On May 10, 2018, the Eleventh Circuit Court of Appeals affirmed a Northern District of Georgia decision barring coverage for a loss claimed to arise under a “Computer Fraud” policy issued by Great American Insurance Company to Interactive Communications International, Inc. and HI Technology Corp. Interactive Commc’ns Int’l, Inc. v. Great Am. Ins. Co., No. 17-11712, 2018 WL 2149769 (11th Cir. May 10, 2018). InComm sells “chits,” each of which has a specific monetary value to consumers who can redeem them by transferring that value to their debit card. To redeem a chit, a consumer dials a specific 1-800 number and goes through a computerized interactive voice system. InComm lost $11.4 million when fraudsters manipulated a glitch in the system by placing multiple calls at the same time. This allowed consumers to redeem chits more than once. InComm sought coverage for these losses under its “Computer Fraud” policy.
To trigger coverage under InComm’s policy, the loss must “result directly from the use of any computer…” The Eleventh Circuit concluded that the fraud was accomplished through the “use” of a computer because the fraudsters engaged with the computerized voice system when they made their redemption calls. The Eleventh Circuit further found, however, that the loss did not “result directly” from the use of a computer, and thus found that the loss was not covered by the policy. Looking to the dictionary, the Court stated that one thing results “directly” from another if it follows straightaway, immediately, and without any intervention or interruption. The Eleventh Circuit concluded that InComm’s losses did not immediately occur after the fraudsters made their phone calls. Rather, InComm still needed to transfer the funds to a third party, who would then transfer the money to the consumer. Thus, the Eleventh Circuit found that the “lack of immediacy—and the presence of intermediate steps, acts, and actors—makes clear that the loss did not ‘result  directly’ from the initial fraud.”
This decision highlights the narrow reading courts may give to provisions that premise coverage on a loss “resulting directly” from some act or event, notwithstanding the contra proferentem policy interpretation rules that pertain in a majority of U.S. jurisdictions. Accordingly, policyholders should be wary of any such language, especially where a loss may not occur or manifest itself immediately. Policyholders concerned about falling victim to this type of coverage issue may wish to negotiate for a policy that does not require the direct causal nexus that the Eleventh Circuit found determinative in this case, such as by including, for instance, language that expands coverage to include loss resulting “directly” or “indirectly” from a particular peril or event.