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By: Bill Buechner
The Eleventh Circuit recently held that an insured could not recover $10.7 million in losses under a computer fraud policy covering losses “resulting directly from” the use of a computer to fraudulently cause a transfer of funds.
In Interactive Communs. Int’l, Inc. v. Great Am. Ins. Co., 2018 U.S. App. LEXIS 12410 (11th Cir. May 10, 2018), the Eleventh Circuit held that, under Georgia law, “one thing results ‘directly’ from another if it follows straightaway, immediately, and without any intervention or interruption.” Id. at *12. In doing so, the Eleventh Circuit rejected the insured’s argument that “resulting directly from” means proximate cause, and that the mere fact that computer fraud set into motion a chain of events that led to the insured’s loss was sufficient to establish coverage. Because there were several steps between the computer fraud (fraudulently redeeming same debit card “chits” multiple times) and the loss sustained when money was transferred from a bank account controlled by the insured to a merchant to cover the fraudster’s debit card purchase, and there was a lack of immediacy between the computer fraud and the loss, the Eleventh Circuit held that the insured’s loss did not “result directly from” computer fraud. Id. at *14-15.
A growing number of courts around the country likewise have held that “resulting directly from” and similar language in computer fraud, funds transfer fraud and similar computer crime policies requires an immediate link between the covered event and the loss. However, courts in some jurisdictions, including New Jersey, Pennsylvania and Ohio, have held that such language only requires that the covered event be a proximate cause of the loss. Insurers reviewing claims under computer fraud, funds transfer fraud and similar computer crime policies requiring that a loss “result directly from” a covered event (or similar language) should confer with coverage counsel regarding whether the relevant jurisdiction requires an immediate link between the covered event and the loss and (if so) whether the circumstances of the claim satisfy this requirement.
If you have any questions or would like more information, please contact Bill Buechner at [email protected].