This post examines an opinion the U.S. Court of Appeals for the 11th Circuit recently issued in a civil case: Metro
Brokers, Inc. v. Transportation Insurance Company, 2015 WL 925301 (2015)
(per curiam). It begins by explaining
that
[i]n this insurance coverage dispute,
Metro Brokers, Inc. (`Metro’) appeals the district court's (1) grant of summary
judgment in favor of Metro's insurer, Transportation Insurance Company (`TIC’)
and (2) denial of Metro's motion for reconsideration. . . .
Metro Brokers, Inc. v.
Transportation Insurance Company, supra.
As Wikipedia explains, in U.S. law, a summary judgment is a judgment
entered by a
court for one party and against
another party summarily, i.e., without a full trial. Such
a judgment may be issued on the merits of an entire case, or on
discrete issues in that case. . . .
A party moving . . . for summary
judgment is attempting to avoid the time and expense of a trial when the
outcome is obvious. A party may also move for summary judgment in order to
eliminate the risk of losing at trial, and possibly avoid having to go through
discovery . . . by demonstrating to the
judge, via sworn statements and documentary evidence, that there are
no material factual issues remaining to be tried. If there is nothing for the
factfinder to decide, then the moving party asks rhetorically, why have
a trial?
The moving party will also attempt to
persuade the court that the undisputed material facts require judgment to be
entered in its favor. . . .
(emphasis in the original).
The Court of Appeals then explains how the suit arose:
Metro is a real estate brokerage firm
conducting business in Georgia. Metro maintained bank accounts with Fidelity
Bank (`Bank’) and used the Bank's online system to make payments from Metro's
accounts. On 10 December 2011, thieves logged into the Bank's online banking
system using a Metro employee's access ID and password.
Then, using a randomly generated
single-transaction security code, the thieves authorized various payments --
totaling over $188,000 -- from a Metro client escrow account to several other
bank accounts. Over $154,000 of the stolen funds remains unrecovered.
Although the exact details of the theft
are unknown, the parties agree that all available evidence suggests that the
thieves used a key-logger virus known as `Zeus’ (which was found on several
Metro computers) to gain access to Metro employee access IDs and passwords.
Metro filed a claim for the loss under
Metro's insurance policy (`Policy’) with TIC. TIC denied coverage based on the
Policy's malicious-code and system-penetration exclusions. Metro, on the other
hand, contends that the loss is not excluded and is covered by the Policy's
Fraud and Alteration (`F&A’) endorsement.
Metro Brokers, Inc. v.
Transportation Insurance Company, supra.
The Court of Appeals goes on to explain that
[i]n two detailed and well-reasoned
opinions, the district court concluded that the Policy did not cover Metro's
loss and, thus, that TIC was entitled to summary judgment on Metro's breach of
contract claim.
The district court determined that
Metro's loss was not covered by the Policy's F&A endorsement for two
reasons: (1) the fraudulent electronic transfers did not involve a `check,
draft, promissory note, bill of exchange, or similar written promise, order or
direction to pay a sum certain;’ and (2) Metro's loss fell within the Policy's
exclusions for losses caused by malicious code or system penetration.
Because Metro's claim was not covered
under the Policy, the district court granted summary judgment for TIC on
Metro's claims for breach of contract and for bad faith.
Metro Brokers, Inc. v.
Transportation Insurance Company, supra.
The court also notes that
[w]e review de novo a
district court's grant of summary judgment, viewing the evidence and drawing
all reasonable inferences in favor of the non-moving party. Harrison v.
Benchmark Elecs. v. Huntsville, Inc., 593 F.3d 1206 (U.S. Court
of Appeals for the 11th Circuit 2010).
Metro Brokers, Inc. v.
Transportation Insurance Company, supra.
The Court of Appeals went on to explain that
[u]nder Georgia law, `[a]n insurance
policy is governed by the ordinary rules of contract construction.’ Banks v.
Bhd. Mut. Ins. Co., 686 S.E.2d 872, 874 (Georgia Court of Appeals 2009).
Whether the language in an insurance policy is ambiguous is a matter of law for
the court to decide. Banks v. Bhd. Mut. Ins. Co., supra. `Extrinsic evidence to explain ambiguity in a contract becomes admissible only when a
contract remains ambiguous after the pertinent rules of construction have been
applied.’ Claussen v. Aetna Cas. & Sur. Co., 380 S.E.2d 686
(Georgia Supreme Court 1989).
`When the language of a policy is
unambiguous and capable of but one reasonable construction, we enforce the
contract as written.’ Banks v. Bhd. Mut. Ins. Co., supra. `The words used in policies of insurance, as
in all other contracts, bear their usual and common significance, and policies
of insurance are, as in all other contracts, to be construed in their ordinary
meaning.’ Lawyers Title Ins. Corp. v. Griffin, 691 S.E.2d 633 (Georgia
Court of Appeals 2010).
Metro Brokers, Inc. v.
Transportation Insurance Company, supra.
(You may wonder why a federal Court of Appeals is applying
Georgia law, rather than federal law, in this case. The answer is that this case is in federal
court under the court’s diversity jurisdiction, which lets federal courts hear
disputes that involve citizens of different states. The U.S. Supreme Court has held that the law of the relevant state(s) applies in diversity jurisdiction cases.)
The Court of Appeals then noted that
Metro argues that its loss is covered
by the Policy's F&A endorsement. We disagree. The Policy's F&A
endorsement provides that TIC `will pay for loss resulting directly from
‘forgery’ or alteration of, on, or in any check, draft, promissory note, bill
of exchange, or similar written promise, order or direction to pay a sum certain.
. . .’ The term `forgery’ is defined in the Policy as `the signing of the name
of another person or organization with intent to deceive.’
The electronic fund transfers in this
case did not involve a `check, draft, promissory note, [or] bill of exchange.’ The
transfers also cannot be characterized as involving a `written promise, order
or direction to pay’ that was `similar’ to the three enumerated instruments.
Under both federal and Georgia law,
electronic fund transfers are distinguished from -- and treated differently from
-- fund transfers made by check, draft, or bill of exchange. See 15 U.S. Code § 1693a(7) (emphasis added) (the Electronic Fund Transfer Act defines
an `electronic fund transfer’ as `any transfer of funds, other than a
transaction originated by check, draft, or similar paper instrument, which
is initiated through an electronic terminal, telephonic instrument, or computer
or magnetic tape so as to order, instruct, or authorize a financial institution
to debit or credit an account’); O.C.G.A. § 11–4A108 (providing expressly that
Georgia's Uniform Commercial Code on fund transfers does not apply to
electronic fund transfers governed by the federal Electronic Fund Transfer
Act).
Metro Brokers, Inc. v.
Transportation Insurance Company, supra (emphasis in the original).
The court also noted that
Metro has also failed to demonstrate
that the theft involved the `signing of [a] name,’ as required under the
Policy's `forgery’ definition. Although the thieves used the stolen access ID
and password to access the Bank's online system (and then used a randomly
generated security code to authorize the transfers), nothing establishes that
doing so constituted the `signing of the name of another person or
organization’ under the terms of the Policy.
Metro Brokers, Inc. v.
Transportation Insurance Company, supra.
It went on to point out that
[f]irst, nothing about the Policy's
provision that `signatures that are produced or reproduced electronically” will
be considered “the same as handwritten signatures’ -- in and of itself -- establishes
that an access ID and password constitute a `signature’ (electronic or
otherwise) within the meaning of the Policy.
Second, contrary to Metro's argument,
the Georgia Court of Appeals' decision in Allstate Ins. Co. v. Renshaw, 258
S.E.2d 744 (1979), does not control here. In Renshaw, the state
court concluded a loss resulting from the theft of plaintiff's bank card and
personal identification number (PIN) constituted a `forgery’ under plaintiff's
homeowners insurance policy.
Because the policy contained no
definition of the term `forgery,’ the court relied on the definitions of
`forgery’ and `writing’ found in Georgia's criminal code. The court concluded
that the recording of plaintiff's PIN number was a `writing’ within the meaning
of Georgia's criminal code. Here -- unlike in Renshaw -- the Policy
defined expressly and unambiguously the term `forgery.’
Thus, we need not (and must not) rely
on Georgia's criminal code to interpret the Policy's language. The question of
whether the unauthorized use of Metro's access ID and password was a `writing’
under Georgia's criminal code has no significance to this case.
Metro Brokers, Inc. v.
Transportation Insurance Company, supra.
The Court of Appeals therefore held that because
Metro has failed to
demonstrate that its loss was covered under the Policy's F&A endorsement,
TIC was entitled to summary judgment on Metro's breach of contract claim. See Allstate
Ins. Co. v. Grayes, 454 S.E.2d 616 (Georgia Court of Appeals 1995) (`To
establish a prima facie case on a claim under a policy of insurance the insured
must show the occurrence was within the risk insured against’).
Metro Brokers, Inc. v.
Transportation Insurance Company, supra.
It also explained that it agreed wit the
U.S. District Court Judge’s conclusion
that Metro's claim fell under the Policy's malicious-code exclusion. That
the thieves (in some way) used a computer virus to commit their theft is
undisputed. The Policy defines `malicious code’ as including, among other
things, `computer viruses.’ Although Metro argues that the computer virus did
not in fact `cause’ the loss (because of the thieves' intervening conduct), the
Policy states unambiguously that it does not cover losses `caused directly or
indirectly’ by malicious code `regardless of any other cause or event that
contributes concurrently or in any sequence to the loss.’ Based on this broad
(but plain) exclusionary language, we conclude that Metro's loss is excluded.
Because Metro's loss is not covered by
the Policy, Metro's claims for both breach of contract and for bad faith must
fail. See Lawyers Title Ins. Corp. v. Griffin, 691 S.E.2d
633 (Georgia Court of Appeals 2010) (concluding that, to establish a bad faith
claim under Georgia Code § 33–4–6, an insured must show, among other
things, that his claim is covered under the insurance policy).
Metro Brokers, Inc. v.
Transportation Insurance Company, supra.
The Court of Appeals therefore affirmed the U.S. District
Court’s granting summary judgment for TIC.
Metro Brokers, Inc. v.
Transportation Insurance Company, supra.
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