No Coverage For Loss In Consequence Of Social Engineering Fraud

Applying North Carolina law, a federal district court has held that an E&O insurance policy does not provide coverage for loss arising from social engineering fraud despite the fact that the insured's negligence also contributed to the loss. Constr. Fin. Admin. Servs. LLC d/b/a CFAS v. Fed. Ins. Co., 2022 WL 2073824 (E.D. Pa. June 9, 2022).

An insurer issued an E&O Policy to a third-party construction funds company whose business required it to disburse its client funds directly to construction contractors and subcontractors. The policy contained two exclusions barring coverage for claims based upon, arising from or in consequence of "unauthorized access to, or use or alteration of . . . computer systems" and "unauthorized or exceeded authorized access to, use of or alteration of, any . . . computer system." The policy also provided that the insured would not "settle or offer to settle any Claim . . . or otherwise assume any contractual obligation or admit any