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Chubb not liable for accounting firm’s fake email loss

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A Chubb Ltd. unit is not obligated to provide coverage to an accounting firm that transferred more than $99,000 of its client’s money to criminals in response to fraudulent emails, says a federal appeals court, in affirming a lower court ruling.

In June 2012, an employee of Los Angeles-based accounting firm Taylor & Lieberman received an email requesting a wire transfer of $94,280 of client funds to a Malaysia bank, according to court papers in Taylor & Lieberman, an Accountancy Corporation v. Federal Insurance Co. 

The email had been sent to her email account and was signed with the client’s name typed at the bottom. The employee requested the transfer.

The next day she received another request for $98,485.90, which she also responded to. But when she received a third request for $128,1010 from a different email address she contacted the client and learned it was a fraudulent scheme, according to court papers.

The accounting firm was able to recover most of the funds from the first transfer, but none from the second, resulting in a total fraudulent withdrawal of $99,433,.92, according to court papers.

The firm sought coverage from Warren, New Jersey-based Federal Insurance Co. under its “forefront portfolio policy.” Federal denied the claim, and the accounting firm filed suit in U.S. District Court in Los Angeles, which held the insurer was not obligated to provide coverage.

The 9th U.S. Circuit Court of Appeals in San Francisco upheld the coverage denial in its ruling Thursday. There is no forgery coverage under the policy, said the ruling. “Under a natural reading of the policy, forgery coverage only extends over the forgery of a financial instrument. Here, the emails inducting T&L to wire money were not financial instruments like checks, drafts and the like,” said the ruling.

In addition, there is no computer fraud coverage in the policy itself. “There is no support for T&L’s contention that sending an email without more constitutes an unauthorized entry into the recipient’s computer system,” said the ruling.

There is also no funds transfer fraud coverage, said the ruling, “This coverage is inapplicable because T&L requested and knew about the wire transfer,” said the ruling in upholding the lower court’s dismissal.