MINNEAPOLIS, Minn.--A federal appellate court here has ruled in favor of a Minnesota bank that sued its insurer for coverage of costs related to a fraudulent wire transfer.
The U.S. Court of Appeals for the Eighth Circuit upheld an earlier ruling by a Minnesota district court that fraud losses incurred by State Bank of Bellingham should be covered by the bank's insurance provider, BancInsure, an Oklahoma-based company that is now known as Red Rock Insurance Co. The district court awarded State Bank $620,187, plus attorney's fees.
BancInsure had appealed the lower court’s ruling, arguing that Minnesota law governing insurance contracts do not apply to financial institution bonds. The lawsuit was originally filed in October 2011 after a computer the bank used to conduct wire transfers through the Fed’s FedLine Advantage Plus system was discovered to be infected by malware. The computer was infected after one of the bank's five employees neglected to remove two physical tokens from the PC used after conducting a legitimate wire transfer, according to filings with the court.
As a result of the tokens having been left in the PC overnight, two unauthorized wire transfers had successfully been sent to two different banks in Poland; one of which it was able to reverse, but the other, for $485,000, it was unable to retrieve.
State Bank has filed suit after BancInsure denied the claim, arguing the fraud occurred not because of cyber fraud but because an employee had made a mistake.