Opinion ID: 4657523
Heading Depth: 3
Heading Rank: 1

Heading: an Employee acting in good faith reliance upon a

Text: telephone, written, or electronic instruction that purported to be a Transfer Instruction but, in fact, was not issued by a Client, Employee or Vendor[.] The policy admittedly anticipates situations in which one fraud could fall under various fraud-related provisions. 19 The fact that MSH recovered under the Social Engineering Fraud provision in the instant case is not itself dispositive. However, as the district court noted, the Social Engineering Fraud provision specifically contemplates situations in which an employee relies in good faith on a fraudulent instruction. The Computer Transfer Fraud provision does not. Instead, the Computer Transfer Fraud provision specifically disclaims coverage for transfers made with the insured’s losses resulting from a “fraudulent instruction” that “direct[ed] a financial institution to debit [Principle’s] transfer account and transfer, pay or deliver money or securities from that account.” Id. at 889. A fraudulent instruction was defined as an “electronic or written instruction initially received by [Principle], which instruction purports to have been issued by an employee, but which in fact was fraudulently issued by someone else without [Principle’s] or the employee’s knowledge or consent.” Id. at 890. The Principle policy clearly indicates that the insured’s knowledge about the fraud itself would preclude coverage, but does not limit coverage to instances when the resulting transfer is unknown to the insured. 19 Considering the fact that the policy states that “[i]f a single loss is covered under more than [one] Coverage, the limit of Insurance that applies to such loss will not exceed the highest Limit of Insurance for each loss that applies,” the district court concluded that “the fact that the Social Engineering Fraud provision is applicable on these facts does not preclude MSH from obtaining additional coverage if a different provision with a higher policy limit is in fact applicable.” We agree with this sound reasoning. 8 Case: 20-60215 Document: 00515732729 Page: 9 Date Filed: 02/04/2021 No. 20-60215 knowledge. Had Axis intended to provide coverage in instances of Computer Transfer Fraud when MSH knew of the transfer but, in good faith, believed it to be legitimate, that provision would have said so. Our obligation to read the integrated provision as a whole bolsters our conclusion that coverage is not due. Although Computer Transfer Fraud is subject to a precise definition under the policy, the specific provision plainly does not extend to all instances of Computer Transfer Fraud—only to those that caused a funds transfer without MSH’s knowledge. By imposing the knowledge requirement, the policy narrowed the scope of the provision, limiting the types of computer transfer fraud that would trigger coverage to instances in which a computer itself is tricked into fraudulently transferring funds from MSH’s bank account to a third party without MSH’s knowledge. Unfortunately for MSH, coverage simply does not extend to the fraud scheme at issue here. Because we conclude that the MSH’s knowledge of (and involvement in) the instant transfer precludes coverage in this case, we need not address whether its loss “result[ed] directly from” the fraud scheme. 20 Further, because we agree that the policy clearly and unambiguously precludes coverage, we conclude that the district court did not abuse its discretion in concluding that MSH’s objections to the magistrate judge’s discovery ruling were moot. 21 20 This is a complicated question we will, no doubt, need to answer one day. But because we can resolve this case on simpler grounds, today is not that day. Compare Principle, 944 F.3d at 892 (interpreting the phrase as implying a proximate causation standard in the context of a similar insurance policy) with Interactive Commc’ns Int’l, Inc. v. Great Am. Ins. Co., 731 F. App’x 929, 931 (11th Cir. 2018) (unpublished) (applying a “direct means direct” approach because “one thing results ‘directly’ from another if it flows straightway, immediately, and without any intervention or interruption”) and with Am. Tooling Ctr., Inc. v. Travelers Cas. & Sur. Co. of Am., 895 F.3d 455, 460 (6th Cir. 2018) (declining to decide whether “direct” means immediate or proximate because coverage was available under either definition). 21 On appeal, MSH also argues that the district court erred in denying as moot MSH’s objections to a magistrate judge’s discovery order that prevented MSH from 9 Case: 20-60215 Document: 00515732729 Page: 10 Date Filed: 02/04/2021 No. 20-60215 AFFIRMED. compelling the production of documents related to subsequent modifications made to the language of the crime coverage provisions of the insurance policy. The magistrate judge denied the request, citing Federal Rule of Evidence 407, which bars evidence of subsequent remedial measures to prove culpable conduct, and noting that MSH had not shown why the requested information would be relevant. MSH objected to the ruling, but the district court denied those objections in its summary judgment ruling, explaining that because the policy unambiguously prevented MSH from recovering under the policy, any subsequent changes in the policy’s language were irrelevant and the objections thus moot. 10