Insurance Coverage for Fraudulent Email Schemes: Strategies From Insured and Insurer Perspectives

Cybercrime is at an all-time high, and the FBI reports such activities cost businesses over $1 billion each year. Phishing and other types of social engineering fraud are increasingly prevalent, particularly where scammers hijack legitimate email accounts and pose as employees.

As these schemes have evolved, so too has the case law on whether insurance covers these email frauds, leading to divergent circuit rulings.

Insurers have argued with some success that the actions of authorized employees end the causal connection between the computer and the loss, but some recent cases—American Tooling Center Inc. v. Travelers Casualty and Surety Co. of America, 895 F.3d 455 (6th Cir. 2018) and Medidata Solutions Inc. v. Federal Insurance Co., 729 F. App'x 117 (2d Cir. 2018)—have rejected this argument.

Listen as our veteran panel of insurance practitioners discusses recent case law and guides insurer and policyholder counsel on negotiating terms and exclusions, and provides insights into how computer fraud coverage works with other policies to address potential losses.

1. Social Engineering fraud schemes and consequences
2. Coverage under crime policies
   1. Initial court decisions
   2. Recent decisions
      1. American Tooling Center Inc. v. Travelers Casualty and Surety Co. of Am.
      2. Medidata Solutions Inc. v. Federal Insurance Co.
   3. Application of case law to policy forms
3. Strategies and practical considerations
   1. Coverage under cyber liability & data security policies
      1. Limited coverage litigation to date
      2. Swiftly evolving coverage, may be subject to sublimit rather than exclusion
   2. Protecting against social engineering fraud

The panel will review these and other relevant issues:

• What are the most common types of computer-related scams?
• How does cyber insurance dovetail with other insurance policies like CGL, D&O, or E&O coverage to mitigate risk and losses?
• How can counsel for insurers and policyholders assist in clearing common roadblocks to procure coverage?
• What specific exclusions commonly require extra consideration from counsel?