Valero followed instructions from fraudsters
Watch the full video at https://rumble.com/v28jm1u-fraudster-collects-over-250000.html and at https://youtu.be/0V7fLX8x1v0
IN Valero Title Incorporated, doing business as Valero Title Company v. RLI Insurance Company, no. 22-20155, United States Court of Appeals, Fifth Circuit (February 1, 2023) Valero sued its insurer, RLI Insurance Company, which denied Valero’s proof of loss claim, which RLI determined was not covered by the wire fraud endorsement in Valero’s criminal liability policy. The district court disagreed and awarded part of the judgment to Valero. RLI appealed.
Valero purchased a criminal protection policy from RLI that included a fraudulent funds transfer endorsement that provides that “we will pay for the loss of funds that is a direct result of a fraudulent instruction [sic] financial institution to transfer, pay or deliver funds from your transfer account. The relevant definition for “fraudulent instruction” is “[a] written instruction. . . issued by you, which has been forged or altered by someone other than you without your knowledge or consent, or which purports to have been issued by you, but which has actually been fraudulently issued without your knowledge or consent.”
A Valero employee was discussing a loan payment transaction via email with a lender’s employee when an impostor impersonated the lender’s employee and sent false routing instructions to Valero employees using a fraudulent routing number. Because Valero’s employee did not realize that these instructions were fraudulent, she instructed Valero’s bank to wire $250,945.31 to the fraudster. When Valero became aware of the loss, the company provided proof of the loss to RLI. RLI determined that the loss was not covered by the authorization of fraudulent transfers.
The parties have filed motions for summary judgment. The only issue for the district court was the interpretation of the insurance. The parties settled on the amount of attorneys’ fees and agreed to dismiss Valero’s remaining non-contractual claims, which the court accepted to make the judgment final and appealable. RLI timely appealed.
A genuine issue of material fact exists when the evidence is such that a reasonable jury could return a verdict for the non-moving party. Under Texas law, the interpretation of an insurance policy is a question of law for the court to decide.
RLI appealed the district court’s interpretation of Valero’s fraudulent transfer insurance agreement.
The relevant provision of the policy at issue here, the authorization of fraud in the transmission of funds, provides for the reimbursement of funds lost due to certain forms of fraud:
We will pay for loss of funds that is a direct result of a fraudulent instruction [sic] financial institution to transfer, pay or deliver funds from your transfer account.
The recommendation contains the following relevant definition:
A written instruction. . . issued by you, which has been forged or altered by someone other than you without your knowledge or consent, or purports to have been issued by you, but has actually been fraudulently issued without your knowledge or consent.
RLI argued that because the instruction here was issued because it was authorized and approved by Valero, it cannot be “a written instruction . . . issued by you, which has been forged or altered by someone other than you without your knowledge or consent.” The district court considered that the only interpretation of point A that does not make point B meaningless is that a written instruction is falsified or changed by someone other than the insured without the insured’s knowledge or consent before it was issued by the insured.
RLI argued that the district court ignored reasonable scenarios where clause A could be applied without making clause B redundant. RLI suggests that if Valero had forwarded the exact email that the fraudster (posing as a lender) forged to Valero’s bank, instead of issuing its own management instructions, Clause A would apply.
The instruction Valero issued to its bank included the name of the receiving institution, the routing number, the beneficiary account numbers, the account name, the payment date and the total payment amount. It was the same instruction that Valero received from the fraudster posing as a lender. Unknown to Valero, the instruction was not the same as the instruction given by the lender; it was modified to include other recipient account information. When Valero issued the instruction to its bank, it was thus a fraudulent instruction that was “falsified or altered by someone other than [Valero] without [Valero’s] knowledge or consent.”
As the district court held, the only interpretation of point A that does not render point B meaningless is one where a written instruction is falsified or altered by someone other than the insured without the knowledge or consent of the insured before it is issued by the insured.
The district court correctly applied this interpretation and found that coverage was triggered under the authorization of fraudulent transfers for Valero’s alleged loss.
Insurance contracts are interpreted as written. The insurance policy provided coverage for fraud committed against an insured that caused the insured to send money to a fraudster rather than to the lender it had agreed to pay. Because the language of the policy was clear and unambiguous, it covered the error of the Valero employee who accepted an email instruction to send the money it owed to a fraudster’s account rather than to the account of the lender to whom the money was owed. guilty.
(c) 2023 Barry Zalma & ClaimSchool, Inc.
Subscribe and receive videos limited to Excellence in Claims Handling subscribers at locals.com https://zalmaoninsurance.locals.com/subscribe.
Go to substack at substack.com/refer/barryzalma Consider subscribing to my publications on substack at substack.com/refer/barryzalma
Barry Zalma, Esq., CFE, now limits his practice to serving as an insurance consultant specializing in insurance coverage, insurance claims management, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims attorney and more than 54 years in the insurance industry. He can be reached at http://www.zalma.com and firstname.lastname@example.org
Write to Mr. Zalma at email@example.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published on https://zalma.substack.com. Go to the Zalma On Insurance podcast at https://anchor.fm/barry-zalma; Follow Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos on Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to Insurance Claims Library – https://zalma.com/blog/insurance-claims-library