Let the Sender Be Frustrated. Actually, get frustrated now.  This is the most frustrating article you will read in the next several months, I hope…

wire transferThe title and escrow industry has been alarmed by the increase in clever wire fraud schemes.  However, the exposure is not limited to closings in which fraudulent wiring instructions can get buried in a last-minute flurry of emails.  Any company paying for goods or services by wire is exposed.  Both cases merit your attention and some discussion with your clients.  The news actually gets worse, if you can believe that.  There is a growing consensus that there is no insurance coverage for misdirected wires under the “computer fraud” coverage that you should have if you do not already.  That coverage generally compensates only for instances of “hacking”, i.e., when someone has gained unauthorized access to your own computer system to divert payments.  The problem with a misdirected wire is that no one has gained unauthorized access to your own computer system.


            Am. Tooling Ctr., Inc. v. Travelers Cas. & Sur. Co. of Am., 2017 U.S. Dist. LEXIS 120473 E.D. Mich. 2017).  The policy at issue in this case protected the insured from “computer fraud”.  The policy defined “computer fraud” as the use of the computer to cause a fraudulent transfer of funds from inside the business (or the business’s bank) to a third party.

After receiving emails that appeared to be from one of its vendors, ATC authorized payments to a bank account ATC believed belonged to the vendor.  The email addresses were virtually identical.  The domain name for the legitimate vendor was ” yifeng-mould.com”.  The domain name used to perpetrate the fraud was ” yifeng-rnould”.  The emails were fraudulent, however, and the payments were received by the persons perpetrating the fraud, not ATC’s vendor. ATC contends that it suffered loss covered under the “computer fraud” provision of its Travelers policy. Travelers argued that ATC did not incur a covered loss under the policy.  The American Tooling court noted that “…courts repeatedly have denied coverage under similar computer fraud provisions, except in cases of hacking where a computer is used to cause another computer to make an unauthorized, direct transfer of property or money…”  However, because the transfer did not occur “fraudulently”, there was no coverage under this portion of the policy.

            Medidata Solutions, Inc. v. Federal Insurance Co., 268 F.Supp.3d 471 (S.D.N.Y. 2017) was a win (in my view, one of the few) for a defrauded insured in this context.  In that case, three employees of a sophisticated data management company received a group email purportedly sent from the company’s president stating: “I’m currently undergoing a financial operation in which I need you to process and approve a payment on my behalf. I already spoke with Alicia, she will file the wire and I would need you two to sign off.”

The email contained the president’s email address in the “From” field and a picture next to his name.  In response, the employees logged into the company’s bank account to initiate a wire transfer, and, following company procedure, received the required approvals from the other employees directed to assist in the transfer.  As a result, a total of $4,770,226.00 was wired to a phony account supposedly under the control of the company’s president.

The insurance policy that the company had was somewhat better the policy involved in the ATC case described above.  However, the insurance company made the same arguments and the case, in my view, could have gone either way.  Although the company won coverage, the insurance company has filed an appeal.


As the owners of small businesses, you probably do not include paying really clever attorneys high hourly rates to make arguments in federal court over insurance coverage as part of your ordinary business model.  Not explicitly, anyway.  However, with the obvious increase in this sort of fraud, you are in fact including this as part of your business model.  The legal profession is grateful.  Your bottom line is probably less grateful.  There is a solution but it is not a magic wand.

You can protect yourself with insurance which is referred generically as insurance against “social engineering fraud”.  However, you must sit down with your insurance agent and discuss carefully the coverages available to you.  There is no shortcut.  You must be satisfied that your insurance will cover you in the event of a misdirected wire.  Thomas Edison once said that people often miss an opportunity because opportunity usually appears on your doorstep dressed in coveralls and looking like work. Do not miss this opportunity to protect yourself.

-C. Jay Robbins, IV, P.C.

C Jay RobbinsJay Robbins, IV is an attorney with 30 years’ experience. As a former Assistant Attorney General, he represented state agencies in a variety of construction and real estate matters, including VDOT claims and the acquisition and sale of real estate. He has also represented general contractors, subcontractors, material suppliers and bonding companies in construction disputes arising from both private and public projects.  He concentrates his practice in construction disputes, business and commercial law, bond claims, real estate and land use, employment (including OSHA), insurance coverage and defense and creditors’ rights.  He is a member of the Virginia Land Title Association and a licensed title agent.  He also is a member of the Million Dollar Advocates Forum, an association of attorneys who have one verdicts or settlements of $1 million or more.

Wake Forest University, B.A., 1978, cum laude
Washington & Lee University, J.D., 1983

Peer Review Rating:
Martindale-Hubbell ® Rating-AV-Preeminent

Bar admissions:
All courts in the Commonwealth of Virginia; United States Supreme Cour

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