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Cyberattack by telephone held not computer fraud (US)

29 March 2017Patrick Bracher, Norton Rose Fulbright
Patrick Bracher from Norton Rose Fulbright.

Patrick Bracher from Norton Rose Fulbright.

Where an insurer’s policy covered computer fraud, a Georgia US judge refused to grant the insured an indemnity when the fraud had been committed over the phone.

The insured provides a service that allows customers to load funds onto debit cards issued by third party banks and sold by retailers. The amount on the card can be redeemed by telephoning the insured which then transfers the funds to the issuing bank for the cardholder to draw on.

A coding error allowed cardholders to redeem the cards more than once and the insured lost more than $11.4 million in unauthorised charges. The court held that the policy did not cover the losses incurred from unauthorised redemption of the debit cards because the redemptions made over the phone were not made by computer even though the transactions were processed by computer at the insured’s end.

That a computer was somehow involved in the loss did not establish that the wrongdoers ‘used’ a computer to cause the loss as required by the policy.

[The case is InComm Holdings Inc. v Great American Insurance Co. case number 1:15-cv-2671 US District Court for the Northern District of Georgia]

First published by Financial Institutions Legal Snapshot.

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