Aqua Star: U.S. District Court Applies "Authorized Entry" Exclusion To Claim Under Computer Fraud Coverage

On July 8, 2016, the U.S. District Court for the Western District of Washington released its decision in Aqua Star (USA) Corp. v. Travelers Casualty and Surety Company of America.  The decision offers guidance to fidelity insurers with respect to the application of the "authorized entry" exclusion found in the base wording of many commercial crime policies (sometimes referred to as the "authorized access" exclusion), and illustrates how this exclusion may operate in the context of a social engineering fraud loss.

The Facts

The insured, Aqua Star (USA) Corp. ("Aqua Star"), is a seafood importer that had a pre-existing relationship with a legitimate vendor, Zhanjiang Longwei Aquatic Products Industry Co. Ltd. ("Longwei").  In the summer of 2013, Longwei's computer system was hacked.  The hacker apparently monitored email exchanges between an Aqua Star employee and a Longwei employee before intercepting those email exchanges and using "spoof" email domains to send