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June 10, 2024
No Financial Loss – No Coverage

Cybersecurity Policy Requires Direct Financial Loss

Read the full article at https://lnkd.in/g6ycmNMT, see the full video at https://lnkd.in/ghfQuKNg and at https://lnkd.in/gMVgdfqp and at https://zalma.com/blog plus more than 4800 posts.

Post 4819

Insured Cannot Claim for Loss Incurred by Customer

After suffering from a phishing scam, Door Systems, Inc. (appellant) sought coverage under a cybersecurity insurance policy (policy) it obtained from CFC Underwriting Limited, Underwriters at Lloyd’s, London, and Evolve Cyber Insurance Services, LLC. The parties disputed the scope of coverage, and appellant filed a complaint against respondents alleging, among others, breach of contract. The trial court sustained a demurrer concluding the SAC did not plead a “direct financial loss” sustained by appellant.

In Door Systems, Inc. v. CFC Underwriting Limited, et al., G062645, California Court of Appeals, Fourth District, Third Division (June 3, 2024) the Court of Appeal resolved the dispute.

FACTS

On May 13, 2021, appellant, a leading distributor of integrated fire doors and fire protection smoke curtains, filed a complaint against its cyber security insurers, alleging causes of action for: (1) breach of contract; (2) breach of the covenant of good faith and fair dealing; and (3) declaratory judgment – duty to indemnify. The trial court sustained a demurrer without leave to amend.

Insured Event

The complaint alleged that on January 20, 2021, someone impersonated appellant’s President and sent electronic correspondence to “one of [appellant’s] clients, X-Act Finish & Trim, Inc.” (X-Act). At the time, X-Act owed appellant at least $395,000 for products ordered from appellant. The impersonator demanded $395,000 and provided wire directions for payment. X-Act complied but was later informed by appellant that the money had not been deposited into appellant’s account. Subsequently, appellant and X-Act conducted an investigation and were able to recover $160,419.20, leaving a balance of $234,580 that appellant sought to recover from respondents.

Order Sustaining Demurrer without Leave to Amend

The trial court sustained the demurrer to the second amended complaint (SAC) without leave to amend ruling that the SAC failed to state facts sufficient to constitute a claim. The plaintiff failed to allege a loss sustained by the appellant. Instead still appellant alleged X-Act paid the fraudster.”

Direct Financial Loss Sustained by the Company

The allegation that appellant cannot collect the funds from X-Act because of the UCC’s “imposter rule” is unfounded. A wire transfer is a “payment order.” Thus, the “imposter rule” did not apply. The imposter rule would not prevent appellant from recovering the lost funds from X-Act.

When the imposter later demanded payment of the invoiced amount, X-Act wired the monies to an account not controlled by appellant. Appellant and X-Act later recovered a portion of the wired funds. Even if the transferred funds were specifically earmarked to pay X-Act’s debt to appellant, because money is fungible, X-Act still has an obligation to pay its remaining debt to appellant.

The Court of Appeals concluded that appellant did not suffer a direct financial loss from the phishing scam. Without a direct financial loss, coverage is not triggered. Thus, the trial court properly sustained the demurrer to the First Cause of Action for breach of contract.

Without a breach of contract, there is no breach of the covenant of good faith and fair dealing. The trial court properly sustained the demurrer to the Second Cause of Action.

The judgment is affirmed. Respondents are entitled to their costs on appeal.

ZALMA OPINION

An insurance policy, like the cybersecurity policy involved here, promises to indemnify the insured in case of an insured against loss. Since only X-Act suffered a loss by paying the phisher and sent money it owed to the appellant to a criminal, the appellant incurred no loss and it can still collect what it is owed from X-Act who did not have a cyber security policy.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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00:07:23
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20 hours ago
Allegations That Establish Breach of a Condition Defeats Suit

Notice of Claim Later than 60 Days After Expiration is Too Late

Post 5089

Injury at Massage Causes Suit Against Therapist

Read the full article at https://lnkd.in/gziRzFV8, see the full video at https://lnkd.in/gF4aYrQ2 and at https://lnkd.in/gqShuGs9, and at https://zalma.com/blog plus more than 5050 posts.

Hiscox Insurance Company (“Hiscox”) moved the USDC to Dismiss a suit for failure to state a claim because the insured reported its claim more than 60 days after expiration of the policy.

In Mluxe Williamsburg, LLC v. Hiscox Insurance Company, Inc., et al., No. 4:25-cv-00002, United States District Court, E.D. Missouri, Eastern Division (May 22, 2025) the trial court’s judgment was affirmed.

FACTUAL BACKGROUND

Plaintiff, the operator of a massage spa franchise, entered into a commercial insurance agreement with Hiscox that provided liability insurance coverage from July 25, 2019, to July 25, 2020. On or about June 03, 2019, a customer alleged that one of Plaintiff’s employees engaged in tortious ...

00:08:31
June 02, 2025
Zalma’s Insurance Fraud Letter – June 1, 2025

ZIFL – Volume 29, Issue 11
The Source for the Insurance Fraud Professional
Posted on June 2, 2025 by Barry Zalma

Post 5087

See the full video at and at

Read the full article and the full issue of ZIFL June 1, 2025 at https://zalma.com/blog/wp-content/uploads/2025/05/ZIFL-06-01-2025.pdf

Zalma’s Insurance Fraud Letter – June 1, 2025

See the full video at https://lnkd.in/gw-Hgww9 and at https://lnkd.in/gF8QAq4d, and at https://zalma.com/blog plus more than 5050 posts.

ZIFL – Volume 29, Issue 11

The Source for the Insurance Fraud Professional

Read the full article and the full issue of ZIFL June 1, 2025 at https://lnkd.in/gTWZUnnF

Zalma’s Insurance Fraud Letter (ZIFL) continues its 29th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma. It is provided FREE to anyone who visits the site at ...

00:08:42
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May 30, 2025
Plain Language of Policy Enforced

No Coverage if Home Vacant for More Than 60 Days

Failure to Respond To Counterclaim is an Admission of All Allegations

Post 5085

See the full video at https://lnkd.in/gbWPjHub and at https://lnkd.in/gZ9ztA-P, and at https://zalma.com/blog plus more than 5050 posts.

In Nationwide Mutual Insurance Company v. Rebecca Massey, Civil Action No. 2:25-cv-00124, United States District Court, S.D. West Virginia, Charleston Division (May 22, 2025) Defendant Nationwide Mutual Insurance Company's (“Nationwide”) motion for Default Judgment against Plaintiff Rebecca Massey (“Plaintiff”) for failure to respond to a counterclaim and because the claim was excluded by the policy.

BACKGROUND

On February 26, 2022, Plaintiff's home was destroyed by a fire. At the time of this accident, Plaintiff had a home insurance policy with Nationwide. Plaintiff reported the fire loss to Nationwide, which refused to pay for the damages under the policy because the home had been vacant for more than 60 days.

Plaintiff filed suit ...

00:06:50
May 15, 2025
Zalma's Insurance Fraud Letter - May 15, 2025

ZIFL Volume 29, Issue 10
The Source for the Insurance Fraud Professional

See the full video at https://lnkd.in/gK_P4-BK and at https://lnkd.in/g2Q7BHBu, and at https://zalma.com/blog and at https://lnkd.in/gjyMWHff.

Zalma’s Insurance Fraud Letter (ZIFL) continues its 29th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma. It is provided FREE to anyone who visits the site at http://zalma.com/zalmas-insurance-fraud-letter-2/ You can read the full issue of the May 15, 2025 issue at http://zalma.com/blog/wp-content/uploads/2025/05/ZIFL-05-15-2025.pdf
This issue contains the following articles about insurance fraud:

Health Care Fraud Trial Results in Murder for Hire of Witness

To Avoid Conviction for Insurance Fraud Defendants Murder Witness

In United States of America v. Louis Age, Jr.; Stanton Guillory; Louis Age, III; Ronald Wilson, Jr., No. 22-30656, United States Court of Appeals, Fifth Circuit (April 25, 2025) the Fifth Circuit dealt with the ...

May 15, 2025
CGL Is Not a Medical Malpractice Policy

Professional Health Care Services Exclusion Effective

Post 5073

See the full video at https://lnkd.in/g-f6Tjm5 and at https://lnkd.in/gx3agRzi, and at https://zalma.com/blog plus more than 5050 posts.

This opinion is the recommendation of a Magistrate Judge to the District Court Judge and involves Travelers Casualty Insurance Company and its duty to defend the New Mexico Bone and Joint Institute (NMBJI) and its physicians in a medical negligence lawsuit brought by Tervon Dorsey.

In Travelers Casualty Insurance Company Of America v. New Mexico Bone And Joint Institute, P.C.; American Foundation Of Lower Extremity Surgery And Research, Inc., a New Mexico Corporation; Riley Rampton, DPM; Loren K. Spencer, DPM; Tervon Dorsey, individually; Kimberly Dorsey, individually; and Kate Ferlic as Guardian Ad Litem for K.D. and J.D., minors, No. 2:24-cv-0027 MV/DLM, United States District Court, D. New Mexico (May 8, 2025) the Magistrate Judge Recommended:

Insurance Coverage Dispute:

Travelers issued a Commercial General Liability ...

April 30, 2025
The Devil’s in The Details

A Heads I Win, Tails You Lose Story
Post 5062

Posted on April 30, 2025 by Barry Zalma

"This is a Fictionalized True Crime Story of Insurance Fraud that explains why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers. The story is designed to help everyone to Understand How Insurance Fraud in America is Costing Everyone who Buys Insurance Thousands of Dollars Every year and Why Insurance Fraud is Safer and More Profitable for the ­­­Perpetrators than any Other Crime."

Immigrant Criminals Attempt to Profit From Insurance Fraud

People who commit insurance fraud as a profession do so because it is easy. It requires no capital investment. The risk is low and the profits are high. The ease with which large amounts of money can be made from insurance fraud removes whatever moral hesitation might stop the perpetrator from committing the crime.

The temptation to do everything outside the law was the downfall of the brothers Karamazov. The brothers had escaped prison in the old Soviet Union by immigrating to the United...

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