Hacked Company Loses Insurance Battle Over Customer Payment Scam
Hacked Company Loses Insurance Battle Over Customer Payment Scam
2
The information on this website is general in nature and does not take into account your objectives, financial situation, or needs. Consider seeking personal advice from a licensed adviser before acting on any information.
A company recently faced a significant setback after losing an insurance claim dispute related to funds stolen in a fraudulent email scheme.
Cybercriminals infiltrated the business's email system, sending out fake invoices that directed clients to pay into a bogus bank account.
Consequently, two customers inadvertently transferred a total of $66,148 to the fraudulent account.
Attempts to retrieve this money were unsuccessful, and the customers refused further payments to the company.
The company, holding a management liability insurance policy, sought to claim under its third-party crime coverage to recover the outstanding bills from the customers. However, AIG Australia denied the claim, stating that the policy only addressed "direct financial loss" from theft or fraud by a third party, and argued that since the stolen money belonged to customers, the business itself did not suffer a direct loss.
The Australian Financial Complaints Authority (AFCA) reviewed the case and acknowledged the company's loss. However, it determined that the loss did not align with the policy's specific terms. The ruling emphasized that only the company's customers faced direct financial loss, whereas the company experienced an indirect one due to subsequent non-payments.
The AFCA explained that the hack did not meet the company's policy definition of theft, as the stolen funds belonged to the customers, not the business. This discrepancy meant that the policy's electronic and computer crime coverage was not applicable. Additionally, the policy's criteria for "fraudulent act," which required acts of forgery or counterfeiting the insured had acted upon, were not met since the company was unaware of the false invoices.
This case highlights the critical distinction between direct and indirect financial losses in insurance claims, emphasizing the importance of understanding policy terms. For businesses, particularly those prone to cyber threats, it underscores the significance of having insurance coverage that appropriately addresses loss scenarios stemming from such events. It also serves as a cautionary tale of the complexities involved in recovering from cybercrime attacks without adequate protection.
Moving forward, businesses should ensure robust cybersecurity measures to prevent similar email hacks, coupled with clarifying insurance policies for adequate coverage against indirect financial losses as a result of customer fraud. This scenario may lead insurance providers to reevaluate their product offerings, potentially driving the development of more comprehensive cybercrime coverages. Additionally, the financial sector might witness increased discussions on how to formulate clearer policy definitions that align with the evolving nature of cyber threats.
Published:Tuesday, 11th Mar 2025 Source: Paige Estritori
Please Note: If this information affects you, seek advice from a licensed professional.
The Australian Prudential Regulation Authority (APRA) has released its latest National Claims and Policies Database (NCPD) statistics, highlighting a significant increase in professional indemnity (PI) insurance premiums. Since 2015, these premiums have risen by 27%, posing financial challenges for businesses across the nation. - read more
Australia's construction industry is experiencing unprecedented growth, leading to a heightened demand for professional indemnity (PI) insurance specialists. This surge is driven by a combination of large-scale infrastructure projects, evolving contractual complexities, and new regulatory requirements. - read more
The professional indemnity (PI) insurance market is undergoing notable shifts, presenting both opportunities and challenges for various sectors. Recent trends indicate a softening market, with premium reductions of approximately 5-10% available for low-risk profiles, particularly within financial services. This development offers financial relief for businesses with strong compliance records and minimal claims histories. - read more
In February 2025, an independent review conducted by McGrathNicol uncovered significant issues within Netstrata, a prominent strata management company. The investigation revealed that Netstrata failed to disclose commissions and did not obtain multiple quotes for services, potentially breaching legal obligations. Additionally, the review identified undisclosed personal relationships between Netstrata employees and suppliers, raising serious concerns about conflicts of interest. - read more
In May 2025, NSW Fair Trading took decisive action against Result Strata Management Pty Ltd and its General Manager, Michael Lee, by permanently revoking their licences to operate in the state's strata management sector. This move followed an investigation that uncovered multiple breaches of the Property and Stock Agents Act 2002, highlighting significant misconduct within the company. - read more
Health insurance is a crucial aspect of financial planning for individuals and families alike. It provides protection against unexpected medical costs and ensures that you have access to necessary healthcare services when you need them most. - read more
Health insurance is more than just a precautionary measure; it's a vital component in managing both your health and financial well-being. In Australia, where healthcare costs can quickly escalate, health insurance extras serve as a buffer, ensuring that services like dental, optical, and physiotherapy remain within reach. These extras can significantly reduce the out-of-pocket expenses you might otherwise encounter for non-hospital treatments. - read more
Exploring the realm of health insurance can be like navigating a labyrinth, replete with complex terms and varying policies. Among these, health fund rebates emerge as a crucial element, particularly for young Australians embarking on their journey of health coverage. Fund rebates can significantly lighten the financial burden, transforming the quest for health insurance from daunting to empowering. - read more
Affordable health insurance refers to insurance plans that offer necessary health coverage at a price within one's financial means. These plans aim to balance cost with the quality of care, providing essential services without excessive financial burden. The goal is to make healthcare accessible to a wider population, ensuring that everyone can maintain their health without going into debt. - read more
Private health insurance is an essential consideration for many Australians. It provides peace of mind, knowing that you and your family have access to the best possible healthcare when needed. - read more
Knowledgebase
Grace Period: A set amount of time after the premium is due during which a policyholder can make a payment without the insurance coverage lapsing.
