Judge orders Federal Insurance to pay up $4.8 million claim

Judge orders Federal Insurance to pay up $4.8 million claim | Insurance Business

Judge orders Federal Insurance to pay up $4.8 million claim
A New York judge has ordered a Chubb subsidiary to pay a $4.8 million claim to one of its insured, after the insurer wrongly denied the claim.

In a summary judgment, New York Southern District Judge Andrew L. Carter, Jr. granted the summary judgment in favor of Medidata Solutions over Federal Insurance, more than two years after the parties’ arguments were first entered in court.

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Medidata made its claim in September 2014 after its employees were allegedly tricked into wiring $4,770,226 to a fraudster who had posed online as the company’s president.

The unknown con artist manipulated the Gmail email system the company used, so that his emails appeared to come from the boss. He also rang and spoke to an accounts employee to get the “strictly confidential” transfer put through urgently.

In the summary judgment, Judge Carter said the fraud began on September 16, 2014, when the accounts employee received an email purportedly from the Medidata president.

“The email message contained the president’s name, email address, and picture in the ‘From’ field. The message to [the employee] stated that Medidata was close to finalizing an acquisition, and that an attorney named Michael Meyer would contact [her],” it said.

A legitimate directive had been circulated to the company earlier that summer instructing finance staff “to be prepared to assist with significant transactions on an urgent basis”, including possible acquisitions.

The same day she received the email, the employee also received a call from the man who identified himself as the lawyer Meyer. She explained to him that, prior to any funds transfer, she needed an email from the president, and approval from both the vice president and the director of revenue.

The vice president, director of revenue, and the accounts employee later received a group email purportedly from the president’s email address: “I’m currently undergoing a financial operation in which I need you to process and approve a payment on my behalf,” it read.

The accounts employee set the wire transfer up, and the two executives logged into Chase Bank’s online system and approved it, wiring the $4.8 million to the fraudster.

A request for a second transfer from “Meyer” was caught two days later and the FBI were called in, and an insurance claim was filed with Federal – under the company’s $5 million “Federal Executive Protection” policy.

Federal Insurance denied Medidata on Christmas Eve, 2014, under all three clauses claimed: computer fraud coverage, funds transfer fraud coverage, and forgery coverage.

However, in his summary judgment, Judge Carter ruled in favor of Medidata, stating that Medidata’s claim qualified for payout under both the computer fraud and the funds transfer fraud coverages, although not under the forgery coverage.
Federal Insurance may yet appeal the decision.


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