One of the more challenging issues businesses must confront as wrongdoers have turned Internet tools into criminal devices has been the rising threat of payment instruction fraud, or, as it is sometimes called, social engineering fraud. Along with these crimes have come vexing questions of insurance coverage for the ensuing losses. Courts have struggled to determine whether or not payment instruction fraud losses are covered under Crime policies. A recent case in the Southern District of New York raises the question whether a payment instruction fraud loss is covered not under a Crime policy but rather under a Cyber Insurance policy.
In a November 6, 2019 order (here), Southern District of New York Judge Jed Rakoff, applying Connecticut law, denied the insurer’s motion to dismiss the Cyber Insurance policyholder’s complaint seeking coverage for its payment instruction fraud losses. Judge Rakoff’s ruling in the case raises a number of interesting issues, as discussed below.
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