No Cyber Insurance Coverage for Vehicle Thefts Purchased Online Using Fake Identities

In a win for Wiley’s clients, a Louisiana federal court, applying Louisiana law, has held that an insured’s contractual obligation to remit funds to a lender did not constitute a Claim under a cyber policy, and that vehicle thefts perpetrated through online purchases using fake identities did not otherwise trigger coverage under the policy’s first-party insuring agreements. Benoit Ford LLC v. Lexington Ins. Co., No. 2:22-cv-06024-JDC-KK (W.D. La. Oct. 2, 2023).

Insured car dealerships allegedly suffered five vehicle thefts via a touchless purchasing procedure whereby the buyer purchased the vehicle online by submitting a credit application to a prospective lender using a fake or stolen identity. Once the application was approved, the buyer and the dealership would complete other paperwork electronically or by overnight mail. When the paperwork was complete, the lender would provide the purchase price to the dealership and the buyer contracted with a third party to deliver the vehicle from the dealership to the purchaser. The dealerships discovered the scheme when the lenders advised that they had not received payments for the vehicles. Upon discovery of the scheme, the lenders required the dealerships to reimburse the lender the purchase price. The cyber insurers denied coverage and the dealerships filed suit.

In the ensuing coverage litigation, the court held that none of the fifteen first- and third- party insuring agreements afforded coverage for the vehicle thefts and granted the insurers’ motion to dismiss. The court agreed with the insurers that the dealerships’ contractual obligation to remit the purchase price to the lender did not constitute a Claim under the cyber policy such that none of the policy’s third-party insuring agreements were triggered. In holding that none of the first-party insuring agreements were implicated by the vehicle thefts, the court explained that the thefts did not trigger the Funds Transfer Fraud insuring agreement, which provides that Funds Transfer Fraud means “a fraudulent instruction transmitted by electronic means . . . to you . . . to debit an account of the named insured or subsidiary and to transfer, pay or deliver money or securities from such account, which instruction purports to have been transmitted by an insured and impersonates you or your vendors.” The court concluded that the definition was not satisfied because the dealerships did not allege that they were directed to debit their accounts.