In Interactive Communities Int’l v. Great Am. Ins. Co., 2018 U.S. App. LEXIS 12410 (11th Cir. May 10, 2018), the insured sold “chits,” which have a specific monetary value and can be redeemed by loading their monetary value to a debit card. In order to redeem the chits, consumers could call into a computerized interactive voice response (IVR) system, type in a PIN, and have the funds loaded onto their debit card. Fraudsters identified a glitch in the IVR that allowed them to redeem the same chit several times by making multiple simultaneous calls to the IVR system. This caused the insured to suffer over $11 million in losses. The insured submitted a claim pursuant to the Computer Fraud policy, which provided coverage for “loss of, and loss from damage to, money, securities and other property resulting directly from the use of any computer to fraudulently cause a transfer of that property ….” Great American denied the claim, and the insured filed suit. The Northern District of Georgia, sided with Great American, finding: (1) the loss did not involve “use” of a computer; and (2) the loss did not “result directly” from use of any computer.
On appeal, the Eleventh Circuit determined that the loss did result from “use” of a computer but affirmed on the ground that the loss did not result “directly” from use of the computer. The court considered the parties’ arguments that case law in different jurisdictions supported either the insured’s position that “results directly” means proximately caused, or the insurer’s position that “results directly” requires “immediacy between conduct and result.” The court took a different approach, “Rather than following the thread of close-but-not-quite-on-point cases from other jurisdictions,” the court analyzed the plain meaning of “result directly” and determined that it means following “straightaway, immediately, and without any intervention or interruption.” Because there were four steps:
- Step 1 – the fraudsters make the call and the debit card is immediately credited with purchasing power, but the insured’s funds are not transferred, disturbed, or altered in any way.
- Step 2 – the insured transfers funds to Bancorp for the purpose of paying debts incurred by debit card holders, but the money remains in the Bancorp account and can be recoverable by the insured.
- Step 3 – the debit card holder makes a purchase using the debit card.
- Step 4 – Bancorp transfers money from the account to the merchant to cover the purchase made by the cardholder.
Until Step 3 and possibly even Step 4, the insured could still recover its funds, the loss did not result “directly” from the use of the insured’s computer.
The Interactive Communities decision provides useful insight in interpreting an insurance policy according to its plain and unambiguous meaning despite the name of the type of policy involved in the dispute.