Court Finds Business Interruption Coverage for Losses Resulting From Fraudulent Email Scheme

A Minnesota federal district court has held that a software company is entitled to coverage for losses related to diverted billing emails under its business interruption coverage, rejecting the insurer’s argument that the phrase ‘business operations’ in the insuring clause referred only to income-generating activities. Fishbowl Solutions, Inc. v. Hanover Ins. Co., No. 21-cv-00794 (D. Minn. Nov. 3, 2022).

In November 2019, an unauthorized third party gained access to the email account of an employee in the company’s accounting department.

The bad actor diverted incoming emails to an unaffiliated account, ultimately duping one of the company’s clients into paying two legitimate invoices to the imposter’s bank account.

After the fraud was discovered, the client recovered some of the funds but was unable to recover nearly $148,000. The insured company sought coverage under its cyber business interruption coverage after the client refused to pay on the invoices.

The insurer denied coverage, and coverage litigation ensued.