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In Taylor v. Fed. Ins. Co., the court held that the insured, an accounting firm that performed business management services, account oversight and tax planning, could not show it was entitled to coverage because the losses of client funds did not qualify as “direct losses.”
A client of the insured gave the insured power of attorney over money held in the client’s financial account. A hacker stole the client’s email account and sent multiple wire payment instructions to one of the insured’s employees. Believing the emails came from the client, the employee wired nearly $200,000 to bank accounts in Malaysia and Singapore. The insured was unable to recover approximately half of the transferred funds. The insured tendered the claim to its carrier, which had issued a policy covering “direct losses” due to, among other things, forgery and/or computer fraud. The carrier denied the claim and argued that the loss was not “direct” because it was suffered by the client and not the insured. The insured sued, and the carrier filed a motion for summary judgment.
The court followed prior Ninth Circuit’s opinions on the issue and held that “direct loss” meant loss of the insureds own money and not loss of client funds. Because the funds at issue belonged to the insured’s client, the court granted the carrier’s motion for summary judgment.
Taylor v. Fed. Ins. Co., 2015 U.S. Dist. LEXIS 79358 (C.D. Cal. June 18, 2015), [subscribers can access an enhanced version of this opinion: lexis.com | Lexis Advance].
Originally published in California Insurance Law Review - 2015 11.03.15
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