To be or to be in the name of: that is the question | White and Williams LLP
On August 10, 2022, the U.S. District Court for the Intermediate District of Florida ruled, on motion to dismiss, that losses allegedly caused by fraudulent payment requests by persons claiming be the insured was eligible for “fraud by funds transfer” coverage under an insurance policy against commercial crimes, but those caused by an entity purporting to act behalf the insured did not.
The insured, The Landings Yacht, Golf and Tennis Club (the Club), allegedly lost nearly $7,000 when “unspecified unauthorized users claimed[ing] be [the insured]” made digital requests for payment from the Club’s Bank of America account. Additionally, the Club allegedly lost more than $575,000 when payroll company Paychex, “claims[ing] to act on behalf of the Club,” made unauthorized payment requests from the same account. See The Landings Yacht, Golf & Tennis Club, Inc. v. Travelers Casualty & Safety Company of America, no. 2:22-cv-464-SPC-NPM, 2022 US Dist. LEXIS 142874 (MD Fla. Aug. 10, 2022).
The Club’s commercial crime insurance policy, issued by the Travelers Casualty and Surety Company of America, provided “funds transfer fraud” coverage for “the direct loss by the insured of money and securities contained in the insured’s transfer account directly caused by funds transfer fraud”. The policy defined funds transfer fraud, in its relevant part, as a payment instruction addressed to a financial institution “that . . . claims to have been transmitted by the Insured, but was in fact fraudulently transmitted by someone other than the Insured without the Insured’s knowledge or consent. . . .”
Considering a motion to dismiss filed by the Travelers, the Intermediate District of Florida determined that the alleged payment requests by the unauthorized users who claimed be the club could fall under the policy’s definition of “funds transfer fraud”. But the court also determined that Paychex’s payment demands, as alleged, could not constitute “funds transfer fraud” because Paychex was merely claiming to make those demands. behalf the club. The court held that “claiming to act on behalf of an entity is far from claiming to be the entity itself” and “[u]In the plain language of the Policy, this difference is significant. As the travellers’ motion says, “‘Paychex’ pretended to be himself”, not – as the policy requires – the Club.
Accordingly, the court denied Travelers’ motion to dismiss regarding the alleged payment requests by unauthorized users, but granted the motion regarding the alleged Paychex payment requests and dismissed the Club’s complaint without prejudice. The following day, the club filed an amended complaint claiming that “unauthorized users, through Paychex, Inc. identified themselves as the club, presenting the club’s routing and account ID numbers” for the payment of more than $575,000 and “[i]in this way, [these] unauthorized users purporting to be the account holder (i.e. the Club). . . .” Travelers has not yet contested the amended complaint, but may do so on the basis that the fact that a third party presents itinerary and account numbers does not meet the required allegation of an instruction purporting to have been transmitted. by the Insured.