Schmidt v. Travelers Indemnity Co. of America, 101 F. Supp. 3d 768

CTKS and CTKS’s law firm CTKS sue Travelers for breach of contract and bad-faith denial of indemnification under a Businessowners Policy and Lawyers Endorsement.
Policy in effect Dec 14, 2011–Dec 14, 2012; CTKS paid premiums.
CTKS claimed three losses: First Loss (fraudulent North American cashier’s check), Second Loss (wired $141,750 to a fraudster in Japan), Third Loss (fraudulent nonpayment of $141,750).
Travelers denied coverage in letters (Apr 17, 2012; May 2, 2012; Jan 7, 2013).
Court bifurcates coverage from bad-faith issues and in Part IV finds which losses are covered or excluded under the Policy.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Voluntary parting exclusion applies to Second Loss	CTKS argues Computer Fraud coverage extends to the loss	Exclusion for voluntary parting bars Second Loss	Second Loss excluded by voluntary parting exclusion
First Loss covered under Business Personal Property?	Claims coverage for ‘security’/cashier’s checks as business personal property	No direct physical loss or damage to the checks occurred	First Loss not covered under Business Personal Property
Third Loss covered under Business Income/Extra Expense?	Losses due to deposit shortfall trigger business income/extra expense	No direct physical loss or damage at described premises	Third Loss not covered under Business Income/Extra Expense

Florists’ Mut. Ins. Co. v. Ludy Greenhouse Mfg. Corp., 521 F. Supp. 2d 661 (S.D. Ohio 2007) (direct physical loss required; funds/deposits not physical loss)
Bank of Ann Arbor v. Everest Nat’l Ins. Co., 563 F. App’x 473 (6th Cir. 2014) (loss not from default on loan; fraud wire transfer not excluded as credit loss)
Morris James, LLP v. Cont’l Cas. Co., 928 F. Supp. 2d 816 (D. Del. 2013) (voluntary parting may apply broadly to exclude loss induced by fraud)