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.
Please tell your friends and colleagues about this blog and the videos and let them subscribe to the blog and the videos.
Subscribe to my substack at https://barryzalma.substack.com/subscribe or Go to Barry Zalma
Go to X @bzalma; Go to Newsbreak.com https://www.newsbreak.com/@c/1653419?s=01; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg.
Go to the Insurance Claims Library – https://lnkd.in/gwEYk
Subscribe to my substack at https://lnkd.in/gmmzUVBy; videos at Rumble.com at https://lnkd.in/gV9QJYH.
Go to X @bzalma; Go to the Insurance Claims Library – https://lnkd.in/gwEYk
Amended Complaint Provides Escape from Anti-Assignment Condition
Post number 5345
Read the full article at https://www.linkedin.com/pulse/proper-inconsistent-pleading-defeats-policy-condition-barry-mrugc, shttps://www.linkedin.com/pulse/proper-inconsistent-pleading-defeats-policy-condition-barry-mrugc and at https://zalma.com/blog plus more than 5300 posts.
State Farm’s Responsive Pleading Defeated Motion on Anti Assignment Condition
In Tyra Caire Treadway v. State Farm Fire And Casualty Company, Civil Action No. 23-6834, United States District Court, E.D. Louisiana (April 28, 2026) Plaintiff Tyra Caire Treadway owned property at 7000-02 Jeannette Street, New Orleans, Louisiana, which was insured under a State Farm homeowners’ policy.
Hurricane Ida struck Louisiana on August 29, 2021, causing damage to the property. Nearly two years later, on August 9, 2023, Treadway sold the property to M1SRJT Jeanette, LLC and assigned her State Farm insurance claim, including the right to pursue additional damages and penalties for ...
Amended Complaint Provides Escape from Anti-Assignment Condition
Post number 5345
Read the full article at https://www.linkedin.com/pulse/proper-inconsistent-pleading-defeats-policy-condition-barry-mrugc, shttps://www.linkedin.com/pulse/proper-inconsistent-pleading-defeats-policy-condition-barry-mrugc and at https://zalma.com/blog plus more than 5300 posts.
State Farm’s Responsive Pleading Defeated Motion on Anti Assignment Condition
In Tyra Caire Treadway v. State Farm Fire And Casualty Company, Civil Action No. 23-6834, United States District Court, E.D. Louisiana (April 28, 2026) Plaintiff Tyra Caire Treadway owned property at 7000-02 Jeannette Street, New Orleans, Louisiana, which was insured under a State Farm homeowners’ policy.
Hurricane Ida struck Louisiana on August 29, 2021, causing damage to the property. Nearly two years later, on August 9, 2023, Treadway sold the property to M1SRJT Jeanette, LLC and assigned her State Farm insurance claim, including the right to pursue additional damages and penalties for ...
BACKGROUND
See the video at https://rumble.com/v79dts2-crime-doesnt-pay.html and at https://youtu.be/dw0f4goCbxA, and at https://zalma.com/blog plus more than 5300 posts.
Plaintiff:
Andrew J. Mitchell, an incarcerated individual proceeding pro se sued Pandit Law Firm, LLC, on behalf of a corporation that was controlled by Mitchell who had operated Mitchell Adjusting International LLC (MAI), a Texas limited liability company.
According to the US Attorney:
A Texas man (Mitchell) acting as an insurance adjuster who cheated an Albany church out of millions of dollars paid out by its insurance company to repair its facilities heavily damaged by Hurricane Michael in 2018 was sentenced to serve more than 19 years in prison and ordered to pay nearly $4 million in restitution to victims in several states.
Andrew Mitchell, formerly Andrew Aga, 46, of Houston, Texas, was sentenced to serve 235 months in prison to be followed by three years of supervised release and was ordered to pay $2,895,903.01 in restitution to the Brotherhood ...
It is Fraud to Make the Same Claim Twice
Read the full article at https://www.linkedin.com/pulse/fraud-make-same-claim-twice-barry-zalma-esq-cfe-c4g8c and at https://zalma.com/blog.
Chutzpah: After Being Paid for a New Roof Insured Makes Second Claim For Same Damages
Post number 5347
No One is Entitled to be Paid for the Same Loss Twice
In Mohammed Ali Khalili v. State Farm Lloyds, No. 14-25-00611-CV, Court of Appeals of Texas (April 30, 2026) Khalili maintained a State Farm Lloyds homeowners insurance policy for decades. In 2008 he filed a roof-damage claim; State Farm paid him to replace the entire roof (shingles and gutters). Khalili never replaced the roof and repeated his claim.
BACKGROUND
In 2021 he filed a second roof claim. State Farm’s inspectors found the roof “very old” with extensive non-storm-related damage. The claim was denied because (1) the damage did not exceed the deductible and (2) State Farm had already paid for a full roof replacement.
PROCEDURAL HISTORY
State Farm filed motion for summary...
It is Fraud to Make the Same Claim Twice
Read the full article at https://www.linkedin.com/pulse/fraud-make-same-claim-twice-barry-zalma-esq-cfe-c4g8c and at https://zalma.com/blog.
Chutzpah: After Being Paid for a New Roof Insured Makes Second Claim For Same Damages
Post number 5347
No One is Entitled to be Paid for the Same Loss Twice
In Mohammed Ali Khalili v. State Farm Lloyds, No. 14-25-00611-CV, Court of Appeals of Texas (April 30, 2026) Khalili maintained a State Farm Lloyds homeowners insurance policy for decades. In 2008 he filed a roof-damage claim; State Farm paid him to replace the entire roof (shingles and gutters). Khalili never replaced the roof and repeated his claim.
BACKGROUND
In 2021 he filed a second roof claim. State Farm’s inspectors found the roof “very old” with extensive non-storm-related damage. The claim was denied because (1) the damage did not exceed the deductible and (2) State Farm had already paid for a full roof replacement.
PROCEDURAL HISTORY
State Farm filed motion for summary...
What Must be Done after Notice of a Claim is Received by the Insurer
Read the full article at https://lnkd.in/gzvvdkMZ and at https://zalma.com/blog.
Below you will read from this post until you reach the the end of this blog post as the free part of an Excellence in Claims Handling post. To read the full article and receive all articles for members of Excellence in Claims Handling you should consider joining as a paid member to get full access to articles for members only, to our news, analysis, insurance coverage, claims, insurance fraud and insurance webinars, by clicking at the subscription link below.
A first party property policy does not insure property: it insures a person, partnership, corporation or other entity against the risk of loss of the property. Before an insured can make a claim for indemnity under a policy of first party property insurance the insured must prove that there was damage to property the risk of loss of which was insured by the policy. The obligation imposed on the insured ...
