Taylor & Lieberman v. Federal Insurance Co.
681 F. App'x 627
| 9th Cir. | 2017Background
- Taylor & Lieberman (T&L) sued Federal Insurance Company (FIC) after wiring funds based on fraudulent emails and sought coverage under three policy provisions: Forgery, Computer Fraud, and Funds Transfer Fraud.
- The insurance policy covered losses “resulting from Forgery or alteration of a Financial Instrument by a Third Party” and contained distinct definitions for computer fraud and funds transfer fraud losses.
- T&L argued the emails instructing wires constituted (1) forgery not limited to "financial instruments," (2) unauthorized access/propagating instructions into its computer system, and (3) fraudulent instructions to a financial institution triggering funds transfer coverage.
- FIC moved for summary judgment, arguing the emails were not financial instruments, sending emails alone is not unauthorized computer access or propagation, and T&L requested and knew of the transfers so funds-transfer coverage does not apply.
- The Ninth Circuit affirmed summary judgment for FIC but did so on alternative grounds articulated in the opinion.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Forgery coverage — whether "Forgery" requires a financial instrument | T&L: "Last Antecedent Rule" means "financial instrument" modifies only "alteration," so forgery need not be of a financial instrument | FIC: Policy language and canons of construction show "Forgery" applies only to forgery of a financial instrument | Held: Forgery limited to financial instruments; emails were not such instruments, so no coverage |
| Computer fraud — whether sending emails equals unauthorized entry | T&L: Emails constituted unauthorized entry into or introduction of instructions that propagated through T&L’s computers | FIC: Mere sending of emails is not access; the emails did not introduce self‑propagating malicious code or interfere with function | Held: No computer fraud; mere emails without interference or propagating instructions are not covered |
| Computer fraud — whether email instructions are "instructions that propagate themselves" | T&L: Wire instructions in emails are instructions that propagated through system | FIC: Policy contemplates malware/self‑propagating code; ordinary email text does not fit | Held: Instructions were ordinary email text, did not propagate like a virus, so not covered |
| Funds transfer fraud — whether coverage applies when insured requested transfers | T&L: Receipt of fraudulent instructions causing transfers triggers coverage | FIC: Policy requires instructions to a financial institution directing transfer without insured’s knowledge/consent; T&L knew and requested transfers and is not a financial institution | Held: No funds transfer coverage; T&L authorized transfers and is not a "financial institution" under the policy |
Key Cases Cited
- People ex rel. Lockyer v. R.J. Reynolds Tobacco Co., 132 Cal. Rptr. 2d 151 (Ct. App. 2003) (exception to last antecedent rule; clause may apply to multiple antecedents)
- Old Republic Constr. Program Grp. v. Boccardo Law Firm, Inc., 179 Cal. Rptr. 3d 129 (Ct. App. 2014) (last antecedent rule diminishes where clause has two antecedents)
- Vons Cos., Inc. v. Fed. Ins. Co., 57 F. Supp. 2d 933 (C.D. Cal. 1999) (wire instructions, invoices, purchase orders are not the same type as checks/drafts)
- Intel Corp. v. Hamidi, 71 P.3d 296 (Cal. 2003) (mere sending of emails does not constitute actionable trespass to computers absent interference with function)
- Emp’rs Reinsurance Co. v. Superior Court, 74 Cal. Rptr. 3d 733 (Ct. App. 2008) (interpretation of policy language by ordinary and popular sense)
- First Am. Title Ins. Co. v. XWarehouse Lending Corp., 98 Cal. Rptr. 3d 801 (Ct. App. 2009) (courts will not adopt strained constructions when policy terms are plain)