Duty to Defend Wire Fraud
In Quality Sausage Company, LLC, et al v. Twin City Fire Ins. Co., Civil Action No. 17cv111 (S.D. Texas, Sept. 18, 2019), one of the plaintiff corporations (Plaintiff) fell victim to a fraudster who submitted fraudulent wiring instructions via email to Plaintiff on behalf of one of Plaintiff’s clients. Per those wire instructions, Plaintiff improperly transferred $1 million from the client’s account to the account of a sham company. Uh oh.
The client sent a letter to Plaintiff and demanded compensation as this loss occurred because of Plaintiff’s failure to follow proper procedures. Plaintiff forwarded the demand letter to Defendant insurance company seeking coverage and defense. Defendant denied coverage.
Plaintiff sued Defendant. While the suit was pending, Plaintiff settled with the client. After reviewing initial motions for summary judgment, the court held that Plaintiff was not entitled to indemnity, however, denied Defendant’s motion for summary judgment on the duty to defend issue.
Upon a reconsideration motion, the court granted Plaintiff’s motion on the issue of duty to defend. The court found that the 5th Circuit exception to the so-called 8 corners rule; that is, to look at evidence beyond the demand letter and policy language in determining coverage, did not apply. The court in just looking at the demand letter and policy language, held that Defendant had a duty to defend.