defined in the policy as “an accident, including continuous or repeated exposure to substantially the same harmful conditions.” In the context of food recalls, however, the exact cause of the food damage, whether contamination, spoilage or something else, may be unknown. This creates uncertainty, and in turn, a coverage dispute, over whether the cause of damage was indeed accidental, and thus a covered “occurrence.” In a recent article for Food Safety Magazine, Syed Ahmad and I analyze three recent cases involving coverage for food industry insureds where the courts found the cause of loss to constitute an “occurrence,” triggering the policy’s coverage.  The full article is available here.

Coverage for “Counterfeit” Securities: Imitation of an Original vs. Imitation of the Original

Coverage often turns on the meaning of a single word or phrase in an insurance policy. The definition of “counterfeit” in financial institution bonds can be especially tricky. On June 12, 2017, the court in Harvard Sav. Bank v. Sec. Nat’l Ins. Co., No. 15-CV-11674, 2017 WL 2560900, at *1 (N.D. Ill. June 12, 2017) addressed the definition of “counterfeit” in the financial institution bond issued by Security National Insurance Company to Harvard Savings Bank. As the ruling illustrates, terminology that may appear to be insignificant can often make all the difference between millions of dollars in recovery versus no coverage being available. Continue Reading

Sixth Circuit Rules That Insured-vs.-Insured Exclusion Bars Coverage for Liquidation Trustee’s Claim

A case decided last week by the Sixth Circuit illustrates the importance of seeking bankruptcy claim policy amendments when placing D&O coverage. Indian Harbor Ins. Co. v. Zucker (6th Cir. Jun. 20, 2017) involved the application of the insured-vs.-insured exclusion and specifically, whether the policy’s insured-vs.-insured exclusion precluded coverage for a claim brought by a company’s liquidating trust, to which the company’s claims had been assigned by the company as debtor-in-possession after the company filed for bankruptcy. After the company’s claims were assigned to the liquidating trust, the trustee sued several of the company’s former executives for breach of fiduciary duty. Continue Reading

Hunton Insurance Head, Walter Andrews, Speaks on Insurance Cases to Watch in 2017

My partner, Walter Andrews, recently commented in a Law360 article concerning the top insurance cases to watch in 2017.  The Law360 article, titled Insurance Cases to Watch in the 2nd Half of 2017, features Andrews commenting on the impact of Global Reinsurance Corp. of America v. Century Indemnity Co., case number CTQ-2016-00005, in the Court of Appeals of the State of New York, where he points out how a win for Global Re could result in a huge windfall for the reinsurer by saving on its defense costs, since reinsurers typically must pay both indemnity and defense costs.  Andrews also commented on Continental Insurance Co. et al. v. Honeywell International Inc. et al., case number 078152, in the Supreme Court of the State of New Jersey, noting the significant impact that choice of law could play on the outcome of that dispute.

Hunton Insurance Partner Syed Ahmad Discusses Key Insurance Rulings of 2017

Last week, my partner, Syed Ahmad, commented on some of the biggest insurance rulings of the year in a Law360 feature article that can be found here.  Among those decisions is USAA Texas Lloyd’s Co. v. Menchaca, where the Texas Supreme Court ruled that that policyholders may recover for bad faith in the absence of coverage under their policy.  Ahmad also discussed the Connecticut appeals court decision in R.T. Vanderbilt Co., Inc. v. Hartford Acc. And Indem. Co., and its ruling that insurers may not force policyholders to act as an insurer during policy periods in which insurance was not available.  Finally, Ahmad discussed the Third Circuit’s ruling in General Refractories Co. v. First State Insurance Co., where the court gave a broad meaning to the phrase “arising out of” such that an exclusion for claims arising out of asbestos was to be read more broadly than referring only to claims from exposure to asbestos in its raw mineral form.  Significantly, however, the broad interpretation pertained only to the phrase “arising out of” and not the operative term “asbestos.”

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