Cybersecurity Policy Requires Direct Financial Loss
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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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Anti-Public Adjuster Clause Is Effective in New York
Post number 5301
Read the full article at https://www.linkedin.com/pulse/public-adjusters-attempt-represent-insured-subject-zalma-esq-cfe-rubfc, see the video at and at and at https://zalma.com/blog plus more than 5300 posts.
Insurers May Contractually Prevent an Insured from Hiring a Public Adjuster
In Peter Barbato & North Jersey Public Adjusters Inc. v. Interstate Fire & Casualty Company, et al, No. 25-cv-5312 (JGK), United States District Court, S.D. New York (December 15, 2025) the plaintiffs, Peter Barbato and North Jersey Public Adjusters, Inc. (“NJPA”), filed suit against several insurance companies, including Interstate Fire & Casualty Company, Independent Specialty Insurance Company, and certain Underwriters at Lloyd’s of London.
FACTS
NJPA is a New Jersey-based public adjusting firm licensed in New York. The dispute centers on ...
Anti-Public Adjuster Clause Is Effective in New York
Post number 5301
Read the full article at https://www.linkedin.com/pulse/public-adjusters-attempt-represent-insured-subject-zalma-esq-cfe-rubfc, see the video at and at and at https://zalma.com/blog plus more than 5300 posts.
Insurers May Contractually Prevent an Insured from Hiring a Public Adjuster
In Peter Barbato & North Jersey Public Adjusters Inc. v. Interstate Fire & Casualty Company, et al, No. 25-cv-5312 (JGK), United States District Court, S.D. New York (December 15, 2025) the plaintiffs, Peter Barbato and North Jersey Public Adjusters, Inc. (“NJPA”), filed suit against several insurance companies, including Interstate Fire & Casualty Company, Independent Specialty Insurance Company, and certain Underwriters at Lloyd’s of London.
FACTS
NJPA is a New Jersey-based public adjusting firm licensed in New York. The dispute centers on ...
Proof of Highly Contaminated Water is Required for Extra Payments
Post number 5300
Read the full article at https://www.linkedin.com/pulse/acting-your-own-lawyer-foolish-barry-zalma-esq-cfe-mbg0c, see the video at and at and at https://zalma.com/blog plus more than 5300 posts.
Acting as Your Own Lawyer is Foolish
Evidence of Breach of Contract Survives Dismissal of All Other Charges
In Lee Lifeng Hsu and Jane Yuchen Hsu v. State Farm Fire And Casualty Company, C. A. No. N24C-09-020 CLS, Superior Court of Delaware (February 27, 2026) a claim to State Farm who paid approximately $61,000 after assessments but denied coverage for additional items including ceramic tiles, the kitchen floor ceiling, underlayment plywood, and numerous personal property items resulted in suit by the Hsu’s acting in pro per.
Facts
Lee Lifeng Hsu and Jane Yuchen Hsu (“Plaintiffs”) purchased a homeowners’ insurance policy from State Farm Fire...
Insurance Condition Requires Following the Intent of the Parties
Post number 5307
Principles of Contract Interpretation Compels Reading Contract as Written
Read the full article at https://www.linkedin.com/pulse/portable-storage-containers-buildings-barry-zalma-esq-cfe-fkg1c and at https://zalma.com/blog.
In Eastside Floor Supplies, Ltd. v. SCS Agency, Inc., Hanover Insurance Company, et al., No. 2024-01501, Index No. 609883/19, 2026 NY Slip Op 01488, Supreme Court of New York, Second Department (March 18, 2026)
In May 2019, a fire damaged business personal property belonging to the plaintiffs, which was stored in portable storage containers at their Manhattan premises. At the time of the fire, the plaintiffs were insured under a businessowners insurance policy (BOP) issued by the defendant Hanover Insurance Company which provided general coverage for business personal property, and which included a specific extension for “Business Personal Property Temporarily in Portable Storage Units” (the portable storage ...
ERISA Saves Fraudulent Claims Suit
Post number 5306
Read the full article at https://www.linkedin.com/pulse/failure-provide-well-pled-facts-defeats-most-action-zalma-esq-cfe-b4zuc and at https://zalma.com/blog plus more than 5300 posts.
Allegations of Fraudulent Insurance Billing Must be Pleaded with Specificity
In Genesis Laboratory Management LLC v. United Healthcare Services, Inc. and Oxford Health Plans, Inc., No. 21cv12057 (EP) (JSA), United States District Court, D. New Jersey (March 13, 2026) Genesis Laboratory Management LLC (“Genesis”), a New Jersey-based molecular diagnostic and anatomic pathology laboratory, provided COVID-19 related testing services and submitted claims for reimbursement as an out-of-network provider to United Healthcare Services, Inc. (“United”) and Oxford Health Insurance, Inc. (“Oxford”). Metropolitan Healthcare Billing, LLC (“Metropolitan”), owned by the same individual as Genesis, handled the billing for Genesis.
FACTUAL BACKGROUND
United and Oxford, who administer both ERISA and ...
ERISA Saves Fraudulent Claims Suit
Post number 5306
Read the full article at https://www.linkedin.com/pulse/failure-provide-well-pled-facts-defeats-most-action-zalma-esq-cfe-b4zuc and at https://zalma.com/blog plus more than 5300 posts.
Allegations of Fraudulent Insurance Billing Must be Pleaded with Specificity
In Genesis Laboratory Management LLC v. United Healthcare Services, Inc. and Oxford Health Plans, Inc., No. 21cv12057 (EP) (JSA), United States District Court, D. New Jersey (March 13, 2026) Genesis Laboratory Management LLC (“Genesis”), a New Jersey-based molecular diagnostic and anatomic pathology laboratory, provided COVID-19 related testing services and submitted claims for reimbursement as an out-of-network provider to United Healthcare Services, Inc. (“United”) and Oxford Health Insurance, Inc. (“Oxford”). Metropolitan Healthcare Billing, LLC (“Metropolitan”), owned by the same individual as Genesis, handled the billing for Genesis.
FACTUAL BACKGROUND
United and Oxford, who administer both ERISA and ...
