The Law

Legal Spotlight

A look at the latest decisions impacting the industry.
By: | September 12, 2017 • 5 min read

Fraudulent Money Transfer Covered Under Policy

In the summer of 2014, Medidata Solutions Inc., was looking at a possible acquisition. The company notified its finance department “to be prepared to assist with significant transactions on an urgent basis.”

In September, finance received an email supposedly sent by Medidata’s president, containing his name, email address and picture.

Unfortunately, a hacker was behind the message.

The hacker — spoofing the company president’s email — told finance he was close to finalizing the acquisition, and an attorney would contact them regarding the next steps. Under the alias of attorney Michael Meyer, the hacker called the finance department and swindled the company out of $4.8 million. When Meyer asked for a second wire transfer, finance realized what had happened.

Medidata filed a claim on its $5 million crime policy with Federal Executive Protection, which covered losses occurring as a result of “fraudulent entry” or changing of data in the policyholder’s computer system.

On December 24, 2014, Federal denied the claim, arguing that there was no hack or “fraudulent entry” into Medidata’s computer system — the wire transfer was performed by Medidata employees, not by the hacker.

Both parties filed cross-motions for summary judgment.

The court held that even though the hacker had not performed the wire transfer directly, the “fraudulent entry” language applied, because the hacker used embedded computer code to trick Medidata’s servers into replacing the displayed email address and profile photo to that of the company president. The judge noted that Medidata’s employees “only initiated the transfer as a direct cause of” the hacker sending the modified emails posing as Medidata’s president.

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“Larceny by trick is still larceny,” said the court.

The district court granted Medidata’s motion for summary judgment.

Scorecard: Federal will have to cover Medidata’s $4.5 million loss.

Takeaway: This ruling is a sharp departure from court decisions in similar cases, but the court would likely have still ruled for the insurer if there had been no digital manipulation.

Lack of Information Leads to Insurer Victory

The U.S. Department of Justice and the office of the inspector general for the Department of Housing and Urban Development found First Horizon National Corporation and First Tennessee Bank National Association noncompliant with FHA-insured loan requirements.

The DOJ initially demanded a $610 million settlement in April 2014 after investigators notified the bank it was in violation of the False Claims Act.

The bank held coverage through eight insurance companies and sent a notice of circumstances to each insurer, explaining that the bank was cooperating with the DOJ. The notice concluded that the bank “established no liability for [the eventual outcome] and is not able to estimate a range of reasonably possible loss.” Not once did the bank reference the settlement demand in the notice.

By June 2015, the bank and the DOJ agreed on a settlement of $212.5 million. The bank expected to obtain the collective $75 million limits from its policies. All insurers denied coverage and the bank filed bad faith claims against them.

In June 2017, the court determined that because the bank failed to include the settlement demand in its initial notice, the insurers were not required to pay the $75 million in collective limits. It dismissed the bad faith claims and told the bank that its notice was “not reflective of the state of affairs at the time.”

Scorecard: Eight insurers did not have to pay their combined policy limits due to the omission of key information in the initial notice of circumstances.

Takeaway: An omission of vital information from an insured can lead to a positive court outcome for insurers.

‘Excess by Coincidence’ Policy Not True Excess Policy

In 2015, a property manager took an elderly man on a tour of the Dolce Living apartment complex in Houston via golf cart. The driver took a sudden left turn, throwing the man from the cart. He hit his head and died of his injuries days later. His widow sought $1 million in damages against the complex and the property manager.

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Dolce held a $1 million primary commercial GL policy through Lloyd’s of London and a $10 million excess policy through Colony Specialty Insurance Co. Pace Realty Corp., the manager of the complex, held a $1 million primary policy with North American Capacity Insurance Co.

The settlement exhausted Lloyd’s primary policy and left North American to pay the remainder. North American paid but then sued Colony, arguing the complex’s excess policy should have covered the remainder or, at the very least, split the bill with North American.

Because of wording in its policy that stated “… this insurance is excess over any other valid and collectible insurance available to you,” North American said its policy should be looked at as excess insurance only to be utilized after both the Lloyd’s and the Colony policies had been exhausted.

The Colony policy, argued North American, stated that its “excess condition … will not apply to insurance specifically written as excess over the coverage part.” North American said this clause should apply to its own policy, and Colony should be on equal legal footing as North American and split the costs between them.

The court had a different idea, calling Colony’s policy the “true excess” policy and North American the “excess by coincidence” policy. “NAC’s primary coverage limit of $1 million must be exhausted before Colony’s excess coverage is triggered.

“The NAC policy is a primary policy that is ‘excess by coincidence.’ The Colony umbrella policy is a true excess policy,” the judge wrote.

Scorecard: Colony Specialty Insurance Co., acting as an excess policy holder, does not have to pay on the Dolce Settlement.

Takeaway: If an excess policy is in place, all primary limits covering the same risk must be exhausted first, even if those policies are written to be excess in certain circumstances.

Autumn Heisler is a staff writer at Risk & Insurance. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

R&I Profile

Achieving Balance

XL Catlin’s Denise Balan stays calm and focused when faced with crisis.
By: | January 10, 2018 • 6 min read

In the high-stress scenario of kidnap or ransom, the first image that comes to mind isn’t necessarily a yoga mat — at least, not for most.

But Denise Balan, senior VP and head of U.S. kidnap & ransom, XL Catlin, who practices yoga every day, would swear by it.

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“I looked at these opposing aspects of my life,” she said. “Yoga is about focus, balance, clarity of intent. In a moment of stress, how do you respond? The more clarity and calmness you maintain, the better positioned you are to provide assistance in moments of crisis.

“Nobody wants to be speaking to a frenetic person when either dealing with a dangerous situation or planning for prevention of a situation,” she added.

“There’s a poem by [Rudyard] Kipling on that,” added Balan’s colleague Ben Tucker. “What it boils down to is: If you can remain calm, you can manage through a crisis a lot better.”

Tucker, who works side by side with Balan as head of U.S. terrorism and political violence, XL Catlin, has seen how yoga influences his colleague.

“The way Denise interacts with stakeholders in this process — she is very professional and calm in the approach she takes.”

Yin and Yang

Sometimes seemingly opposite or contrary forces may actually be complementary and interconnected. In Balan’s life, yoga and K&R have become her yin and yang.

She entered the insurance world after earning a juris doctor degree and practicing law for a few years. The switch came, she said, when Balan realized she wasn’t enjoying her time as a commercial litigator.

Denise Balan, senior VP and head of U.S. kidnap & ransom, XL Catlin

In her new role, she was able to use her legal background to manage litigation at AIG, where her transition from law to insurance took place. She started her insurance career in the environmental sector.

In a chance meeting in 2007, Balan met with crisis management underwriters who told her about kidnap and ransom products.

She was hooked.

Because of her background in yoga, Balan liked the crisis management side of the job. Being able to bring the calmness and clearness of intent she practiced during yoga into assisting clients in planning for crisis management piqued her interest.

She then joined XL Catlin in July 2013, where she built the K&R team.

As she became more immersed in her field, Balan began to notice something: The principles she learned in yoga were the same principles ex-military and ex-law enforcement practiced when called to a K&R-related crisis.

She said, “They have a warrior mentality — focus, purpose, strength and logic — and I would say yoga is quite similar in discipline.”

“K&R responders have a warrior mentality — focus, purpose, strength and logic — and I would say yoga is quite similar in discipline.” — Denise Balan, senior VP and head of U.S. kidnap & ransom, XL Catlin

Many understand yoga to be, in itself, one type of meditation, but yoga actually encompasses a group of physical, mental and spiritual practices. Each is a discipline. Some forms of yoga focus on movement and breathing, others focus on posture and technique. Some yoga is meant to relax the mind and create a sense of calmness; other yoga types make participants sweat.

After having her second child and working full-time, Balan wanted to find something physical and relaxing for herself; a friend suggested yoga. During her first lesson, Balan said she was enamored with it.

“I felt like I’d done it all my life.”

She dove into the philosophy of yoga, adopting the practice into her daily routine. Every morning, whether Balan is in her Long Island home or on a business trip, she pulls out her yoga mat to practice.

“I always travel with my mat,” she said. “Daily practice is the simplest form of connection to routine to maintain my balance — physically and mentally.”

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She said the strangest place she has ever practiced was in Lisbon. She was on a very narrow balcony with a bird feeder swarming with sparrows overhead.

After years of studying and practicing, Balan is considered a yogi — someone who is highly proficient in yoga. She attends annual retreats with her yoga group, where she is able to rejuvenate, ready to tackle any K&R event when she returns.

In 2016, Balan visited Tuscany, Italy, where she learned the practice of yoga nidra, a very deep form of meditation. It’s described as the “going-to-sleep stage” — a type of yoga that brings participants to a state of consciousness between waking and sleeping.

“It awakens a different part of your brain,” Balan commented. “Orally describing it doesn’t quite do it justice. One has to practice Nidra to fully understand the effect it has on your being.”

Keeping a level head during a crisis is key in their line of business, Tucker said. He can attest to the benefit of having a yogi on board.

“I’ve seen her run table-top exercises where there is this group of people in a room and they run an exercise, a simulation of a kidnap incident. Denise is very committed to what we’re doing,” said Tucker.

“She brings that energy. She doesn’t get flustered by much.”

Building a K&R Program

When Balan joined XL Catlin, she was tasked with creating the K&R team.

Balan during a retreat in Sicily, Italy, 2017

She spent time researching and analyzing what clients would want in their K&R coverage. What stuck out most to Balan was the fact that, in these situations, the decision to purchase kidnap and ransom cover is rarely made because of desire for reimbursement of money.

“I asked why people buy this type of coverage. The answer was for the security responders,” she said.

“These are the people who sit with the family. They’re similar to psychologists or priests,” Balan further explained. “Corporations can afford to pay ransom. They buy [K&R] because it gives them access to these trained and dedicated professionals who not only provide negotiation advice, but actually sit with a victim’s family, engaging deep levels of emotional investment.”

“I’ve learned to appreciate all moments in life — one at a time. The ability to think clearly and calmly guides my work, my practice and my personal life.” — Denise Balan, senior VP and head of U.S. kidnap & ransom, XL Catlin

Balan described these responders as people having total clarity of purpose, setting their intentions to resolve a crisis — a practice at the very heart of yoga. She knew XL Catlin’s new kidnap program would put stock in their responders.

“I’ve worked closely with the responders to better understand what they can do for our clientele. These are the people who run into danger — warrior hearts married to dedication to our clients’ best interests.”

But K&R is more than fast-paced crisis and quick thinking; Balan also spent a good deal of time writing the K&R form and getting the company’s resources in order. This was a huge task to tackle when creating the program from the ground up.

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“A lot of my day-to-day is speaking with brokers and finding ways to enhance our product,” she said.

After a few months, she was able to hire the company’s first K&R underwriter. From there, the program has grown. It’s left her feeling professionally rewarded.

“People don’t often get that opportunity to build something up from scratch,” she said. “It’s been an amazing experience — rewarding and fun.”

“She brings groups of people together,” said Tucker. “She’s created a positive environment.”

Balan’s yogi nature extends beyond the office walls, too. Her pride and joy, she said, are her kids. And while it may seem like two large parts of her life are opposite in nature, Balan’s achieved balance through her passions.

“[Yoga] has given me the ability to see beyond only one aspect of any situation” she said. “I’ve learned to appreciate all moments in life — one at a time. The ability to think clearly and calmly guides my work, my practice and my personal life.” &

Autumn Heisler is a staff writer at Risk & Insurance. She can be reached at [email protected]