One of the more vexing threats in the current business environment is the rise of “social engineering fraud” or “payment instruction fraud.” In these schemes scammers using official-seeming email communications induce company employees to transfer company funds to the imposters’ account. Among the many issues involved when these kinds of scams occur is the question of insurance coverage for the loss. In many instances, insurers take the position that because the schemes do not involve a “hacking” of the company’s systems and because the actual funds transfers are voluntary, the loss of funds is not covered under commercial crime policies.

However, in a July 21, 2017 decision (here), Southern District of New York Judge Andrew L. Carter, Jr., applying New York law, held that Mediadata Solutions Inc.’s commercial crime policy covered the company’s loss of $4.77 million transferred in response to an email instruction that falsely appeared to be from the company’s President. The court’s decision raises and addressed a number of interesting issues, as discussed below.
Continue Reading District Court Holds Crime Policy Covers Payment Instruction Fraud