Court Opinion

ID: 9394104
Source: CourtListenerOpinion
Date Created: 2023-05-12 14:04:50.723791+00
Date Added: 2024-06-11T17:18:58.428609
License: Public Domain

RENDERED: MAY 5, 2023; 10:00 A.M.
                        NOT TO BE PUBLISHED

                Commonwealth of Kentucky
                          Court of Appeals

                             NO. 2022-CA-0021-MR

MICHAEL A. VENEMAN, CPA PSC
AND E-PAY, INC.                                                    APPELLANTS

               APPEAL FROM CAMPBELL CIRCUIT COURT
v.            HONORABLE JULIE REINHARDT WARD, JUDGE
                       ACTION NO. 20-CI-00274

TRAVELERS CASUALTY
INSURANCE COMPANY OF
AMERICA                                                                APPELLEE

                                   OPINION
                                  AFFIRMING

                                  ** ** ** ** **

BEFORE: COMBS, LAMBERT, AND TAYLOR, JUDGES.

LAMBERT, JUDGE: This appeal arises from a summary judgment in favor of

Travelers Casualty Insurance Company of America (Travelers) regarding the

interpretation of a contract of insurance and endorsements for forgery and

alteration and for computer fraud. We affirm.
             Michael A. Veneman, CPA PSC, is a professional service corporation

that was organized under Kentucky law and licensed to provide accounting and

payroll services, tax preparation, and advice to clients in Kentucky. E-Pay, Inc.,

was a Kentucky for-profit corporation that was in the business of making

electronic payroll deposits and disbursements. (Collectively, the plaintiffs or the

appellants.) Travelers is an insurance company organized in Connecticut. The

plaintiffs purchased a contract of insurance from Travelers on August 6, 2015

(policy no. 680-2G554600), and this policy has been periodically renewed. The

policy included extensions that included protections against forgery or alteration

and computer fraud.

             The events giving rise to the underlying lawsuit occurred on March

27, 2018, when the plaintiffs entered into a contract with a person they believed to

be Tim Spencer to process payroll deposits for TK Management, Inc. On March

30, 2018, a person claiming to be Tim Spencer (or his agent) withdrew a large

deposit from the payroll account and sent the funds out of the country via Western

Union. In a motion filed in the underlying lawsuit, Travelers described the chain

of events as follows:

                   The Plaintiffs are related entities that process
             payroll for small businesses. Unfortunately, one
             purported client they had signed up turned out to be an
             imposter posing as a legitimate business owner. Using a
             sophisticated scheme, the imposter furnished personal
             bank account information and directed the Plaintiffs to

                                         -2-
             transfer money from it to other bank accounts
             purportedly belonging to the imposter’s employees.
             However, as it was later discovered, the other accounts
             actually belonged to the imposter or persons working
             with him.

                    Plaintiffs hired Cachet Financial Services (a
             clearinghouse bank) to make the transfers. Once the
             transfers had taken place, the imposter withdrew large
             sums of money. In an ironic twist, the imposter also
             contacted Bank of America to report the out-going
             transfers as fraudulent. Under complicated clearinghouse
             rules for banks, this report of fraud triggered a “claw
             back” of various transactions such that Cachet bore the
             risk of loss, which it then shifted back to the Plaintiffs by
             contract. The end result was a high-tech theft that
             allowed the imposter to escape detection and wire funds
             out of the country.

In a footnote, Travelers stated:

             After the fraud had come to light, Cachet demanded
             reimbursement from Plaintiff E-Pay, Inc. which then
             signed a promissory note in favor of Cachet to cover the
             loss. However, in February 2019, E-Pay filed for
             bankruptcy and the obligation to repay Cachet was
             discharged as part of that proceeding. In re E-Pay Inc.,
             Case No. 19-20143-tnw, E.D. Ky. 2019. Both Cachet
             and [E-Pay] are now defunct.

More specifically, Travelers stated the material, undisputed facts as follows (with

references removed):

             In March 2018, an unknown individual posing as
             “Timothy Spencer” contacted Plaintiffs and claimed to
             own a company named TK Management Incorporated
             (hereinafter “TK”) located in Jackson, Kentucky. After
             exchanging phone calls and emails with the imposter, the
             Plaintiffs decided to provide payroll services for TK.

                                          -3-
               During this process, the imposter signed a payroll service
               agreement, a bank account authorization agreement and
               other documents. The imposter also gave Plaintiffs a
               blank check for TK’s checking account with Bank of
               America.

                       Consistent with the written agreements, Plaintiffs
               began processing payroll for the imposter. Plaintiff E-
               Pay Inc. received instructions and information via email
               from the imposter necessary to make the transfers (i.e.,
               the names of the employees, the amounts each employee
               should receive, the names of the receiving banks, the
               employees’ checking account numbers, and so forth).
               Plaintiff Michael Veneman CPA PSC took the
               information received by E-Pay Inc., put it into a formal
               report for tax withholding purposes and the report would
               then be sent to Cachet to effectuate the transfers. In other
               words, Plaintiffs provided payroll instructions to Cachet,
               which then withdrew funds from the imposter’s checking
               account and routed those funds to the imposter’s
               “fictitious” employee accounts.[1]

                      After Cachet had transferred a series of funds, the
               imposter contacted Bank of America to report fraud.
               During this process, the imposter withdrew funds from
               the fictitious employee accounts and wired them out of
               the country. [Footnote omitted.] Once the fraud came to
               light, Plaintiffs were able to recoup some of the funds
               and give them to Cachet and the IRS.

               The plaintiffs made a claim with Travelers (claim no. DHR4194) on

their policy, and the claim was denied on January 16, 2020. As a result of the

1
  When Cachet initiated the first few transfers from the imposter’s account, the transactions
failed. The imposter then provided Plaintiffs with alternate routing numbers for his Bank of
America account, and the transactions were then successful. Despite the fact that the first few
transfers “bounced,” the Plaintiffs chose to continue processing payroll for the purported client.
This turned out to be a poor business decision. (Footnote 2 in original.)

                                                -4-
denial, the plaintiffs filed a complaint against Travelers on March 18, 2020, with

the Campbell Circuit Court. They alleged that coverage existed under both the

forgery or alteration and computer fraud provisions of the policy endorsements

(Counts 1 and 2) and that Travelers had breached its contract with them by failing

to cover their loss (Count 3), which entitled them to $35,000.00. They also alleged

claims for breach of an implied contract (Count 4), detrimental reliance (Count 5),

fraud and/or misrepresentation (asserting that a reasonable person would believe

that the policy covered forgery or alteration and computer fraud) (Count 6), and

bad faith (Count 7). The plaintiffs sought both compensatory and punitive

damages.

             Travelers filed a notice of removal to the United States District Court

for the Eastern District of Kentucky at Covington on April 14, 2020, based on

diversity jurisdiction, and filed an answer in that court. By stipulation and agreed

order, the case was remanded to the Campbell Circuit Court on June 2, 2020. The

stipulation provided that the combined total damages the plaintiffs sought from

Travelers would be capped at $74,999.99, meaning that the federal district court

lacked diversity jurisdiction.

             Upon remand, Travelers moved the circuit court, pursuant to

Kentucky Rules of Civil Procedure (CR) 26.03 and 42.02, to stay discovery on and

bifurcate the plaintiffs’ non-contractual claims until the contractual claims were

                                         -5-
resolved, either by judgment or settlement. The court granted this motion by order

entered March 8, 2021, and bifurcated all bad faith claims. Michael Veneman was

deposed, and through his testimony and discovery responses, supporting

documents were introduced.

             On September 6, 2021, Travelers filed a motion for summary

judgment, arguing four grounds to support the motion. First, it argued that there

were not any direct physical losses to any covered property as defined by the

policy based upon the transfer of funds. Second, there were no forgeries or

alterations of any checks, drafts, promissory notes, or other similar written

promises, orders, or directions that were made. Third, there was no computer fraud

as the loss did not arise from a hacking event or other direct use of a computer.

And fourth, even if the terms of the policy could be met, the voluntary parting

exclusion precluded coverage. Because it had not breached the terms of the

insurance policy, Travelers asserted that the plaintiffs’ remaining claims should be

dismissed as a matter of law. In response, the plaintiffs argued that the undisputed

facts supported that both endorsements applied in this case.

             On September 17, 2021, the plaintiffs filed their own motion for

summary judgment, arguing that coverage applied. They stated that they had been

scammed by an imposter who had emailed them “fraudulent documents, emailed

an altered personal check made to look like a business check, emailed directions

                                         -6-
(orders to pay), and included electronic transfers from a clearinghouse bank

(Cachet Banq) to the accounts of fictitious employees which were controlled by the

imposter,” which then led to the transfer of funds out of the country by Western

Union. The amount of the lost funds totaled $229,657.59, which Cachet attempted

to recover from E-Pay, Inc., and in doing so illegally seized funds from another of

the Plaintiffs’ clients, Art’s Rent-a-Tool. Although the seized funds were returned,

Michael Veneman CPA PSC had lost that company as a client, held since 2018.

The plaintiffs were able to recoup a small amount, but they lost a deposit for taxes

to the IRS. As their argument, the plaintiffs contended that both endorsements

applied to provide coverage in this case. In its response, Travelers argued that the

information about Art’s Rent-a-Tool was not pertinent to the coverage analysis as

the complaint only referenced the fraudulent activity of the imposter.

             The court heard oral arguments from the parties on November 22,

2021. The court asked plaintiffs’ counsel about the voluntary parting exclusion,

which had not been addressed in their brief. He argued that the two endorsements

should be read separately from the policy, which would remove the voluntary

parting exclusion, but he did not cite any caselaw to support this position or

respond to the caselaw cited by Travelers. As far as damages, the plaintiffs were

claiming $45,000.00 due to the loss of a client. The other companies (Cachet and

E-Pay) were defunct and would therefore not be making any claims for payment

                                         -7-
for the funds that were lost to the imposter. Travelers argued that the policy

declarations and endorsements were to be construed as a whole and that the

endorsements were not stand-alone policies.

             On December 2, 2021, the circuit court entered an order ruling on the

cross-motions for summary judgment. The Court found no merit in any of the

plaintiffs’ claims and denied their motion, and it granted Travelers’ motion, finding

that it was entitled to a judgment as a matter of law on all of the plaintiffs’ claims.

This appeal now follows.

             On appeal, the plaintiffs (now appellants) argue that the circuit court

improperly granted summary judgment to Travelers on their claims related to the

application of the forgery or alteration and computer fraud endorsements and for

breach of contract. They have not raised any issues as to the remaining claims of

breach of implied contract, detrimental reliance, fraud and/or misrepresentation,

and bad faith. Therefore, we shall not address the circuit court’s ruling as to those

claims.

             An appellate court’s standard of review of a summary judgment is set

forth in Patton v. Bickford, 529 S.W.3d 717, 723 (Ky. 2016):

                   Summary judgment is a remedy to be used
             sparingly, i.e. “when, as a matter of law, it appears that it
             would be impossible for the respondent to produce
             evidence at the trial warranting a judgment in his favor
             and against the movant.” Shelton v. Kentucky Easter
             Seals Society, Inc., 413 S.W.3d 901, 905 (Ky. 2013)

                                          -8-
             (citations omitted). We frequently caution, however, the
             term “impossible” is to be used in a practical sense, not
             in an absolute sense. See id. (citing Perkins v.
             Hausladen, 828 S.W.2d 652, 654 (Ky. 1992)). The trial
             court’s primary directive in this context is to determine
             whether a genuine issue of material fact exists; if so,
             summary judgment is improper, Steelvest, Inc. v.
             Scansteel Service Center, Inc., 807 S.W.2d 476, 480 (Ky.
             1991). This requires that the facts be viewed through a
             lens most favorable to the party opposing summary
             judgment, here the Estate. Id. It is important to point out
             that “a party opposing a properly supported summary
             judgment motion cannot defeat it without presenting at
             least some affirmative evidence showing that there is a
             genuine issue of material fact for trial.” Id. at 482.

                   A motion for summary judgment presents only
             questions of law and “a determination of whether a
             disputed material issue of fact exists.” Shelton, 413
             S.W.3d at 905. Our review is de novo, and we afford no
             deference to the trial court’s decision.

As there are no disputed material facts, our review is whether the circuit court, as a

matter of law, properly interpreted the policy of insurance and granted summary

judgment to Travelers.

             In James Graham Brown Foundation, Inc. v. St. Paul Fire & Marine

Insurance Company, 814 S.W.2d 273, 279 (Ky. 1991), the Supreme Court of

Kentucky addressed the interpretation of insurance contracts and recognized:

                    The proper standard for the analysis of insurance
             contracts in Kentucky is a subjective one. Fryman v.
             Pilot Life Insurance Company, Ky., 704 S.W.2d 205
             (1986) holds that terms of insurance contracts have no
             technical meaning in law and are to be interpreted
             according to the usage of the average man and as they

                                         -9-
             would be read and understood by him in the light of the
             prevailing rule that uncertainties and ambiguities must be
             resolved in favor of the insured.

And in Motorists Mutual Insurance Company v. RSJ, Inc., 926 S.W.2d 679, 681

(Ky. App. 1996), this Court recognized that “terms used in insurance contracts

‘should be given their ordinary meaning as persons with the ordinary and usual

understanding would construe them.’ City of Louisville v. McDonald, Ky. App.,

819 S.W.2d 319, 320 (1991).” With these statements of the law in mind, we shall

consider the appellants’ arguments.

             Our review of the circuit court’s order confirms that its legal analysis

was correct, and we shall adopt the following reasoning as our holding in this case:

             First, Plaintiffs argue that they are covered by the policy
             extensions for “Forgery or Alteration” and Computer
             Fraud.” [Plaintiffs maintain] that these policy extensions
             stand or fall on their own and must be construed
             separately from the remainder of the Policy. This
             position is not supported by Kentucky case law or the
             language of the Policy itself.

             ....

                    The Kentucky Supreme Court has determined that
             “[t]he policy and its endorsement validly made a part
             thereof together form the contract of insurance, and are to
             be read together to determine the contract actually
             intended by the parties.” Kemper Nat. Ins. Companies v.
             Heaven Hill Distilleries, Inc., 82 S.W.3d 869, 875 (Ky.
             2002) (citing 1 Couch on Insurance 2d § 4:36 (1983)).
             The plain language of the Policy states: “This policy
             consists of the Common Policy Declarations and the
             Coverage Parts and endorsements listed in that

                                        -10-
declarations form.” The Court believes that the Policy
must be construed as a whole, and that the “computer
fraud” and “forgery or alteration” coverage extensions
are not standalone provisions.

      Next the Plaintiffs contend that the electronic
funds transferred by Cachet to the imposter’s fictitious
employees were “covered property” under the Policy.
Under the Businessowners Property Coverage Special
Form MP T1 02 02 05, the policy provides, in relevant
part:

      A. COVERAGE

             We will pay for direct physical loss of or
      damage to Covered Property at the premises
      described in the Declarations caused by or
      resulting from a Covered Cause of Loss.

      1. Covered Property

      Covered Property, as used in this Coverage Form,
      means the type of property described in this
      Paragraph A.1., and limited in Paragraph A.2.,
      Property Not Covered, if a Limit of Insurance is
      shown in the Declarations for that type of property.

      ....

             b. Business Personal Property
             located in or on the buildings
             described in the Declarations or in the
             open (or in a vehicle) within 1,000
             feet of the described premises,
             including:

                   (1) Property owned by
                   you and used in your
                   business;

                           -11-
                  (2) Property of others
                  that is in your care,
                  custody or control;

                  (3) Your use interest as a
                  tenant in improvements
                  and betterments . . . and

                  (4) “Money” and
                  “Securities.”

      2. Property Not Covered

      Unless the following is added by
      endorsement to this Coverage Form,
      Covered Property does not include:

            ...

            (k) Accounts and bills, except
            as provided in the Accounts
            Receivable Coverage
            Extension[.]

      ...

      4. Covered Causes of Loss

      RISKS OF DIRECT PHYSICAL LOSS
      unless the loss is:

            (a) Limited in Paragraph A.5.,
            Limitations; or

            (b) Excluded in Paragraph B.,
            Exclusions.

...

                          -12-
G. PROPERTY DEFINITIONS

      ...

      17. “Money” means currency and coins in
      current use, bank notes, travelers checks,
      registered checks and money orders held for
      sale to the public.

      ...

      25. “Securities” means all negotiable and
      non-negotiable instruments or contracts
      representing either “money” or other
      property and includes revenue or other
      stamps in current use, tokens, tickets and
      credit card slips for sales made by you and
      held by you for reimbursement from
      companies issuing credit cards, bud does not
      include “money”. Lottery tickets held for
      sale are not securities.

       In the present case, “business personal property” is
defined as property located in or on the premises
described in the Declarations or located in the open or
within 1,000 feet of the described premises. “Business
personal property” also includes property owned by the
insured and used in its business; “money” and
“securities”; and property of others in the insured’s care,
custody, and control. The electronic funds at issue were
not located on the Plaintiffs’ building premises, nor were
they located in the open or within 1,000 feet of the
premises. Moreover, the funds were not “money” or
“securities” under the Policy.

       In Harvard Street Neighborhood Health Center,
Inc. v. Hartford Fire Ins. Co., CV 14-13649-JCB, 2015
WL 13234578, at *8 (D. Mass. Sept. 22, 2015), the court
held that funds deposited into a bank account do not have
a physical material existence and are not susceptible to

                           -13-
physical loss or damage. Similarly, in Florists’ Mutual
Insurance Co. v. Ludy Greenhouse Mfg. Corp., 521 F.
Supp. 2d 661, 680-81 (S.D. Ohio 2007), the court
determined that funds deposited into a bank account were
intangible property and intangible personal property is
not capable of being physically possessed. Thus, to
qualify as “money” or “securities,” the property must
involve physical funds or tangible negotiable
instruments. Since the electronic funds at issue did not
have a physical existence, they do not meet the definition
of “money” or “securities” under the Policy.

       Thus, the only way the electronic funds could
qualify as “business personal property” is if the funds
were in the Plaintiffs’ “care, custody, or control.” In
Loeb Properties, Inc. v. Federal Ins. Co., 663 F. Supp. 2d
640, 647 (W.D. Tenn. 2009), the Court determined that
care, custody, and control in the insurance context
denotes exclusive dominion over property (citing 9
Couch on Ins. § 126:22 (3d ed. 1997)). Specifically, the
Court found that the plaintiff did not have exclusive
dominion over the Loebs’ personal bank account when
the money in the Loebs’ account was in the bank and the
funds were never stored at Plaintiff’s premises. Plaintiff
did not own the funds and lacked authority to direct how
the Loebs spent those funds. Id. at 647-48.

      Even if the electronic funds could be considered
“personal property,” there was no “direct physical loss”
to “covered property.” “Direct physical loss” is not
defined in the Policy. However, courts have interpreted
“direct physical loss” to require tangible property and
have determined that electronic funds do not have a
physical existence and thus, are not susceptible to
physical loss or damage. See Florists’ Mut. Ins. Co. v.
Ludy Greenhouse Mfg. Corp., supra; Sentience Studio,
LLC v. Travelers Ins. Co., 102 F. App’x 77, 81 (9th Cir.
2004).

                           -14-
      In the present case, the funds in the imposter’s
bank account were not susceptible to physical loss
because the funds were intangible and incapable of being
physically possessed. Since the loss did not involve
damage to physical coins or currency, the Plaintiffs
cannot show that there was a “direct physical loss” to
“covered property.”

      The Court also believes that the facts fail to trigger
coverage under the terms of the Policy’s “Forgery or
Alteration” extension. The policy extension states:

             i. Forgery or Alteration

                    (1) We will pay for loss
                    resulting directly from
                    “forgery” or alteration of
                    checks, drafts, promissory
                    notes, or similar written
                    promises, orders or directions
                    to pay a sum certain in money
                    that are made or drawn by or
                    drawn upon you, or made or
                    drawn by one acting as an agent
                    or purported to have been so
                    made or drawn.

                    We will consider signatures
                    that are produced or reproduced
                    electronically, mechanically or
                    by facsimile the same as
                    handwritten signatures.

      ...

      G. PROPERTY DEFINITIONS

             ...

                            -15-
             12. “Forgery” means the signing of
             the name of another person or
             organization with the intent to
             deceive. “Forgery” does not mean a
             signature which consists in whole or
             in part of one’s own name signed with
             or without authority, in any capacity
             for any purpose.”

       Plaintiffs contend that the emails sent by the
imposter directing Plaintiffs to initiate the transfers of
electronic funds constituted “checks, drafts, promissory
notes, or similar written promises, orders, or directions to
pay.” However, courts have held that emails do not have
the same legal effect as checks, drafts, or promissory
notes, and that the promises, orders or directions to pay
must resemble a check, draft, or promissory note.
Midlothian Enterprises, Inc. v. Owners Insurance
Company, 439 F. Supp. 3d 737, 743 (E.D. Va. 2020);
Sanderina, LLC v. Great American Insurance Company,
218CV00772JADDJA, 2019 WL 4307854, at *3 (D.
Nev. Sept. 11, 2019). Thus, the Court does not believe
that the emails constituted “checks, drafts, promissory
notes, or similar written promises, orders, or directions to
pay.”

       Plaintiffs further maintain that the “Forgery or
Alteration” extension was triggered because the imposter
presented a blank check for an account belonging to TK
Management Inc. However, the Policy requires the
forgery or alteration of a check that was “drawn by or
drawn upon” the insured. Since the check was not drawn
on an account belonging to Michael A. Veneman CPA
PSC or E-Pay Inc., the loss does not involve the forgery
of a check, draft or other negotiable instrument drawn by
or drawn upon the Plaintiffs. Accordingly, the “Forgery
or Alteration” extension does not apply.

                            -16-
      Plaintiffs also argue that the emails sent by the
imposter trigger the Policy’s “Computer Fraud”
coverage. The coverage provides:

      b. Computer Fraud

      (1) When a Limit of Insurance is shown in the
      Declarations for Business Personal Property at the
      described premises, you may extend that insurance
      to apply to loss of or damage to Business Personal
      Property resulting directly from the use of any
      computer to fraudulently cause a transfer of that
      property from inside the building at the described
      premises or “banking premises”:

             (a) To a person outside those premises; or

             (b) To a place outside those premises.

The Defendant contends that although the imposter used
a computer to send emails to Plaintiffs directing the
transfers, the “Computer Fraud” coverage does not apply
because the transfers did not result directly from the use
of a computer. When considering this issue, courts have
examined the connection between the imposter’s use of a
computer and the transfer of the funds. In Pestmaster
Servs., Inc. v. Travelers Cas. & Sur. Co. of Am., 656 F.
App’x 332, 333 (9th Cir. 2016), the Court noted that the
mere fact that a transfer involves a computer and fraud at
some point in the transaction is not enough to trigger
coverage under a computer fraud policy. Specifically,
the Court observed that “[b]ecause computers are used in
almost every business transaction, reading this provision
to cover all transfers that involve both a computer and
fraud at some point in the transaction would convert this
Crime Policy into a ‘General Fraud’ Policy.” Similarly,
in Apache Corp. v. Great Am. Ins. Co., 662 F. App’x
252, 258 (5th Cir. 2016), the Court determined that
coverage under a computer fraud policy did not apply

                           -17-
merely because the imposter’s email was part of the
scheme. Rather, the email was merely incidental to the
transfer of funds.

       The present case does not involve a hacker gaining
access to the Plaintiffs’ computer system to fraudulently
cause a transfer of funds. Rather, the imposter used a
computer to send emails to Plaintiffs directing them to
process payroll, and then Plaintiffs sent the information
to third party clearinghouse, Cachet, who actually
transferred the funds from the imposter’s bank account
with Bank of America to the imposter’s fictitious
employees. Although the emails that Plaintiffs relied on
were fraudulent because they were from an imposter
posing as Timothy Spencer, the loss itself did not directly
result from the use of a computer. There was no direct
connection between the imposter’s use of a computer to
send emails to Plaintiffs and Cachet’s actual transfer of
the funds. Therefore, the “Computer Fraud” coverage
does not apply.

       Finally, even if the terms of the Policy were
otherwise met, the “Voluntary Parting” exclusion
precludes coverage. The Policy states: “we will not pay
for loss or damage caused by or resulting from . . .
voluntary parting with any property by you or anyone
else to whom you have entrusted the property.”
Voluntary parting exclusions have been upheld in the
former Kentucky Court of Appeals. In Ins. Co. of N. Am.
v. Lile, 321 S.W.2d 50, 51 (Ky. 1959), when an auto
dealer delivered temporary custody and possession of a
car to a man based on his false representation that he was
employed by another individual known to the auto dealer
and then took the car without paying and did not return,
the Court held that the loss was excluded from coverage
because the dealer voluntarily parted with the vehicle. In
explaining its decision, the Court stated:

      [T]he insurer plainly manifests therein an
      intention not to enter into a contract equal to

                           -18-
                   a ‘blanket bond guaranteeing the integrity of
                   all persons’ to whom the insured might
                   voluntarily entrust the possession of the
                   insured property, and that the loss incurred
                   by such delivery should be borne by the
                   insured who possesses superior
                   opportunities for ascertaining the moral
                   character and reputation of the one to whom
                   possession is so given than does the insurer
                   and that the consequences should fall’ on
                   him.

             Id. (citing Aetna Casualty & Surety Co. v. Salyers, 172
             S.W.2d 635 (Ky. 1943), and Kidwell v. Paul Revere Fire
             Ins. Co., 172 S.W.2d 639 (Ky. 1943)).

                    Here, after receiving email instructions from the
             imposter, the Plaintiffs directed Cachet to transfer funds
             from the imposter’s bank account to the accounts of the
             imposter’s fictitious employees. After the first few
             transfers did not go through successfully, the Plaintiffs
             continued to work with the imposter, prompting the
             imposter to provide new banking numbers. Although the
             Plaintiffs later learned that the emails came from an
             imposter in an effort to initiate fraudulent transfers, this
             does not change the voluntariness of the parting.
             Moreover, because the funds were not owned by
             Plaintiffs and the actual transfer of funds was done by
             Cachet and not Plaintiffs, the Court does not believe that
             the Plaintiffs actually possessed covered property under
             the Policy to part with. However, even if the Court
             determined that the Plaintiffs possessed covered property,
             the parting was done voluntarily. Thus, the “Voluntary
             Parting” exclusion precludes coverage.

             Accordingly, because there was no coverage under the policy, there

could be no breach of contract, and the appellants’ claims must fail as a matter of

                                        -19-
law. The circuit court did not commit any error in granting summary judgment in

favor of Travelers and denying the appellants’ cross-motion.

             For the foregoing reasons, the summary judgment in favor of

Travelers is affirmed.

             ALL CONCUR.

BRIEF FOR APPELLANTS:                    BRIEF FOR APPELLEE:

Richard A. Jarvis                        Stephen C. Keller
John C. Hayden                           Adrianna M. Long
Newport, Kentucky                        Louisville, Kentucky

                                       -20-