Cybersecurity: Stolen $1.4 Million Not Covered Under Fraud Policy

The US District Court for the Eastern District of Pennsylvania recently determined that a $1.4 million wire transfer fraud was not covered under Ryeco, LLC, a fruit distributor's, commercial crime policy. Ryeco, LLC v. Selective Ins. Co., No. 2:20-cv-03182 (E.D. Pa. May 13, 2021). A hacker in South Africa had gained access to Ryeco's network, fraudulently applied the company's vice president's signature to wire transfer forms, and emailed these forms to Ryeco's bank, causing the funds to be transferred into a sham account.

Ryeco discovered the fraud, performed a forensic investigation, and obtained a coverage denial from Selective Insurance Company. Ryeco then sued Selective for coverage and breach of contract, urging that it was covered for the loss under the "Forgery or Alteration" crime policy it purchased from Selective. That policy explicitly covered "loss resulting directly from 'forgery' or alteration of checks, drafts, promissory notes, or similar written