895 F.3d 455
6th Cir.2018Background
- ATC, a Michigan manufacturer, subcontracted work to Chinese vendor YiFeng and paid by wire transfer based on invoiced progress payments.
- In March–May 2015 an unknown third party intercepted emails and impersonated YiFeng, sending fraudulent emails with new bank-account instructions; ATC wired approximately $834,107.76 to the impersonator.
- ATC discovered the fraud after YiFeng demanded payment and sought recovery under its Travelers "Wrap+" Crime Policy (Computer Fraud coverage); Travelers denied the claim.
- District court granted Travelers summary judgment; ATC appealed to the Sixth Circuit.
- The Sixth Circuit reviewed policy language under Michigan law and evaluated (1) whether ATC suffered a "direct loss," (2) whether the impersonator’s conduct was "Computer Fraud" as defined by the Policy, (3) whether the loss was "directly caused" by Computer Fraud, and (4) whether asserted exclusions (R, G, H) applied.
- The Sixth Circuit reversed, holding ATC’s loss was covered and that the asserted exclusions did not bar recovery; it granted summary judgment to ATC and remanded.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether ATC suffered a "direct loss" when it wired funds to the impersonator | ATC: Loss was immediate when funds left its account — a direct/proximate loss. | Travelers: No direct loss at transfer because ATC already owed the money to YiFeng; the loss crystallized later when ATC agreed to pay YiFeng. | Court: "Direct" includes immediate/proximate loss; ATC suffered a direct loss at the time of the wire transfers. |
| Whether the impersonator’s scheme qualifies as "Computer Fraud" under the Policy | ATC: Fraudulent emails (sent via computer) caused the transfer, satisfying the Policy definition. | Travelers: The provision should require the computer to "fraudulently cause" the transfer (i.e., an unauthorized/computer-enabled takeover), not merely be used to perpetrate traditional fraud. | Court: The Policy covers use of a computer to fraudulently cause a transfer; the impersonator’s fraudulent emails fall within "Computer Fraud." |
| Whether the "direct loss" was "directly caused by Computer Fraud" | ATC: The fraudulent emails precipitated internal acts that immediately led to the transfers — the fraud directly caused the loss. | Travelers: Multiple internal steps between email and loss weaken causation; not directly caused. | Court: The fraud produced the point of no return (the wire transfers); the computer fraud directly caused the loss. |
| Whether Policy exclusions (R: exchange/purchase; G: electronic-data input; H: fraudulent source documents) bar coverage | ATC: Exclusions do not apply because transfers were not an exchange with impersonator; entries into bank portal were not "Electronic Data" as defined; emails were not source documents producing Electronic Data. | Travelers: Exclusions apply — transfer was in exchange for goods; Gizinski input Electronic Data; fraudulent emails were source documentation. | Court: Exclusions construed narrowly/against insurer; R, G, and H do not apply and do not preclude coverage. |
Key Cases Cited
- Tooling, Manufacturing & Technologies Ass'n v. Hartford Fire Ins. Co., 693 F.3d 665 (6th Cir. 2012) (discusses narrow "direct is direct" interpretation in fidelity-bond context)
- Universal Mortg. Corp. v. Württembergische Versicherung AG, 651 F.3d 759 (7th Cir. 2011) (applies a strict/immediate meaning of "direct")
- Pestmaster Services, Inc. v. Travelers Casualty & Surety Co. of America, [citation="656 F. App'x 332"] (9th Cir. 2016) (interprets "fraudulently cause a transfer" to require unauthorized transfer; held distinguishable)
- Harrah's Entm't, Inc. v. Ace Am. Ins. Co., [citation="100 F. App'x 387"] (6th Cir. 2004) (construed a broadly worded exclusion against insurer)
- Citizens Ins. Co. v. Pro-Seal Serv. Grp., Inc., 730 N.W.2d 682 (Mich. 2007) (Michigan rules on contractual/insurance-term interpretation)