Ask Your Peers  Cyber Liability Extension  (Closed)

Has anyone come across coverage where information was stolen electronically, which allowed a party to contact the insured to appear as if they were a client. Informing the client of a purchase. After shipping the products, it was discovered that the purchase order came from a fraudulent account to appear as the valid customer. Is there any coverage that would cover those products?

Jason,

I appreciate your reply. We do have some indication that there is coverage for funds, but we are looking for the products coverage. This has already happened, so the insured is really interested in protecting this risk.

                     Here's the link to request a quote.

Jason thanks for your information and suggestions !!!

The insured's loss is due to fraud, which is one of the causes of loss which is excluded in virtually every property policy form, so there is no coverage under the Property portion of the insured's policy.

They may have had coverage if they'd elected to purchase "Computer Fraud" which is available as an option either on a Cyber Risk policy or a Fidelity Bond/Crime policy. A Cyber Risk policy written without the optional Computer Fraud coverage would not cover the loss. The definition of Computer Fraud, whether it's on a Cyber Risk policy or a Crime policy, is the entry of fraudulent data or computer instructions into the insured's computer system for the purpose of causing property to be transferred or delivered to a third party. If the insured shipped its products based on an order received by fax, letter, phone call or anything other than fraudulent computer instructions, Computer Fraud coverage would not respond to the loss.

Wish I had better news!

Travelers and Chubb are two carriers that have the coverage available.

There are multiple coverage issues that could present themselves in this scenario where the insured ships product based upon reliance on a false purchase order. It is very important for businesses to properly underwrite those that they do business with to ensure eliminate risk of non-payment. In today's world it is also very common for "bad actors" to submit false purchase orders with altered shipping address to receive free product.

#1 Data Breach- It sounds like the client had a data breach that could result in private data being released. At the very least the client should take efforts to prevent this from happening since the next breach could involve customer data which may trigger privacy laws. If a data breach policy was in force it may also help the insured in addressing these issues in terms of notification and consulting to find the root cause of the breach.

#2 Computer Fraud (crime) - I don't think that this instance would qualify for Computer Fraud which normally requires a "bad actor" to transfer money out of the insured's bank account.

#3 Forgery of Security Instruments - many crime forms provide coverage for the insured's reliance on false securities such as letters of credit. Is it *possible* that this coverage grant would cover fraudulent purchase orders?

Based upon the information the best coverage grant that I see for this instance is #3 though this isn't a perfect scenario.

As a mentor once told me: There isn't coverage for everything in the world. If there was you couldn't afford it and sometimes doing business has risks.

Good Luck.

Randy,

Thank you for the reply. For your own clarity, Travelers was just in the office yesterday and there would be no coverage. There are policies that would cover the wrongful transfer of funds. The hitch here is that "goods or products" were sent. I appreciate everyone's response. there are a couple of avenues to research!

Its called Social Engineering found if available on a Crime Bond. Currently Chubb, Hartford and Travelers have an endorsement to add on a Fidelity bond

HI Jeff,

Were you able to find what you were looking for? Let know if i can be of further assistance. 

Thank you to all agents that responded with information and help!!