In a recent post, we discussed the Sixth Circuit’s holding in American Tooling Center, Inc. v. Travelers Casualty and Surety Co. of America, No. 17-2014, 2018 WL 3404708 (6th Cir. July 13, 2018), where the Sixth Circuit reversed the district court’s summary judgment for the insurer, finding coverage under its policy for a fraudulent scheme that resulted in a $834,000.00 loss. The insurer, Travelers, has now asked the Court to reconsider its decision.

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The Sixth Circuit, in American Tooling Center, Inc. v. Travelers Casualty and Surety Co. of America, No. 17-2014, 2018 WL 3404708 (6th Cir. July 13, 2018), reversed the District Court’s grant of summary judgment in favor of the insurer in a dispute over coverage for a social engineering scheme. The policyholder, American Tooling, lost $800,000 after a fraudster’s email tricked an American Tooling employee into wiring that amount to the fraudster.

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A recent ruling by U.S. District Judge Paul Byron of the Middle District of Florida has made clear that the actual words used in an insurance contract matter. The court, in Mt. Hawley Insurance Co. v. Tactic Security Enforcement, Inc., No. 6:16-cv-01425 (M.D. FL. 2018), denied an insurance company’s motion for summary judgment attempting to rely on an exclusion to deny coverage to its policyholder.  The policyholder, Que Rico La Casa Del Mofongo, operated a restaurant establishment in Orlando, Florida, and sought coverage for two negligence lawsuits filed against it for allegedly failing to prevent a shooting and another violent incident on its premises.

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This week, SEC Chairman Jay Clayton issued a statement on Initial Coin Offerings (ICO) addressing the legality, fairness, and risks associated with those offerings. Although the agency’s bulletin was one of many recent public statements by federal agencies on ICOs and cryptocurrencies generally, this new warning highlights additional issues and concerns with the ICO phenomenon that are particularly relevant to insurance coverage.

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The Fifth Circuit recently upheld the dismissal on summary judgment of a policyholder’s claim under a commercial crime insurance policy, affirming the trial court’s narrow interpretation of the terms “owned” and “loss,” concluding that the policyholder did not “own” the funds at issue or suffer a “loss” when it loaned those funds to the fraudsters. In so holding, the court ignored state court precedent concerning construction of those same terms.

In Cooper Industries, Ltd. v. National Union Fire Insurance Co. of Pittsburgh, Pa., No. 16-20539 (5th Cir. Nov. 20, 2017), Cooper invested its pension-plan assets into what proved to be a multimillion-dollar Ponzi scheme. Over the course of many years, Cooper invested more than $175 million into various equity and bond investments managed by fraudsters who used the investment funds in furtherance of the Ponzi scheme. After discovering the fraud, Cooper recouped a large portion of its investment and sought coverage from its commercial crime insurer for the unrecovered $35 million. The policy limited coverage to “loss” of property that Cooper “owned.” Neither term was defined in the policy.
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On Tuesday, the U.S. District Court for the District of New Jersey granted Travelers’ motion to dismiss Posco Daewoo America Corporation’s suit for coverage under the computer fraud provision of its crime insurance policy.  Distinguishing itself from precedent like Medidata, Principal Solutions Group, Apache and American Tooling Center, Daewoo did not seek coverage for money fraudulently transferred or stolen from its own accounts.  Instead, Daewoo sought coverage for amounts that had been designated for payment to Daewoo by a third party supplier, Allnex, and stolen from Allnex after a criminal impersonated a Daewoo employee.  The Court held that the crime policy did not cover the lost sums because Daewoo did not “own” the money stolen from Allnex.

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