The story is becoming all too common. A merchant (or consumer) is convinced to wire money to a fraudulent account because of an incorrect belief that they are wiring the money to the real party. A common example is a fraudster convincing a purchaser of a home to wire money in the mistaken belief that they are wiring the money to a closing attorney or agent. Another common example is a fraudster convincing a company to wire money in the mistaken belief that they are paying a valid vendor. These transactions can involve millions of dollars and it is rare that the money can be recovered after it is sent.
Can insurance cover these losses? Recently the Eleventh Circuit decided Principle Solutions Group, LLC v. Ironshore Indemnity, Inc., 944 F.3d 886, (11th Cir. Dec. 9, 2019). There, the insured employer filed an action against insurer, seeking coverage for a wire transfer of funds made by insured’s employee to scammers. The employer claimed coverage under the “fraudulent instruction” provision of its commercial crime insurance policy, and asserted bad faith.