Social engineering attacks, particularly fraudulent transfers, are becoming one of the most utilized cyber scams.  As a result, there has been a flurry of litigation, and a patchwork of decisions, concerning coverage disputes over social engineering losses.  Most recently, the United States District Court for the Eastern District of Virginia found in Midlothian Enterprises, Inc. v. Owners Insurance Company, that a so-called “voluntary parting” exclusion provision in a crime policy should exclude coverage for a fraudulent transfer social engineering scheme.  The decision illustrates why policyholders must vigilantly analyze their insurance policies to ensure that their coverages keep pace with what has proven to be a rapidly evolving risk landscape.

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A federal court last month turned away an insurer’s legal arguments seeking to avoid financial institution bond coverage for a bank’s losses resulting from a borrower’s use of forged documents to obtain a $3.6 million loan.  In doing so, the Arizona court rejected Everest National Insurance Company’s narrow construction of the bond’s “Securities” insuring agreement and ruled that the notice-prejudice rule applies to a financial institution bond.

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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.
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