Court Opinion

ID: 6112816
Source: CourtListenerOpinion
Date Created: 2022-01-26 18:01:07.450312+00
Date Added: 2024-06-11T08:54:26.303764
License: Public Domain

FOR PUBLICATION

  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

ERNST AND HAAS MANAGEMENT                 No. 20-56212
COMPANY, INC.,
               Plaintiff-Appellant,          D.C. No.
                                          2:20-cv-04062-
                 v.                          AB-PVC

HISCOX, INC., Erroneously Sued As
Hiscox Insurance Company Inc.,              OPINION
                Defendant-Appellee,

                and

DOES, 1 through 10,
                        Defendants.

      Appeal from the United States District Court
         for the Central District of California
      Andre Birotte, Jr., District Judge, Presiding

        Argued and Submitted October 19, 2021
                 Pasadena, California

                 Filed January 26, 2022
2           ERNST & HAAS MGMT. CO. V. HISCOX

 Before: Ryan D. Nelson and Lawrence VanDyke, Circuit
      Judges, and Karen E. Schreier, * District Judge.

                  Opinion by Judge VanDyke

                          SUMMARY **

                         Insurance Law

    The panel reversed the district court's order dismissing
Ernst and Haas Management Company, Inc.’s diversity
insurance coverage action, and remanded for further
proceedings.

    Hiscox, Inc. sold Ernst a commercial crime insurance
policy in 2012. In 2019, an Ernst accounts payable clerk, in
response to a fraudulent email, wired payments to a
fraudulent actor she believed to be the founder and managing
broker of Ernst. In 2019, Ernst submitted a $200,000 claim
under the policy. Hiscox denied Ernst’s claim because
purportedly the funds transfer fraud portion of Ernst’s policy
did not cover the fraud here because an employee had taken
action to initiate the wire transfer.

   Two provisions of the parties’ 2012 insurance policy
were disputed: the “Computer Fraud” provision, and the
“Funds Transfer Fraud” provision.

    *
      The Honorable Karen E. Schreier, United States District Judge for
the District of South Dakota, sitting by designation.
    **
       This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
           ERNST & HAAS MGMT. CO. V. HISCOX                 3

    The panel held that the district court erred when it held
that neither disputed provision in the 2012 crime insurance
policy covered Ernst’s $200,000 loss.

    First, the district court incorrectly interpreted the 2012
Computer Fraud provision for two reasons: (1) the district
court wrongly relied on facts analyzed in Pestmaster Servs.,
Inc. v. Travelers Cas. & Sur. Co. of Am., 656 Fed. App’x 332
(9th Cir. 2016), which were dispositively different than the
facts here; and (2) improper reliance on Pestmaster’s
embezzlement-based analysis led to a flawed interpretation
of the computer fraud provision and how it applied to the
pleaded facts of this case. Here, Ernst immediately lost its
funds when the funds were transferred as directed by the
fraudulent email, and there was no intervening event. The
panel held that, taking the pleaded facts as true, Ernst
suffered a loss resulting “directly” from the fraud, arguably
entitling Ernst to coverage under the policy. The panel
remanded with instructions to reconsider the case with the
recognition that Ernst’s loss fell within the Computer Fraud
provision of the 2012 policy.

     The panel held that the Funds Transfer provision also
covered Ernst’s loss resulting directly from the fraudulent
email instruction. The district court erred when it reasoned
that Ernst’s alleged loss did not result directly from
fraudulent instructions. Here, the fraudulent email directed
the Ernst employee to transfer funds, provided wire details,
and provided fraudulent authorization. The Ernst employee
initiated a wire pursuant to the fraudulent authorization,
resulting in Ernst’s loss. The panel remanded with
instructions to reconsider the case with recognition that,
under the facts as alleged by Ernst, Ernst’s loss fell within
the Funds Transfer fraud provision in the 2012 policy.
4          ERNST & HAAS MGMT. CO. V. HISCOX

                         COUNSEL

Robert L. Bastian Jr. (argued), and Marina R. Dini, Law
Offices of Bastian & Dini, Beverly Hills, California, for
Plaintiff-Appellant.

Albert K. Alikin (argued), Joseph A. Oliva (argued), and
Kent V. Grover, Goldberg Segalla LLP, Los Angeles,
California, for Defendant-Appellee.

                          OPINION

VANDYKE, Circuit Judge:

    Ernst and Haas Management Company, Inc. (Ernst)
appeals the district court’s order dismissing this action
pursuant to Fed. R. Civ. P. 12(b)(6). On appeal, we must
decide whether the district court incorrectly interpreted the
“Computer Fraud” and “Funds Transfer Fraud” provisions
in a 2012 commercial crime insurance policy issued to Ernst
by Hiscox, Inc. The parties dispute whether these provisions
cover funds lost by an Ernst employee who was directed by
fraudulent email requests and payment invoices to transfer
the funds to a swindling third party. The district court,
relying on a distinguishable unpublished case, found that
neither provision covered Ernst because Ernst’s alleged loss
resulted from an employee initiating a wire, not from the
fraudulent email directing her to do so. But the insurance
policy itself is not so limited. We reverse the district court’s
decision because both disputed provisions could cover
Ernst’s alleged loss.
           ERNST & HAAS MGMT. CO. V. HISCOX                5

                     BACKGROUND

I. Ernst Loses $200,000 After Receiving Fraudulent
   Emails Directing an Employee to Transfer Funds.

   Ernst is a property management company located in
California. Hiscox is an insurance company, who sold Ernst
a Commercial Crime Insurance Policy in 2012. In 2019,
Ernst suffered a loss and submitted a claim under the policy.

   At the time, Krystale Allen was an Accounts Payable
Clerk for Ernst. On March 12, 2019, Allen received an email
purporting to be from her superior, David Hass, directing her
to make a payment. As the accounts payable clerk, Allen
regularly disbursed payments according to Ernst’s protocols.
But this email was different. Unbeknown to Allen, the email
was sent by a fraudulent actor (Fake David). And
unfortunately for Allen, she believed the email was authentic
and from the founder and managing broker of Ernst, David
Hass (Real David). The email included an invoice for
$50,000, which Allen was directed to pay to Zang
Investments, LLC (Zang) by wire transfer. Believing the
email instruction was from Real David, Allen processed the
payment by wire transfer to Zang.

    After the first transfer, Allen received two more email
instructions from Fake David, for payments of $150,000 and
$470,000. Allen completed the same steps for the $150,000
payment and wired the money to Zang. But before
authorizing the $470,000 payment, Allen’s suspicions were
raised, and she emailed Real David to confirm the
authenticity of the invoice. Upon receiving Allen’s email,
Real David informed her that he had not requested the prior
transfers. Allen attempted to stop the previous wire
payments from the bank, but because the $50,000 and
6             ERNST & HAAS MGMT. CO. V. HISCOX

$150,000 wire transfers had already been completed, Ernst
could not recover the funds.

II. Hiscox Denies Ernst’s $200,000 Claim for Computer
    Fraud and Funds Transfer Fraud.

    As mentioned above, Ernst had contracted with Hiscox
for a Crime Insurance Policy in 2012. The insurance policy
included coverage for computer fraud and funds transfer
fraud. After realizing it could not recover the funds it lost in
March 2019 from the bank, Ernst filed a claim under the
policy. Hiscox denied Ernst’s claim on June 10, 2019.
Hiscox stated that the funds transfer fraud portion of Ernst’s
policy did not cover the fraud here because an employee had
taken action to initiate the wire transfer. Ernst challenged
the denial, but Hiscox replied that Ernst should have
purchased more comprehensive coverage. At this point,
Ernst realized that Hiscox was relying on language from an
updated policy that (in Ernst’s view) reduced coverage (the
2019 policy). Ernst believes it was not given the notice
required by California law of any change, and thus as a
matter of California law the 2012 policy governs the dispute,
and that the 2012 policy covers its loss. 1

III.       The Disputed 2012 Crime Insurance Policy

    While the parties disagree whether the 2012 policy or the
updated 2019 policy governs the instant dispute, the district
court avoided addressing that disagreement by assuming
Ernst was correct that the 2012 policy applies, and
interpreting only that policy in its dismissal order. As noted

      Because the district court limited its review to the 2012 policy, this
       1

opinion does not consider the 2019 policy. If necessary, the district court
can address that policy in the first instance on remand.
            ERNST & HAAS MGMT. CO. V. HISCOX                         7

above, two provisions in the 2012 policy are disputed, the
“Computer Fraud” provision and the “Funds Transfer
Fraud” provision. 2 The provisions state:

                      Insuring Agreements

        Coverage is provided under the following
        Insuring Agreements for which a Limit of
        Insurance is shown in the Declarations and
        applies to loss that You sustain resulting
        directly from an Occurrence taking place at
        any time which is Discovered by You or an
        Executive Employee during the Policy Period
        shown in the Declarations or during the
        period of time provided in the Extended
        Period To Discover Loss Condition:

                               * * *

   Coverage D: Computer and Funds Transfer Fraud

        (1) Computer Fraud

             [The insurance company] will pay for
             loss of or damage to [currency, coins,
             bank notes, bullion, checks, money
             orders], [negotiable or nonnegotiable
             instruments or contracts representing
             either currency, [etc.], or property],
             and/or [any other tangible property]
             resulting directly from the use of any
             computer to fraudulently cause a transfer

     2
       Relevant portions of the policy quoted herein are reformatted to
include referenced definitions in brackets for improved readability.
8      ERNST & HAAS MGMT. CO. V. HISCOX

       of that property from inside the [interior
       of any building Ernst or a subsidiary
       occupies in conducting Ernst’s business]
       or [the interior of that portion of any
       building containing a financial institution
       or similar safe depository]:

           i) To a person (other than [Ernst, a
              Partner, a Member, or an
              Employee]) outside [the interior
              of any building Ernst or a
              subsidiary occupies in conducting
              Ernst’s business] or [the interior
              of that portion of any building
              containing a financial institution
              or similar safe depository]; or

           ii) To a place outside [the interior of
               any building Ernst or a subsidiary
               occupies in conducting Ernst’s
               business] or [the interior of that
               portion of any building containing
               a financial institution or similar
               safe depository].

    (2) Funds Transfer Fraud

           [The insurance company] will pay for
           loss of [currency, coins, bank notes,
           bullion, checks, money orders] and
           [negotiable       or     nonnegotiable
           instruments or contracts representing
           either currency, [etc.], or property]
           resulting directly from a [Fraudulent
           Instruction] directing a financial
           institution to transfer, pay or deliver
ERNST & HAAS MGMT. CO. V. HISCOX             9

   [currency, coins, bank notes, bullion,
   checks,     money        orders]   and
   [negotiable       or      nonnegotiable
   instruments or contracts representing
   either currency, [etc.], or property]
   from [an account maintained by Ernst
   at a financial institution from which
   Ernst can initiate the transfer,
   payment, or delivery of [currency,
   coins, bank notes, bullion, checks,
   money orders] or [negotiable or
   nonnegotiable        instruments     or
   contracts      representing      either
   currency, [etc.], or property]].

               * * *

  Fraudulent Instruction means:

   (i) an electronic, telegraphic, cable,
       teletype,     telefacsimile     or
       telephone instruction which
       purports to have been transmitted
       by You, but which was in fact
       fraudulently     transmitted   by
       someone else without Your
       knowledge or consent;

   (ii) a written instruction (other than
        those described in Coverage B)
        issued by You, which was forged
        or altered by someone other than
        You without Your knowledge or
        consent, or which purports to
        have been issued by You, but was
10         ERNST & HAAS MGMT. CO. V. HISCOX

                   in fact fraudulently issued without
                   Your knowledge or consent; or

              (iii) an electronic, telegraphic, cable,
                    teletype, telefacsimile, telephone
                    or written instruction initially
                    received by You which purports
                    to have been transmitted by an
                    Employee but which was in fact
                    fraudulently     transmitted    by
                    someone else without Your or the
                    Employee’s       knowledge      or
                    consent.

     Ernst contends that the above provisions entitle it to
coverage for its loss of $200,000, while Hiscox maintains
that the provisions do not entitle Ernst to any coverage for
its loss.

IV.    Procedural History

    On May 1, 2020, Ernst filed a lawsuit against Hiscox
asserting claims for breach of contract, breach of the implied
covenant of good faith and fair dealing, tortious breach of
the implied covenant of good faith and fair dealing, bad faith,
and unfair trade practices. Hiscox moved to dismiss the
Complaint on June 30, 2020. On November 5, the Court
granted Hiscox’s motion and dismissed the Complaint in its
entirety. Ernst appealed and on December 3, 2020, the court
entered a final judgment and dismissed the case, priming it
for appellate review.

     JURISDICTION AND STANDARD OF REVIEW

    This court has jurisdiction under 28 U.S.C. § 1291. “We
review de novo an order granting a motion to dismiss under
           ERNST & HAAS MGMT. CO. V. HISCOX                  11

Federal Rule of Civil Procedure 12(b)(6) for failure to state
a claim, accepting as true all well-pleaded allegations of
material fact and construing those facts in the light most
favorable to the non-moving party.” Judd v. Weinstein,
967 F.3d 952, 955 (9th Cir. 2020). “[D]ismissal is affirmed
only if it appears beyond doubt that [the] plaintiff can prove
no set of facts in support of its claims which would entitle it
to relief.” City of Almaty v. Khrapunov, 956 F.3d 1129, 1131
(9th Cir. 2020) (citation, internal alternations and quotation
marks omitted). “It is axiomatic that the motion to dismiss
. . . is viewed with disfavor and is rarely granted.”
McDougal v. Cnty. of Imperial, 942 F.2d 668, 676 n.7 (9th
Cir. 1991) (citation, internal alterations and quotation marks
omitted).

                       DISCUSSION

    We must decide whether the district court erred when it
held that neither disputed provision in the 2012 crime
insurance policy covered Ernst’s $200,000 loss. The district
court found that Ernst’s alleged loss did not result directly
from fraudulent emails instructing an Ernst employee to
transfer funds to a deceptive third party. And because the
court reasoned that both the computer fraud and funds
transfer fraud provisions required the loss to result directly
from the fraudulent emails, it found neither provision
applied to Ernst.

    The district court erred for three reasons. First, the court
analyzed this case as if it involved theft of funds authorized
for payment, like the unpublished Pestmaster decision on
which the court relied. See Pestmaster Servs., Inc. v.
Travelers Cas. & Sur. Co. of Am., 656 Fed. App’x. 332 (9th
Cir. 2016); see also Pestmaster Servs., Inc. v. Travelers Cas.
& Sur. Co. of Am., No. CV 13-5039-JFW, 2014 WL
3844627, at *1 (C.D. Cal. July 17, 2014). But for the reasons
12         ERNST & HAAS MGMT. CO. V. HISCOX

explained below, it doesn’t. Second, the district court
interpreted the computer fraud provision to mean a direct
loss is limited to unauthorized computer use, like hacking.
But that is an improperly narrow reading of the contractual
language. And third, the district court incorrectly limited
funds transfer fraud to exclude fraudulent instructions to an
Ernst employee. But the language of the policy is not so
limited. Because the district court erred in dismissing the
case, we reverse and remand.

I. The District Court Incorrectly Interpreted the 2012
   Computer Fraud Provision.

    The district court’s interpretation of the computer fraud
provision was wrong for two reasons: (1) the district court
wrongly relied on facts analyzed in Pestmaster, which are
dispositively different than the facts here, and (2) improper
reliance on Pestmaster’s embezzlement-based analysis led
to a flawed interpretation of the computer fraud provision
and how it applies to the pleaded facts in this case.

     A. The District Court Erred by Relying on the Facts
        in Pestmaster Instead of Applying the Hiscox
        Policy’s Terms to the Facts Pleaded in this Case.

    As a threshold matter, the district court erred by solely
relying on Pestmaster to interpret the Hiscox policy, because
the embezzlement addressed in that unpublished decision
was dispositively different than the third-party email fraud
committed in this case.

   In Pestmaster, a third-party contracted with Pestmaster
to provide payroll tax services. Pestmaster, 2014 WL
            ERNST & HAAS MGMT. CO. V. HISCOX                       13

3844627, at *1. 3 Every payroll period, the contractor was
authorized to transfer a specific amount of money from
Pestmaster’s accounts to pay taxes. Id. At some point,
though, the contractor began stealing some of the money it
was authorized to pay, essentially embezzling money with
which it had been entrusted. Id. at *2. Pestmaster filed a
lawsuit after Travelers denied coverage for the loss under a
crime insurance policy. Id. On appeal, our court held that
the computer fraud provision in Pestmaster’s policy did not
cover the stolen funds because the funds were transferred by
the contractor “pursuant to authorization from” the insured,
and then stolen. Pestmaster, 656 Fed. App’x at 333.

    The facts in this case are materially different. Ernst did
not authorize Zang to pay its bills and Zang did not steal
funds it was ever authorized to receive. Instead, Fake David
sent an email fraudulently authorizing an Ernst employee
(Allen) to pay Zang based on a fraudulent invoice. The
district court held that because Allen requested a wire
transfer to Zang, the transfer was “authorized” in the same
way as the payments in Pestmaster. But initiating a wire
transfer is not the same as authorizing a payment. Unlike in
Pestmaster, neither Zang nor Allen was ever properly
authorized to pay anyone the $200,000 that Ernst lost. To
the contrary, the entire purpose of Fake David’s email
invoice was to provide fraudulent authorization.

    If Ernst had authorized Allen to pay a third party
$200,000 and Allen then stole some of that money, then this
case might be analogous to Pestmaster. But no party alleged
those facts, nor does Ernst allege Allen acted dishonestly or

    3
      Because our court’s Pestmaster decision was unpublished, these
facts are drawn primarily from the district court order underlying our
court’s decision.
14           ERNST & HAAS MGMT. CO. V. HISCOX

somehow embezzled the money. 4 Given that this case is
about an email fraud scheme, the district court erred by
relying on Pestmaster to interpret the policy as if the case
were about embezzlement.

     B. The 2012 Policy’s Computer Fraud Provision
        Covers Ernst’s Loss Resulting Directly from Fake
        David’s Email Instruction.

    Because Pestmaster is non-binding and the court’s
reasoning distinguishable, we must decide whether the
district court’s reliance on that case flawed its interpretation
of the disputed policy provisions. It did.

    The computer fraud provision states Hiscox will cover
loss “resulting directly from the use of any computer to
fraudulently cause a transfer of that property from” Ernst to
a person or location outside of Ernst. The district court erred
by limiting its interpretation of a loss “result[ing] directly
from use of a computer to fraudulently cause transfer” to
only a loss resulting directly from unauthorized use of
Ernst’s computers or hacking.           The district court’s
interpretation that Ernst’s alleged loss did not result
“immediately” and “directly” from computer fraud because
Ernst, through Allen, “authorized its bank to initiate the wire

     4
       Similarly, Vons Co., Inc. v. Fed. Ins. Co., 212 F.3d 489 (9th Cir.
2000), does not apply here because the policy in that case required any
loss be caused by employee dishonesty (i.e., an embezzlement policy),
rather than resulting from the use of a computer for fraud. Vons
illustrates that where a company is seeking insurance coverage under an
embezzlement policy, such claims should be strictly construed. We
won’t broadly construe employee misconduct as embezzlement in order
to force coverage for a broad range of employee torts under a narrow
embezzlement policy. Because this case does not involve an
embezzlement policy, Vons is not particularly relevant.
           ERNST & HAAS MGMT. CO. V. HISCOX                15

transfers from its account, albeit through an unwitting
employee,” eliminates the possibility of coverage whenever
an employee is defrauded into taking an action. By relying
on Pestmaster to reach this conclusion, the district court
endorsed a faulty circular premise—that Allen “authorized”
a transfer of $200,000, curing any prior fraud, when she
initiated a transfer of $200,000 based on fraud. That
reasoning—that this fraud became “authorized” precisely
when it succeeded—cannot be the correct reading of the
contract.

    On this point, we find the Sixth Circuit’s American
Tooling decision persuasive and much more on-point than
any of the Ninth Circuit cases cited by Hiscox. In Am.
Tooling Center, Inc., v. Travelers Cas. & Sur. Co. of Am., a
company named “ATC received a series of emails,
purportedly from its Chinese vendor, claiming that the
vendor had changed its bank accounts and ATC should wire
transfer its payments to these new accounts.” 895 F.3d 455,
457 (6th Cir. 2018). ATC then went through a multi-step
authorization process on three different occasions,
ultimately transferring more than $800,000 in funds. Id. at
458. Upon learning that the emails from the vendor were
actually fraudulent emails from an imposter, ATC sought
coverage for the loss under a Traveler’s insurance policy. Id.
The computer fraud provision of ATC’s policy stated:

       The Company will pay the Insured for the
       Insured’s direct loss of, or direct loss from
       damage to, Money, Securities and Other
       Property directly caused by Computer Fraud.

Id. at 459. ATC and Travelers disagreed about whether the
wire transfers to the imposter were considered a “direct loss”
of ATC’s money under the provision. Id. The court found
16          ERNST & HAAS MGMT. CO. V. HISCOX

that ATC “immediately lost its money when it transferred
the approximately $834,000 to the impersonator; there was
no intervening event.” Id. at 460. Therefore, ATC had
suffered a direct loss.

    Here, the computer fraud provision provides that Ernst’s
loss must “result directly” from the fraud. In other words,
like ATC, Ernst must suffer a direct loss. And like ATC,
Ernst immediately lost its funds when those funds were
transferred to Zang as directed by the fraudulent email.
There was no intervening event—Allen acting pursuant to
the fraudulent instruction “directly” caused the loss of the
funds. Thus, taking the pleaded facts as true, Ernst suffered
a loss resulting “directly” from the fraud, arguably entitling
Ernst to coverage under the policy. 5 So here, as in American
Tooling, we cannot conclude that Ernst’s alleged immediate
loss of funds based on the fraudulent email was not “direct.”
Id. at 461. Accordingly, we reverse the district court and
remand with instructions to reconsider the case with the
recognition that, under the facts as alleged by Ernst, Ernst’s
loss falls within the computer fraud provision of the 2012
policy.

     5
      The alleged loss here was arguably more direct than the loss in
American Tooling because the requested payments in that case were
identical to amounts ATC owed an innocent third party and ATC had
authorized payment in those amounts. Here, Ernst had not contracted
with another party for the exact amounts requested in the emails and
Allen acted solely and directly as a result of the fraudulent payment
authorization.
           ERNST & HAAS MGMT. CO. V. HISCOX                  17

II. The Funds Transfer Fraud Clause Also Covers
    Ernst’s Loss Resulting Directly from Fake David’s
    Email Instruction.

    Even if Ernst’s injury was not covered under the
computer fraud provision of the 2012 policy, it is likely
covered under the same policy’s funds transfer fraud
provision. The district court erred when it reasoned that
Ernst’s alleged loss did not result directly from fraudulent
instructions because Fake David’s “communications did not
direct [Ernst’s] bank to transfer the $200,000 [Ernst] now
seeks to recover,” but instead directed Allen to direct Ernst’s
bank to transfer the money.               The district court’s
interpretation overlooks the express language of the policy,
which states that funds transfer fraud includes not only
fraudulent instructions sent directly to a bank, but also
fraudulent instructions initially received by an employee.
Either type of fraudulent instruction that results in
“directing” a financial institution to transfer funds is covered
by the policy.

    Funds transfer fraud covers “loss of Money and
Securities resulting from a Fraudulent Instruction directing a
financial institution to transfer, pay or deliver Money and
Securities from Your Transfer Account.” Importantly, the
definition of fraudulent instruction includes three different
definitions. The third definition states that a fraudulent
instruction includes “an electronic . . . instruction initially
received by You which purports to have been transmitted by
an Employee but which was in fact fraudulently transmitted
by someone else without Your or the Employee’s knowledge
or consent.”

    This language is nearly identical to the fraudulent
instruction definition considered by the Eleventh Circuit in
Principle Solutions Group, LLC v. Ironshore Indemnity,
18           ERNST & HAAS MGMT. CO. V. HISCOX

944 F.3d 886 (11th Cir. 2019). 6 Relying on Principle
Solutions, Ernst argues that the fraudulent email here was a
“fraudulent instruction” that “directed a financial
institution” to transfer funds and should be covered by the
policy because “[e]very action [Allen] took to facilitate the
transfer of funds was the direct result of having been duped
by the fraudster’s email.” Hiscox disagrees and argues that
because the fraudulent emails here were sent to the insured
rather than directly to a financial institution without Ernst’s
knowledge, Ernst is not covered under the policy.

    We find Principle Solutions persuasive. In Principle
Solutions, the Eleventh Circuit resolved a similar
disagreement and held that an email directing an employee
recipient to initiate a wire transfer through a bank satisfied
the requirement that a fraudulent instruction “direct a
financial institution” to transfer funds. 944 F.3d at 890. The
email directed Principle’s financial controller to transfer
money from Principle’s account, provided payment details,
and provided fraudulent authorization to transfer the funds.
Id. at 890–91. The court reasoned that such an email, which
instructed a Principle employee to initiate a wire, could not
be construed as doing anything but “directing a financial
institution” to transfer funds. Id.

    Here, Fake David directed Allen to transfer funds to
Zang, provided wire details, and provided fraudulent
authorization. Allen initiated a wire pursuant to the
fraudulent authorization, resulting in Ernst’s loss. The sole
     6
      In Principle Solutions, the court reviewed the following definition
of fraudulent instruction: “[an] electronic or written instruction initially
received by [insured], which instruction purports to have been issued by
an employee, but which in fact was fraudulently issued by someone else
without [insured’s] or the employee’s knowledge or consent.” 944 F.3d
at 890.
            ERNST & HAAS MGMT. CO. V. HISCOX                      19

purpose of Fake David’s email was to instruct Allen to
initiate a wire. As in Principle Solutions, we would be “hard
pressed to construe the email as doing anything but directing
a financial institution to debit [Ernst’s] transfer account and
transfer . . . money . . . from that account.” 944 F.3d at 890.
Otherwise, the relevant portion of the 2012 policy’s
fraudulent instruction definition—which anticipates an
instruction sent to the insured before the bank—is
superfluous. On this point too, we reverse the district court
and remand with instructions to reconsider the case with the
recognition that, under the facts as alleged by Ernst, Ernst’s
loss falls within the funds transfer fraud provision of the
2012 policy.

                        CONCLUSION

    The judgment of the district court granting Hiscox’s
motion to dismiss and dismissing Ernst’s complaint with
prejudice is REVERSED AND REMANDED for further
proceedings consistent with this opinion.7

    7
      Because appellee argues changes to the 2019 policy preclude
coverage, on remand the district court should consider in the first
instance whether Ernst received adequate notice of the 2019 policy
changes under California law, and if not, the consequence of the
inadequate notice. This panel does not reach and takes no position on
those questions.