An insurer’s liability for a fraudulent email scheme that duped a silicon metal manufacturer to transfer more than $1 million to criminals is capped under a policy sublimit, a federal court ruled Friday.

In Mississippi Silicon Holdings LLC v. Axis Insurance Co., Sharion Aycock, chief U.S. district court judge for the Northern District of Mississippi in Amory, ruled that the manufacturer could only recover losses under the social engineering section of its management liability policy with the unit of Bermuda-based Axis Capital Holdings Ltd.

The claim stemmed from a 2017 incident when an employee of Mississippi Silicon received an email with the name of a known employee of a Russian supplier in the “from” line. The email contained instructions on a new regime for payments. The Mississippi Silicon employee subsequently made two electronic transfers of $250,030 and $775,851 using the new instructions and only realized the deception after receiving a call from the supplier saying it had not received payments and never sent the emails.

The Privatus Platinum insurance policy issued by Axis to Mississippi Silicon included coverage for social engineering fraud with a $100,000 policy limit, computer transfer fraud with a $1 million limit and funds transfer fraud with a $1 million, according to the ruling.

Axis agreed that Mississippi Silicon had coverage under the social engineering fraud provision but not under the other two provisions and issued a $100,000 check to the policyholder.

Mississippi Silicon returned the $100,000 check and filed suit against Axis in November 2018 seeking coverage under the provisions of the policy with higher limits.

The court found the inclusion of the language, “without the insured entity's knowledge or consent” in the computer transfer fraud provision made it inapplicable because at least three Mississippi Silicon employees had knowledge of and authorized the transfers.

The funds transfer fraud provision also did not apply because it required that a loss occurs as a result of a financial institution’s reliance on an instruction issued without the policyholder’s knowledge or consent, the ruling stated.

The judge denied Mississippi Silicon’s motion for summary judgement and dismissed the case.

Robert S. W. Given, a partner at Burr & Forman LLP in Birmingham, Alabama, who represents Mississippi Silicon, said in an email "we respectfully disagree with the court’s ruling and are considering our options."