A federal appeals court on Wednesday upheld a lower court’s ruling in favor of a title insurance company, which meant the company had coverage under its tort policy in a case where a hacker stole nearly $251,000 using a fraudulent routing number.
Plano, Texas-based Valero Title Inc. had purchased a property damage policy from RLI Insurance Co. which involved paying for losses that resulted “directly from a fraudulent instruction” directing a financial institution to pay money from Valero’s wire transfer account, according to the ruling by the 5th U.S.. Circuit Court of Appeals in St. Louis i Valero Title Inc., doing business as Valero Title Co., v. RLI Insurance Co.
A fraudster posing as the lender̵7;s employee sent a Valero employee management instructions using a fraudulent routing number, the ruling said. Because the employee did not realize the instructions were fraudulent, she instructed Valero’s bank to wire $250,945.31 to the fraudster.
When Valero learned of the loss, it submitted a proof of loss to RLI, which determined that it was not covered by the fraudulent transfer authorization.
Valero sued the insurer in US District Court in Houston, which ruled in favor of the title insurer. It was upheld by a unanimous three-judge appeals court panel.
The panel held that the district court correctly applied its interpretation of an insurance clause and there is coverage when “a written instruction is forged or altered by someone other than the insured without the insured’s knowledge or consent before it was issued by the insured.”
Valero attorney Mathew SC Hansel, a partner with Hanszen Laporte LLP in Houston, said in a statement, “Wire fraud has particularly plagued the title industry, and Valero purchased insurance to protect against that risk.
“Here, RLI attempted to hide behind a strained interpretation of its policy language to avoid the coverage owed to Valero Title. We appreciate that the 5th Circuit, like the district court, has held RLI accountable for its obligations to our client. This is a good win for the little guy.”
RLI’s attorney did not respond to a request for comment.