A federal court of appeal on Thursday abandoned a lower court and ruled that a Hartford Financial Services Insurance Group Inc. entity must reimburse a financial company that has been the victim of a fraudster.
In January 2015, Austin-based HM International LLC chief financial officer received an email from a fraudster claiming to be client Greg Geib instructing the company to transfer $ 1 million to another bank account, according to the ruling of the Fifth U.S. District Court in New Orleans HM International, LLC v. Twin City Fire Insurance Co.
The HMI executed the order, causing Geib and his wife to lose $ 1 million, of which they have not been able to recover, according to the verdict. The scam was discovered two days later when the fraudster tried the program a second time without success.
Three months later, Geib's lawyer sent HMI a letter accusing it of negligence and demanding compensation for the couple's loss.
HMI sought coverage under its board members and civil servant liability policy with the Hartford Twin City unit.
Twin City refused to provide coverage, based on policy exceptions, and HMI and Geibs brought an action against the insurer seeking coverage.
While these disputes were ongoing, HMI and Geibs resolved their dispute, with HMI paying the couple $ 470,000 and obtaining a complete release from any liability and the right to recover the stolen funds.
Geibs never aroused his threatened negligence and the settlement occurred more than two years after the negligence requirement was introduced, which was past the limitation period of the Twin City policy. d The U.S. District Court ruled in favor of Twin City.
The decision was overturned by a unanimous three-judge appellate court panel.
"The district court granted a summary judgment to Twin City and concluded that the settlement payment was not a" loss "because it was not an amount that HMI" was legally obliged to pay solely as a result of a claim ", it stated.
The lower court misinterpreted the policy, the panel said. “The insurance covers“ Loss… as a result of a contract requirement. The letter of demand that Geib's lawyer sent to HMI constitutes a contractual claim because it is a "written claim for financial damages or other civil non-monetary relief", it is stated in the judgment, by quoting the policy.
"HMI's settlement payment constitutes a loss as it is an amount for which HMI is legally liable ̵1; by contract – to pay Geibs as a result of the request," the panel said in submitting the lower court's summary judgment and referring the case back for further proceedings.
A lawyer in Hartford had no comment while HMI's lawyers did not respond to a request for comment.