Travelers Seeks Review of Court Ruling on Crime Insurance Loss Involving Email Fraud

Travelers Insurance is seeking a full Sixth Circuit court reconsideration of its three-judge panel ruling that said the insurer’s crime insurance policy’s computer fraud clause covered a loss due to money transfer involving fraudulent emails.

In seeking an en banc review or rehearing, Travelers argues that the panel’s decision in favor of American Tooling directly conflicts with the federal court’s own precedent in another case decided in 2012 (Tooling, Manufacturing & Technologies Ass’n v. Hartford Fire Insurance) over what the term “directly” caused by means in a crime insurance policy.

According to Travelers, while the previous ruling held that Michigan law requires a “direct means direct” standard when determining whether the “directly caused by” or “directly resulting from” requirement in commercial crime policies was satisfied, the recent panel’s decision instead applies a tort-based “proximate-cause” standard, relying on a case that Tooling rejected.

Travelers is on the hook for $800,000 to Michigan-based American Tooling Center as a result of that ruling on July 13.

Court Finds Travelers Crime Policy Covers Money Transfer Loss Due to Email Spoofing

In its decision on July, 13, the Sixth Circuit appeals court found that Travelers was wrong to deny the claim of American Tooling Center that wired $800,000 in funds to a fraudster’s account in the belief the account belonged to one of its Chinese subcontractors.

While a lower court agreed with Travelers that the loss was not a “direct’ loss caused by the “use of a computer” and thus the crime policy did not apply, the Sixth Circuit panel reversed that on appeal (American Tooling Center, Inc. v. Travelers Casualty and Surety).

In its request for a full court review, the insurer argues that the word “directly” in crime policies means “immediately and without any intervening space, time, agency, or instrumentality” in accordance with the earlier case and no Michigan court has held otherwise until earlier this month.

“Travelers seeks rehearing because the panel’s decision, which squarely conflicts with Tooling, creates uncertainty as to how Michigan law applies to crime policies,” the insurer says in its request.

Travelers also disagrees with a section of the Sixth Circuit’s ruling where it found several exclusions in the crime policy did not apply. The insurer said the appeals court improperly applied the exclusions and should not have ruled on those at all because the lower court did not. Travelers is asking the court to remand the issues related to the exclusions to the lower court.