The Fifth Circuit has affirmed that a title company’s crime protection policy applies to cover loss from a fraudulent wire transfer. In Valero Title Inc. v. RLI Ins. Co., 22-20155, 2023 WL 1434270 (5th Cir. Feb. 1, 2023), the parties agreed that the definition of “fraudulent instruction” created two coverage scenarios: (1) “Clause A” coverage for a “written instruction . . . issued by you, which was forged or altered by someone other than you without your knowledge or consent,” and (2) “Clause B” coverage for a “written instruction which purports to have been issued by you, but was in fact fraudulently issued without your knowledge or consent.” The insurer argued that because the instruction was issued as it was authorized and approved by the insured, it could not implicate Clause A coverage.
The Fifth Circuit held that “the only interpretation of Clause A that does not render Clause B meaningless is one in which a written instruction is forged or altered by someone other than the insured without the insured’s knowledge or consent prior to being issued by the insured.” The Fifth Circuit rejected various hypothetical scenarios proposed by the insurer that would implicate Clause A. For example, the insurer argued that if the insured had forwarded the exact email sent from the fraudster to the insured’s bank instead of writing its own separate email, then Clause A would be implicated. The Fifth Circuit disagreed, finding that in the insurer’s scenario, the instruction would be issued by the lender, and in any event, it would still be a fraudulent instruction that was “forged or altered by someone other than [the insured] without [the insured’]s knowledge or consent.”