In a recent article appearing in Florida’s Daily Business Review (available here), Hunton Insurance Recovery Practice team head, Walter Andrews, explains why phishing and whaling scams should be covered by insurance. In the article, Andrews notes that recent appellate decisions support policyholders’ reasonable expectations of coverage and reject insurers’ contentions that social engineering losses do not result directly from the use of computers. Andrews goes on to explain that should a company find itself a victim of a phishing or whaling attack, it should carefully assess its insurance coverage to determine whether it applies to the loss, including under both traditional insurance policies and specialized cyber insurance products, and not be dissuaded by their insurers’ initial denial of coverage.
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.
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.
In a July 9, 2018 article appearing in Insurance Law360, Hunton Andrews Kurth insurance recovery practice head, Walter J. Andrews, explains why the Second Circuit’s decision in Medidata Solutions Inc. v. Federal Insurance Co., No. 17-2492 (2nd Cir. July 6, 2018), affirming coverage for a $4.8 million loss caused by a “phishing” e-mail attack, is a common sense application of the plain language of Medidata’s computer fraud coverage provision. As Andrews explained, “[c]learly, hijacking — or spoofing — email addresses constitutes an attack on a company’s computer system for which a reasonable policyholder should expect coverage. A computer is a computer is a computer. Everyone knows that — except for insurance companies.”
On July 6, 2018, the Second Circuit Court of Appeals affirmed a district court’s summary judgment award 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. The decision in Medidata Solutions, Inc. v. Federal Ins. Co., 17-cv-2492 (2d Cir., July 6, 2018), confirms a ruling by District Judge Andrew L. Carter, Jr., in which the district court found that a fraudsters manipulation of Medidata’s computer systems constitutes a fraudulent entry of data into the computer system, since the spoofing code was introduced into the email system.
The construction industry is no stranger to insuring its projects against the risks of physical and natural disasters. Policies purchased to cover these risks, however, often are not broad enough to reach cyber threats, which can be just as damaging and costly as a physical disaster. During the past decade, hacks have targeted the data held by several high profile companies, including Target Corp., Sony Corp., Equifax Inc. and Yahoo Inc. So far, the construction industry has not yet been at the center of one of these attacks. Still, builders are no less susceptible to these risks than any other industry, especially given that these companies often possess sensitive data related to buildings and projects.
Phishing attacks are on the rise, and they are targeting Microsoft’s flagship cloud-based products. According to a report by specialist data breach insurer Beazley, hackers have increased attempted and successful attacks on Microsoft Office 365, especially systems used by financial, health care, and professional services organizations. These attacks are deceptively simple, relying on employees and contractors falling for fake, yet well disguised, Microsoft communications, like a HelpDesk message or a survey. Once employees or contractors interact with these communications, they are prompted to enter personal information, which allows the hackers access to confidential information. This information allows the intruders to steal customer data, initiate bank transfers, and gain access to additional employees’ accounts. Microsoft 365’s default settings compound the dangers of these attacks because they decrease the ability to track how many accounts are compromised.
The U.S. District Court for the Middle District of Florida, in Innovak International v. The Hanover Insurance Co., recently granted summary judgment in favor of Hanover Insurance Company finding that it had no duty to defend Innovak against a data breach lawsuit. Innovak, which is a payroll service, suffered a breach of employee personal information, including social security numbers. The employees then filed suit against Innovak alleging it had negligently created a software that allowed personal information to be accessed by third parties. Innovak sought a defense for the lawsuit from its commercial general liability carrier, Hanover Insurance Company. Innovak argued that the employee’s allegations triggered the personal and advertising injury coverage part of the policy, which covers loss arising out of the advertising of the policyholder’s goods or services, invasion of privacy, libel, slander, copyright infringement, and misappropriation of advertising ideas. The court disagreed and found the employees’ allegations did not involve a publication that would trigger coverage under the commercial general liability policy.
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.”