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Pestmaster Servs., Inc. v. Travelers Cas. & Sur. Co. of Am.

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
Jul 29, 2016
656 F. App'x 332 (9th Cir. 2016)

Summary

finding that, where a payroll contractor was authorized to transfer funds from the insured to the contractor to pay the insured's invoices, but the contractor instead used the transferred funds to pay for her own expenses, the computer fraud provision did not provide coverage because "there was no loss when funds were initially transferred to [the contractor] because the transfers were authorized by [the insured]" and "the claimed losses did not 'flow immediately' and 'directly' from [the contractor's] use of a computer"

Summary of this case from Incomm Holdings, Inc. v. Great Am. Ins. Co.

Opinion

No. 14-56294

07-29-2016

PESTMASTER SERVICES, INC., a California Corporation, Plaintiff - Appellant, v. TRAVELERS CASUALTY AND SURETY COMPANY OF AMERICA, a Connecticut Corporation, Defendant - Appellee.


NOT FOR PUBLICATION

D.C. No. 2:13-cv-05039-JFW-MRW MEMORANDUM Appeal from the United States District Court for the Central District of California
John F. Walter, District Judge, Presiding Argued and Submitted July 8, 2016 Pasadena, California Before: VANASKIE, MURGUIA, and WATFORD, Circuit Judges.

This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3.

The Honorable Thomas I. Vanaskie, United States Circuit Judge for the U.S. Court of Appeals for the Third Circuit, sitting by designation. --------

The district court granted summary judgment to Travelers Casualty and Surety Company on the ground that Pestmaster's losses were not covered under its Crime Policy. Pestmaster appeals this decision, alleging coverage under two provisions.

First, Pestmaster argues that the transfer of funds from its bank account to Priority 1's bank account is covered by the Funds Transfer Fraud provision. The district court found that this provision "does not cover authorized or valid electronic transactions . . . even though they are, or may be, associated with a fraudulent scheme." We agree that there is no coverage under this clause when the transfers were expressly authorized.

Second, Pestmaster seeks coverage under the Computer Fraud provision. The Policy defines Computer Fraud as "[t]he use of any computer to fraudulently cause a transfer . . . ." We interpret the phrase "fraudulently cause a transfer" to require an unauthorized transfer of funds. When Priority 1 transferred funds pursuant to authorization from Pestmaster, the transfer was not fraudulently caused. Because 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. While Travelers could have drafted this language more narrowly, we believe protection against all fraud is not what was intended by this provision, and not what Pestmaster could reasonably have expected this provision to cover.

We accordingly affirm the district court's decision that no coverage was afforded under the Computer Fraud provision for any transfers to Priority 1 that were authorized by Pestmaster. However, we remand to the district court to determine whether the Computer Fraud provision or the Funds Transfer Fraud provision covers the allegedly unauthorized transfers on May 23 and 27, 2011, totaling $11,991.89. Each party to bear their own costs.

AFFIRMED IN PART, VACATED IN PART, and REMANDED.


Summaries of

Pestmaster Servs., Inc. v. Travelers Cas. & Sur. Co. of Am.

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
Jul 29, 2016
656 F. App'x 332 (9th Cir. 2016)

finding that, where a payroll contractor was authorized to transfer funds from the insured to the contractor to pay the insured's invoices, but the contractor instead used the transferred funds to pay for her own expenses, the computer fraud provision did not provide coverage because "there was no loss when funds were initially transferred to [the contractor] because the transfers were authorized by [the insured]" and "the claimed losses did not 'flow immediately' and 'directly' from [the contractor's] use of a computer"

Summary of this case from Incomm Holdings, Inc. v. Great Am. Ins. Co.

In Pestmaster Services, Inc. v. Travelers Casualty & Surety Co. of America, 656 F. App'x 332, 333 (9th Cir. 2016), our sister circuit "interpret[ed] the phrase ‘fraudulently cause a transfer’ to require an unauthorized transfer of funds."

Summary of this case from Am. Tooling Ctr., Inc. v. Travelers Cas. & Sur. Co. of Am.
Case details for

Pestmaster Servs., Inc. v. Travelers Cas. & Sur. Co. of Am.

Case Details

Full title:PESTMASTER SERVICES, INC., a California Corporation, Plaintiff …

Court:UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

Date published: Jul 29, 2016

Citations

656 F. App'x 332 (9th Cir. 2016)

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