UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
AMERIFORGE GROUP, INC., a Texas
corporation d/b/a AFGLOBAL
CORPORATION
Plaintiff
versus
FEDERAL INSURANCE COMPANY, an
Indiana corporation admitted to conduct
insurance business in Texas, including
CHUBB & SON, A DIVISION OF FEDERAL
INSURANCE COMPANY
Defendant

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CIVIL ACTION 4:16-CV-00377

PLAINTIFF’S FIRST AMENDED COMPLAINT
TO THE HONORABLE ALFRED H. BENNETT:
COMES NOW, Ameriforge Group Inc., a Texas corporation, d/b/a AFGlobal Corporation
(“AFGlobal”), Plaintiff in the above-styled cause, hereby complaining of Federal Insurance
Company, an Indiana corporation admitted to conduct insurance business in Texas, including
Chubb & Son, a division of Federal Insurance Company (“Federal” “Defendant” or if specifically
concerning its Division Chubb & Son, hereafter referred to as “Defendant Federal including its
Division Chubb & Son”), Defendant, and for this cause of action would show the Court as follows:
I.
1.

PARTIES

Plaintiff, Ameriforge Group Inc., a Texas for profit corporation, d/b/a AFGlobal

Corporation is a Texas corporation with its principal place of business in Houston, Harris County,
Texas.

 2.

Defendant Federal Insurance Company, including Chubb & Son, a Division of

Federal Insurance Company, is an Indiana for profit corporation admitted to conduct insurance
business in Texas, and doing business in the State of Texas, with its principal place of business at
251 North Illinois, Suite 1100, Indianapolis, Indiana 46204. Said Defendant has been served and
has answered herein.
II.
3.

JURISDICTION AND VENUE

This Court has personal jurisdiction over Defendant because Defendant has

continuous and systematic business contacts within the State of Texas. Defendant removed the
case to this Court from the 190th Judicial District Court of Harris County, Texas on February 12,
2016.
4.

This Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1332(a)(1)

because the Plaintiff and the Defendant are citizens of different states and the amount in
controversy exceeds $75,000, excluding interest and costs.
5.

Venue is proper in this district under 28 U.S.C. § 1391(a)(2) because a substantial

part of the events or omissions giving rise to this claim occurred in this district.
III.
6.

FACTS APPLICABLE TO ALL CAUSES OF ACTION

On or about November 13, 2013, AFGlobal purchased from Defendant a certain

insurance policy. A true and correct copy of this Policy is attached as Exhibit A to this First
Amended Complaint (“Complaint”). The policy period in question provided coverage for losses
by AFGlobal from October 31, 2013 to October 31, 2014.
7.

The policy limit is $3,000,000.00, subject to a $100,000.00 deductible. AFGlobal

suffered a loss of $480,000.00 as a result of a fraudulent transfer of funds as described below.

2

 8.

The fraudulent emails made on Wednesday, May 21, 2014, and continuing to

Tuesday May 27, 2014, included instructions received from a person believed to be Mr. Gean
Stalcup, the CEO of AFGlobal Corporation, requesting AFGlobal to initiate a wire transfer to
Agriculture Bank of China. The person sending the instructions was not Mr. Gean Stalcup and is
referred to hereafter as the "Imposter." The employee was Glen Wurm, Director of Accounting of
AFGlobal Corporation. The Imposter's email read:
"Glen,
I have assigned you to manage file T521.
This is a strictly confidential financial operation, to which takes priority over other
tasks.
Have you already been contacted by Steven Shapiro (attorney KPMG)?
This is very sensitive, so communicate with me through this email, in order for us
not to infringe SEC regulations.
Please do not speak with anyone by email or phone regarding this.
Regards,
Gean Stalcup."
9.

Approximately 30 minutes later, Mr. Wurm was contacted via phone and via email

by a Mr. Shapiro stating that due diligence fees associated with the China acquisition in the amount
of USD 480,000.00 were needed. Mr. Shapiro followed up via email with wiring instructions.
10.

Mr. Wurm engaged AFGlobal’s Cash Manager and AFGlobal’s Treasurer with

transferring the funds under the full belief he was being instructed to do so by the CEO of the
company and that confidentiality was very important. After the funds transfer was made, Mr.
Wurm did not receive any further correspondence from the Imposter until Tuesday May 27, 2014,
when the Imposter acknowledged receipt of the funds and asked Mr. Wurm to send an additional

3

 USD 18 million. It was at this time Mr. Wurm told the Imposter that he could not wire the funds
without at a minimum informing his immediate supervisor and the company Treasurer. Mr. Wurm
then immediately alerted his immediate supervisor and the officers of the company of his
suspicion: Chief Accounting Officer (Tom Edgeller), Treasurer (Perry Ewing), General Counsel
(Tom Giles), and Chief Financial Officer (Brian Fontana).
11.

The Imposter seemed to know the normal procedures of the company and also that

Gean Stalcup had a long-standing, very personal and familiar relationship with Mr. Wurm -sufficient enough that Mr. Wurm would not question a request from the CEO. Once Mr.Edgeller
and the other officers of the company realized that they had been a victim of fraud, they reacted
quickly to try and retrieve the funds. The Treasurer and the Cash Manager reacted rapidly and
attempted to recall the wire from Bank of America. Moreover, they instructed Bank of America to
alert all the banks involved (i.e. beneficiary banks) and their security departments of the fraud.
Finally, they filed a police report with the Houston Police Department.
12.

The funds were transferred on Wednesday May 21, 2014. As regards discovery of

the fraud, Mr. Gean Stalcup was informed of the fraud on Tuesday May 27, 2014. The Treasurer,
Mr. Perry Ewing received an email from Bank of America which confirmed that the funds were
transferred on Wednesday May 21, 2014. Moreover, they were informed that the beneficiary
account had been zeroed out and closed.
13.

Defendant was first made aware of the situation on Tuesday May 27, 2014 via the

brokerage firm Aon Risk Services.
14.

On or about June 2, 2014, AFGlobal filed a formal proof of loss with the insurance

carrier. A copy of the proof of loss signed under oath by Perry Ewing, Corporate Treasurer, is
attached hereto as Exhibit B.

4

 15.

On July 7, 2014, comprising 35 days after the proof of loss was filed, Defendant

denied AFGlobal’s claim in writing. A copy of this denial is attached hereto as Exhibit C; and, on
October 9, 2014, Defendant further communicated to AFGlobal that the claim was being denied.
A copy of the October 9, 2014 denial is attached hereto as Exhibit D. Finally, on October 30, 2015,
a demand letter was sent by the undersigned law firm to Defendant, enclosing in the letter a report
by an insurance underwriting expert to give Defendant notice that the failure to pay the claim and
deny coverage under the particular facts and reasoning indicated in the letter amounted to bad
faith. The letter also gave notice that if payment was not made as set out in the letter, suit would
be filed under such claim. No response was received within 60 days, and the lawsuit was filed on
January 4, 2016. Thereafter, on January 15, 2016, Defendant, through counsel, and following
service of the suit on Defendant, responded to AFGlobal’s October 30, 2015 letter.
IV.
16.

CONDITIONS PRECEDENT

All conditions precedent to maintaining this cause of action have been performed

or have otherwise occurred.
V.
17.

VICARIOUS LIABILITY

Wherever in this Complaint it is alleged that Defendant did any act or thing, it is

meant that the Defendant’s officers, agents, servants, employees or representatives did such act or
thing that at the time such act or thing was done, it was done with the full authorization or
ratification of the Defendant or was done in the normal and routine course and scope of
employment of the Defendant’s officers, agents, servants, employees, or representatives.
Accordingly, Defendant is liable to Plaintiff under the doctrines of respondeat superior, vicarious
liability, and principal-agent, and including, all as described above, the actions of Defendant’s
division, Chubb & Son.

5

 VI.

CAUSES OF ACTION

A. BAD FAITH GENERALLY
18.

Having determined that the aforementioned insurance was, at the time of the

occurrence described above, in force and effect, Plaintiff timely and properly noticed Defendant
of the occurrence and/or loss. Plaintiff fully complied with all the conditions of the insurance
policy prior to bringing this suit. Nevertheless, Defendant has failed and refused, and still fails and
refuses to Plaintiff, the benefits due under the policy, as Defendant is contractually required to do.
Said acts or practices are in violation of Chapter 541 of the Texas Insurance Code, including Tex.
Ins. Code §541, Subchapter B.
1. COMMON LAW BREACH OF DUTY OF GOOD FAITH AND FAIR DEALING
23.

The allegations of paragraphs 6 through 15 are incorporated herein, as if set out

verbatim.
24.

Plaintiff would show that there was an insurance contract between the Plaintiff-

(Insured) and Defendant-(Insurer), which created a duty on the part of the insurer to deal fairly and
in good faith with an insured in the processing of claims.
25.

Defendant breached its duty when Defendant knew, or should have known, that

coverage of the claim, and thus, liability for payment of the claim, was reasonably clear. No
reasonable basis exists for denying payment of the claim because the claim was in fact covered by
the policy. It is clear from a review of the policy that coverage arises under Subparts (E) –
“Computer Fraud Coverage” and/or (F) – “Funds Transfer Fraud Coverage.”
26.

Furthermore, Defendant’s breach proximately caused the Plaintiff’s damages.

6

 2. UNFAIR SETTLEMENT PRACTICES UNDER TEXAS INSURANCE CODE CHAPTER 541
27.

The allegations of paragraphs 6 through 15 are incorporated herein, as if set out

verbatim.
28.

Defendant’s refusal to pay or deny coverage on Plaintiff’s claim is in bad faith, both

under the Texas common law and under the Texas Insurance Code. Defendant is liable to Plaintiff
for unfair settlement practices because Defendant:
a. failed to attempt in good faith to effectuate a prompt, fair and equitable
settlement of a claim with respect to which Defendant’s liability has become
reasonably clear; and
b. refused to pay a claim without conducting a reasonable investigation with
respect to the claim to settle the claim when coverage is reasonably clear.
29.

In a lawsuit filed under the aforementioned subchapters of the Texas Insurance

Code, in particular §541 et seq., Plaintiff may obtain:
i.

Actual damages, plus court costs and reasonable and necessary attorney’s fees;

ii.

On a finding by the trier of fact that Defendant knowingly committed the act(s)
complained of, an amount not to exceed three (3) times the actual damages; and

iii.

Any other relief which the Court deems proper.

30.

Defendant’s conduct was a producing cause of Plaintiff’s damages.

B. BREACH OF CONTRACT
31.

The allegations of paragraphs 6 through 15 are incorporated herein, as if set out

verbatim. Plaintiff would show that it entered into a binding agreement with Defendant for
insurance, and that there existed a meeting of the minds as to the premiums to be paid by Plaintiff,
and all actions to be taken by Plaintiff upon suffering a covered loss, and the duties and obligations

7

 of Defendant toward AF Global. Defendant breached the contract by failing to pay on a covered
claim.
32.

Defendant’s breach has proximately caused Plaintiff's damages, to include the

policy amount, interest on the policy amount as allowed under the terms of the contract, reasonable
and necessary attorneys' fees in prosecuting this claim to seek the policy amount, and court costs.
C. FAILURE TO TIMELY NOTIFY CLAIMANT OF REJECTION UNDER TEXAS INSURANCE
CODE CHAPTER 542
33.

The allegations of paragraphs 6 through 15 are incorporated herein, as if set out

verbatim.
34.

Defendant’s failure to timely notify Plaintiff of the rejection of its claim was in

violation of Texas Insurance Code § 542.056, requiring notice not later than 15 business days after
receipt of the forms required by the insurer to secure final proof of loss.
35.

In a lawsuit filed under the aforementioned subchapters of the Texas Insurance

Code, in particular §542 et seq., Plaintiff may obtain:
iv.

Actual damages, plus reasonable attorney’s fees to be taxed as part of the costs in
the case;

v.

Interest on the amount of the claim at the rate of 18 percent a year as damages; and

vi.

Any other relief which the Court deems proper.

36.

Defendant’s conduct was a producing cause of Plaintiff’s damages.
VII.

37.

ATTORNEYS FEES

Plaintiff has been required to engage the services of the undersigned attorney to

represent it in this case. Accordingly, this suit is maintained against the Defendant for reasonable
attorneys’ fees for the services expended and to be expended in the presentation of Plaintiff’s

8

 claims though the trial court and at all levels in the appellate process. All conditions precedent
necessary for the recovery of attorneys’ fees by Plaintiff have been fulfilled.
VIII.
38.

PUNITIVE DAMAGES

The actions of the Defendant were undertaken willfully and maliciously. Defendant

intentionally committed these wrongful acts and its actions were motivated by malice.
Accordingly, Plaintiff is entitled to recover punitive damages.
IX.
39.

JURY DEMAND

Plaintiff respectfully demands its right to have a trial by jury and has tendered the

appropriate jury fee to the District Clerk of Harris County, Texas prior to removal by Defendant.
X.

PRAYER

WHEREFORE, PREMISES CONSIDERED, Plaintiff, Ameriforge Group Inc., a Texas
corporation, d/b/a AFGlobal Corporation respectfully requests that Defendant, Federal Insurance
Company, an Indiana corporation admitted to conduct insurance business in Texas, including
Chubb & Son, a division of Federal Insurance Company, be cited to appear and answer, and that
on final trial on the merits, Plaintiff have and recover from Defendant the following:
a.
b.
c.
d.
e.
f.
g.
h.

Actual damages in an amount in excess of the minimum jurisdictional limits of
this Court;
Pre-judgment at the highest legal rate;
Reasonable and necessary attorneys' fees including fees in responding to an
unsuccessful appeal by Defendant;
Taxable Court costs;
Interest on the amount of the claim at the rate of eighteen percent per year as
damages;
Statutory damages in the amount of three (3) times the actual damages;
Post-judgment interest on the above amounts, at the highest rate as allowed by
law; and,
Such other and further relief, general or special, at law or in equity, to which the
Court finds Plaintiff justly entitled.

9

 Respectfully submitted,
CERSONSKY, ROSEN & GARCÍA, P.C.
By: /s/ Jacquelyn D. McAnelly
Jacquelyn D. McAnelly, TBN 24078954
jmcanelly@law-crg.com
ATTORNEY-IN-CHARGE
Rachel R. Rosen, TBN 17264400
r3rosen@law-crg.com
Jim L. Garcia, TBN 07636700
jgarcia@law-crg.com
1770 St. James Place, Ste. 150
Houston, Texas 77056
Tele: (713) 600-8500
Fax: (713) 600-8585
ATTORNEYS FOR PLAINTIFF,
AMERIFORGE GROUP INC., A TEXAS
CORPORATION, D/B/A AFGLOBAL CORPORATION

CERTIFICATE OF SERVICE
I hereby certify that on March 10, 2016, I electronically filed the foregoing with the Clerk
of the Court by using the CM/ECF system which was served the document on all CM/ECF
participants:
John R. Riddle
Toni Scott Reed
Carla C. Crapster
Strasburger & Price LLP
901 Main Street, Suite 4400
Dallas, Texas 775202
Attorneys for Federal Insurance Company

/s/ Jacquelyn D. McAnelly
Jacquelyn D. McAnelly

10

     

GHUBB

Chubb Group of Insurance Companies
15 Mountain View Road
Warren! NJ 07059

FereFrerrt Po?'feiie 30W

Crime Coverage Part

 

CRIME DECLARATIONS FEDERAL INSURANCE COMPANY
A stock insurance company, incorporated under the laws of
Indiana, herein called the Company
Capital Center, 251 North Illinois, Suite 1100
Indianapolis, IN 46204?1927
Item 1. Parent Organization: AF GLOBAL CORPORATION

Item 2.

Item 3.

Limits of Liability and Retentions:

Insuring Clauses Applicable to this
Coverage Part:

(A) Employee Theft Coverage:

(B) Premises Coverage:

(C) In Transit Coverage:

(D) Forgery Coverage:

(E) Computer Fraud Coverage:

(F) Funds Transfer Fraud Coverage:

(G) Money Order and Counterfeit
Currency Fraud Coverage:

(H) Credit Card Fraud Coverage:

(I) Client Coverage
(J) Expense Coverage:

Coverage applies as follows: Loss Discovered

10f1

Limits of Liability: Retentions:
$3,000,000.00 $100,000.00
$3,000,000.00 $100,000.00
$3,000,000.00 $100,000.00
$3,000,000.00 $100,000.00
$3,000,000.00 $100,000.00
$3,000,000.00 $100,000.00
$3,000,000.00 $5,000.00
$3,000,000.00 $5,000.00

$100,000.00 $5,000.00
$100,000.00 None
EX I I A

Chubb Group of Insurance Companies 3 @997
15 Mountain View Road 

. Warren, 07059 Crime Coverage Part
GHUBB

    

 

in consideration of payment of the premium and subject to the Declarations, General Terms and Conditions, and

the limitations, conditions, provisions and other terms of this Coverage Part, the Company and the insureds
agree as follows:

 

I. CLAUSES
Insuring Clause (A): Employee Theft Coverage

(A) The Company shall pay the Parent Organization for direct loss of Money, Securities or PrOperty

sustained by an insured resulting from Theft or Forgery committed by an Employee acting alone or in
collusion with others.

insuring Clause (B): Premises Coverage

(B) The Company shall pay the Parent Organization for direct loss sustained by an Insured resulting from:
(1) Robbery, Safe Burglary, or unlawful taking of Money or Securities committed by a Third Party;
or
(2) actual destruction or disappearance of Money or Securities,

within or from the Premises or Banking Premises.
Coverage under this insuring Clause (8) shall also include:

(3) loss of or damage to Property which results from Robbery or attempted Robbery within the
Premises;

(4) loss of or damage to such Property contained within any locked vault or safe which results from
Safe Burglary or attempted Safe Burglary within the Premises;

(5) damage to a locked safe, cash drawer, cash box or cash register within the Premises by

felonious entry or attempted felonious entry or loss by felonious abstraction of such container
from within the Premises; and

(6) damage to the Premises or to its exterior resulting from Safe Burglary or Robbery,
committed by a Third Party.
insuring Clause (C): In Transit Coverage
(C) The Company shail pay the Parent Organization for direct loss sustained by an insured resulting from:
(1) Robbery or unlawful taking of Money or Securities committed by a Third Party; or
(2) actual destruction or disappearance of Money or Securities;
while In Transit or while temporarily within the home of an Employee or a partner of an Organization.
Coverage under this Insuring Clause (C) shall also include:
(3) damage to Property which results from Robbery while in Transit; and

(4) loss by the unlawful taking of Property temporarily within the home of an Employee or a partner
of an Organization;

committed by a Third Party.
insuring Clause (D): Forgery Coverage

(D) The Company shall pay the Parent Organization for direct ioss sustained by an insured resulting from
Forgery or alteration of a Financial Instrument committed by a Third Party.

Chubb Group of insurance Companies 3 
?15 Mountain View Road 

-. Warren, NJ 07059 Crime Coverage Part
GHUBB

    

 

Insuring Clause (E): Computer Fraud Coverage

(E) The Company shall pay the Parent Organization for direct toss of Money, Securities or Property
sustained by an insured resulting from Computer Fraud committed by a Third Party.

Insuring Clause (F): Funds Transfer Fraud Coverage

(F) The Company shall pay the Parent Organization for direct loss of Money or Securities sustained by an
Insured resulting from Funds Transfer Fraud committed by a Third Party.

Insuring Clause (G): Money Orders and Counterfeit Currency Fraud Coverage

(G) The Company shalt pay the Parent Organization for direct loss sustained by an insured resulting from
Money Orders and Counterfeit Currency Fraud committed by a Third Party.

insuring Clause (H): Credit Card Fraud Coverage

(H) The Company shall pay the Parent Organization for direct loss sustained by an insured resulting from
Credit Card Fraud committed by a Third Party.

Insuring Clause (I): Client Coverage

The Company shalt pay the Parent Organization for direct loss of Money, Securities or Property

sustained by a Client resuiting from Theft or Forgery committed by an Employee not in collusion with
such Client?s employees.

insuring Clause (J): Expense Coverage
(J) The Company shall pay the Parent Organization for:

(1) Investigative Expenses resulting from any direct loss covered under insuring Clauses (A),
Employee Theft Coverage; (B), Premises Coverage; (C), In Transit Coverage; (D), Forgery
Coverage; (E), Computer Fraud Coverage; (F), Funds Transfer Fraud Coverage; (G), Money
Orders and Counterfeit Currency Fraud Coverage; (H), Credit Card Fraud Coverage or (1), Client
Coverage; or

(2) Computer Violation Expenses resuiting from any direct loss covered under Insuring Clauses
(A), Employee Theft Coverage, (E), Computer Fraud Coverage or Client Coverage;

incurred by any Organization in the amount set forth in Item 2 of the Crime Declarations, solely if such
covered direct loss is in excess of the Retention applicable to such covered loss. Such amount shall be
part of and not in addition to the Limit of Liability applicable to such covered loss.

 

ii. DEFINITIONS
For purposes of this Coverage Part:

Banking Premises means the interior portion of a building occupied by, or the night depository chute or safe
maintained by, any bank, trust company or similar ?nancial institution.

Client means a customer of an Organization to whom an Organization provides goods or services under written
contract or for a fee.

Computer Fraud means the uniawful taking of Money, Securities or Property resulting from a Computer
Violation.

Computer System means a computer or network of computers, including its input, output, processing, storage
and communication facilities, and shall inciude off?line media libraries.

Chubb Group of insurance Companies Po?foiio 3 99M
15 Mountain View Road 

Warren, 07059 Crime Coverage Part
GHUBE

 

 

Computer Violation means an unauthorized:

(A) entry into or deletion of Data from a Computer System;

(B) change to Data elements or program logic of a Computer System, which is kept in machine readabie
format; or

(C) introduction of instructions, programmatic or otherwise, which propagate themselves through a Computer
System,

directed solely against an Organization.

Computer Violation Expenses means reasonable expenses, other than an Organization?s internal corporate
costs (such as Salary), incurred by an Organization with the Company?s prior written consent to reproduce or
duplicate damaged or destroyed electronic Data or computer programs. If such computer programs cannot be
duplicated from other computer programs, then Computer Violation Expenses shall also include reasonable
costs incurred for computer time, computer programmers, technical experts or consultants to restore the
computer programs to substantially the same level of operational capability immediately preceding the covered
direct loss. Computer Violation Expenses shall not include expenses incurred by any Client.

Contractual Independent Contractor means any natural person 'ndependent contractor while in the regular
service of an Organization in the ordinary course of such Organization's business, pursuant to a written contract
between such Organization, and either (A) such natural person independent contractor, or (B) any other entity
acting on behalf of such natural person independent contractor, for services.

Credit Card Fraud means the Forgery or alteration of, on or in, any written instrument required in connection
with any credit card issued to an Organization or at the request of an Organization, to any partner, of?cer or
Employee of an Organization.

Data means information contained in records, manuscripts, accounts, micro?lms, tapes or other records, which
are processed and stored in a Computer System.

Discovery or Discovered means knowledge acquired by an Executive or Insurance Representative of an

Insured which would cause a reasonable person to believe a covered toss has occurred or an occurrence has
arisen that may subsequently result in a covered loss. This includes loss:

(A) sustained prior to the inception date of any coverage under this Coverage Part;
(B) which does not exceed the Retention set forth in item 2 of the Crime Declarations; or
(C) the exact amount or details of which are unknown,

provided that Discovery or Discovered shall not include knowledge acquired by an Executive or Insurance
Representative of an insured acting alone or in collusion with an Employee, or the knowledge possessed by
any Executive or Insurance Representative who is a participant in the Theft or Forgery.

Employee means any:

(A) natural person in the regular service of an Organization in the ordinary course of such Organization's
business, whom such Organization governs and directs in the performance of such service, including a
part?time, seasonal, leased and temporary employee, intern or volunteer;

(B) Executive white performing acts within the scope of the usual duties of an Employee;

(C) Contractual independent Contractor;

(D) natural person ?duciary, trustee, administrator or Employee, as de?ned in Subsections (A) and (B) of this
de?nition, of an ERISA Plan and any other natural person, who any of which handle ERISA Plan assets
and are required to be bonded by an Organization in connection with such ERISA Plan by Title 1 of the
Employee Retirement income Security Act of 1974, as amended, and as amended by the Pension
Protection Act of 2006;

(E) former or retired Employee, as de?ned in Subsections (A) and (B) of this de?nition, of the Organization,
retained as a consultant (as evidenced by a written contract for services) to the Organization; or

Chubb Group of insurance Companies 3 
15 Mountain View Road 

Warren, NJ 07059 Crime Coverage Part
CHUBB

 

 

(F) Employee, as de?ned in Subsections (A) and (B) of this de?nition, of the Organization, while on leave
for military services.

Plan means any Employee Bene?t Plan, Pension Bene?t Plan or Welfare Bene?t Plan, de?ned and
required to be bonded under Title 1 of the Employee Retirement income Security Act of 1974, as amended, and
as amended by the Pension Protection Act of 2006, which is operated solely by an Organization or jointly by an
Organization and a labor organization for the bene?t of Employees and which existed on or before the inception
of this Policy or which is created or acquired after the inception of this Policy, provided that Plan shall not
include any multi?employer plan.

Executive means any natural person speci?ed below

(A) a duly elected or appointed director, of?cer, trustee, in?house general counsel or duty constituted
committee member of any Organization incorporated in the United States of America;

(B) a duly elected or appointed: (1) manager or member of the Board of Managers or equivalent position; (2)
duly constituted committee member; (3) in~h0use general counsel; or (4) trustee, of any Organization
formed as a limited liability company in the United States of America; or

(C) a holder of an equivalent position to those described in Subsections (A) or (B) above in any Organization
incorporated, formed or organized anywhere in the world.

Financial instrument means checks, drafts or similar written promises, orders or directions to pay a sum certain
in money, that are made, drawn by or drawn upon an Organization or by anyone acting as an Organization?s
agent, or that are purported to have been so made or drawn.

Forgery means the signing of another natural person?s name with the intent to deceive, but does not mean a
signature that includes, in whole or in part, one?s own name, with or without authority, in any capacity for any
purpose. Mechanically or electronically produced or reproduced signatures shall be treated the same as hand?
written signatures.

Funds Transfer Fraud means frauduient written, electronic, telegraphic, cable, teietype or telephone instructions
(other than Forgery), purportedly issued by an Organization, and issued to a ?nancial institution directing such
institution to transfer, pay or deliver Money or Securities from any account maintained by such Organization at
such institution, without such Organization's knowledge or consent.

Insurance Representative means an Employee, as de?ned in Subsections (A) and (B) of the de?nition of
Employee, including a risk manager, designated to represent an Insured for the purpose of effecting and
maintaining insurance.

Insured means any Organization and any Sponsored Plan.

in Transit means being conveyed outside the Premises, from one person or place to another, by the
Organization within the custody of:

(A) an Employee or a partner of an Organization; or
(B) a person duly authorized by such Organization to have custody of Money, Securities or Property,

provided that such conveyance begins immediately upon receipt of Money, Securities or Property by the
person(s) described in Subsections (A) or (B) above, from such Organization, and ceases immediately upon
delivery to the designated recipient or its agent.

Investigative Expenses means reasonable expenses, dher than an Organization?s internal corporate costs
(such as Salary), incurred by an Organization with the Company?s prior written consent to establish the

existence and amount of a covered loss. investigative Expenses shall not include expenses incurred by any
Client.

Money means currency, coin, bank notes and bullion.

Chubb Group of insurance Companies ?g?g?a 3 
15 Mountain View Road 

GHUBB

 

 

Money Orders and Counterfeit Currency Fraud means the good faith acceptance by an Organization:

(A) in exchange for merchandise, Money or services, of any post office or express money order, issued or
purporting to have been issued by any post of?ce or express company, if such money order is not paid
upon presentation; or

(B) in the regular course of business, of counterfeit paper currency.

Plan means any employee bene?t plan not subject to Title 1 of the Employee Retirement Income
Security Act of 1974, as amended, and as amended by the Pension Protection Act of 2006, which is operated
solely by an Organization or jointly by an Organization and a iabor organization for the bene?t of Employees
and which existed on or before the inception of this Policy or which is created or acquired after the inception of
this Policy, provided that Plan shall not include any multi-employer plan.

Premises means the interior portion of a building occupied by an Organization in conducting its business.
Property means tangible property other than Money or Securities.

Robbery means the unlawful taking of Money, Securities or Property from the custody of an Empioyee or other
person (except a person acting as a watchman, porter or janitor) duly authorized by an Organization to have
custody of such Money, Securities or Property, by violence or threat of violence, committed in the presence and
cognizance of such Employee or other person.

Safe Burglary means the unlawful taking of Money, Securities or Property by forcible or violent entry evidenced
by visible marks, from a locked vault or safe located within the Premises.

Salary means compensation an Organization pays an Employee, including bonus, commission, incentive
payments, and the cost of health, welfare and pension bene?ts.

Securities means any negotiable and non~negotiable instruments representing either Money or Property,
including revenue and other stamps in current use, casino chips, tokens and tickets, provided that Securities
shall not include Money.

Sponsored Plan means any ERISA Plan and Plan.

Theft means the unlawful taking of Money, Securities or Property to the deprivation of:

(A) an insured, solely for the purposes of insuring Clause (A), Employee Theft Coverage; or
(B) a Client, solely for the purposes of Insuring Clause Client Coverage.

Third Party means a natural person other than:

(A) an Employee; or

 

(B) a natural person acting in collusion with an Employee.
EXCLUSIONS
(A) No coverage will be available for:
(1) Trading

loss resulting directly or indirectly from any authorized or unauthorized trading of Money,
Securities or Property, whether or not in the name of an insured and whether or not in a
genuine or fictitious account, provided that this Exclusion shall not apply to direct losses
caused by Theft or Forgery which result in impmper ?nancial gain to an Employee (direct losses
as used herein shall mean only the amount of improper ?nancial gain to such Employee, which
shall not include Salary, commissions, fees'or other compensation, including promotions and
raises associated with employment, paid by the Insured to such Employee);

 

CHUBB

Chubb Group of Insurance Companies . 
15 Mountain View Road ForeFront Portfolio 

Warren, NJ 07059 Crime Coverage Part

 

(8)

(9)

Trade Secrets/Confidential lnformation

loss of trade secrets, con?dential processing methods or other con?dential information of any
kind;

Partner

loss due to Theft or Forgery committed by a partner of an Organization, whether acting alone or
in collusion with others, provided that if such Theft or Forgery would otherwise be covered under
Insuring Clause (A), Employee Theft Coverage, or Client Coverage, this Exclusion shalt
not apply to the extent coverage under this Coverage Part is excess of the amount of such
partner?s percentage ownership of such Organization, on the day immediately preceding the
date of Discovery, multiplied by such Organization?s total assets as reflected in such
Organization?s most recent audited ?nancial statements;

War

loss or damage due to declared or undeclared war, civil war, insurrection, rebellion, revolution,
military, naval or usurped power, governmental intervention, expropriation or nationalization, or
any act or condition incident to any of the foregoing;

Nuclear
loss or damage due to nuclear reaction, nuclear radiation or radioactive contamination, or any act
or condition incident to any of the foregoing;

Potential Income
loss of income not realized as the result of a covered loss;

Indirect/Consequential
indirect or consequential loss of any kind, provided that this Exclusion shall not apply to:

otherwise covered Investigative Expenses and Computer Violation Expenses under
Insuring Clause (J), Expense Coverage; or

the cost of reproducing information contained in any lost or damaged manuscripts,
records, accounts, micro?lms, tapes, or other records resulting directly from a covered
loss, provided that the Company?s maximum liability for the cost of reproducing
information contained in any lost or damaged manuscripts, records, accounts, micro?lms,
tapes, or other records resulting directly from a covered loss sustained shall be $25,000,
which amount shall be part of, and not in addition to, the applicable Limit of Liability set
forth in item 2 of the Crime Declarations.

Data Fees, Costs or Expenses
fees, costs or expenses incurred or paid:

as a result of the reconstitution of Data if an Organization knowingly used illegal copies
of programs;

to render the Data usable by replacement processing equipment;

to design, update or improve software or programs or to perfect their operation or

performance; or

as a result of an alteration in Data held on magnetic media due to the effect of magnetic
?elds, their incorrect use or the obsolescence of the computer or its facilities;

be 
loss due to ?re, provided that this Exclusion shall not apply to:

loss of Money or Securities; or

damage to any safe or vault caused by the application of ?re thereto for the purposes of
Safe Burglary;

Page 6 of ?l4

 

GHUBB

Chubb Group of insurance Companies 3 
. 15 Mountain View Road 

Warren, NJ 07059 Crime Coverage Part

 

(10)

(11)

(12)

(13)

(14)

Legal Fees, Costs or Expenses
fees, costs or expenses incurred or paid in defending or prosecuting any legal proceeding or

claim, provided that this Exclusion shall not apply to the coverage provided under Section
V, Legal Expenses Extension;

Voluntary Exchange or Purchase

loss due to an insured knowingly having given or surrendered Money, Securities or Property in
any exchange or purchase with a Third Party, not in coitusion with an Employee, provided that
this Exclusion shall not apply to otherwise covered loss under Insuring Clauses (A),
Employee Theft Coverage, Money Orders and Counterfeit Currency Fraud Coverage, or (I),
Client Coverage, or otherwise covered loss of Property under insuring Clause (E), Computer
Fraud Coverage;

Advantage
toss sustained by one insured to the advantage of any other insured;

Custodial

loss of or damage to Money, Securities or Property white in the custody of any bank, trust
company, similar recognized place of safe deposit, armored motor vehicie company or any
person who is duly authorized by an Organization to have custody of such Money, Securities or
Property, provided that this Exclusion shall not apply to the extent that coverage under
this Coverage Part is excess of the amount recovered or received by such Organization under:

such Organization?s contract, if any, with, or insurance carried by, any of the foregoing;
or

any other insurance or indemnity in force which would cover the loss in whote or in part;
or

Authorized Representative

loss or damage due to Theft, Forgery, Computer Fraud, Funds Transfer Fraud, Money
Orders And Counterfeit Currency Fraud, Credit Card Fraud or other fraudulent, dishonest or
criminai act (other than Robbery or Safe Burglary) committed by any authorized representative
of an Insured, whether acting alone or in coliusion with others, provided that this Exclusion
shall not apply to otherwise covered loss under Insuring Clauses (A), Employee Theft
Coverage, or Client Coverage, resulting from Theft or Forgery committed by an Employee
acting in collusion with such authorized representative.

(8) in addition to the Exclusions in Subsection (A) above, no coverage will be available under:

(1)

insuring Clauses (A), Employee Theft Coverage, or Client Coverage, for:

Broker/independent Contractor
loss caused by any broker, factor, commission merchant, consignee, contractor,
independent contractor (other than a Contractual Independent Contractor), or other
agent or representative of the same general character;

Prior Dishonesy

loss caused by an Employee which is sustained by an insured:

after an Executive or insurance Representative becomes aware of a:
(1) Theft;
(2) Forgery; or
(3) other fraudulent, dishonest or criminal act,

which is vaiued at one thousand doiiars ($1,000) or more, committed by such
Employee while employed with or in the service of an Insured;

Page 7? of 14

    

Gmua?

Chubb Group of Insurance Companies 3 
15 Mountain View Road 
it Warren, NJ 07059

Crime Coverage Part

 

(3)

(4)

(ii) after an Executive or Insurance Representative becomes aware of a Theft,
Forgery or other fraudulent, dishonest or criminal act, involving:

(1) Money;
(2) Securities; or
(3) other property,

which is valued at twenty??ve thousand dollars ($25,000) or more, committed by
such Employee prior to employment or service with an insured; or

more than ninety (90) days foliowing the termination of such Employee;

insuring Clause (B), Premises Coverage, or (C), in Transit Coverage, for:





Other insuring Clauses
loss or damage due to Forgery, Computer Fraud, Funds Transfer Fraud, Money
Orders and Counterfeit Currency Fraud or Credit Card Fraud; or

Mail/Carrier for Hire
loss of or damage to Money, Securities or Property while in the mail or in the custody of
a carrier for hire other than an armored motor vehicle company;

Ensuring Clauses (B), Premises Coverage, (C), in Transit Coverage, (E), Computer Fraud
Coverage, or (F), Funds Transfer Fraud Coverage, for: 



Kidnap, Ransom or Extortion

loss or damage as a result of a kidnap, ransom or other extortion payment (as distinct
from Robbery) surrendered to any person as a result of a threat to do bodily harm to any
person or a threat to do damage to the Premises or other property;

insuring Clause (D), Forgery Coverage, for:



Forgegr or Alteration
loss due to Forgery or alteration of:

any Financial Instrument committed by any Third Party in collusion with any
Employee; or

(ii) any registered or coupon obligations issued or purported to have been issued by
the insured, or any coupons whether attached or detached; or

Insuring Clause (H), Credit Card Fraud Coverage, for:



Forgery or Alteration (Credit Card)

loss caused by any forgery or alteration of, on or in any written instrument, provided that
this Exclusion shalt not apply if:

the provisions, conditions and other terms under which the involved credit card
was issued were fully complied with; and

(ii) the Organization is legally liable to the issuer of such credit card for such loss.

(C) Loss Sustained Option

In addition to the Exclusions in Subsections (A) and (B) above and t' the Loss Sustained option is
purchased, as set forth in item 3 of the Crime Declarations, no coverage will be available for:

(1)

toss unless sustained by any insured prior to the termination of this Coverage Part as to such
insured and Discovered and written notice thereof is given to the Company within sixty (60)
days following such termination;

Page 8 of 14

  

Chubb Group of Insurance Companies 3 as?
15 Mountain View Road 

Warren, NJ 07059 Crime Coverage Part
GHUBB

 

(2) loss uniess sustained prior to the termination of any insuring Ciause or any particular coverage
offered under any insuring Clause and Discovered and written notice thereof is given to the
Company within sixty (60) days following such termination; or

(3) loss unless sustained prior to the termination of this Coverage Part in its entirety, and
Discovered and written notice thereof is given to the Company:

within sixty (60) days following such termination, if this Coverage Part is not renewed with
the Company;

prior to such termination, if this Coverage Part is renewed with the Company; or

within one (1) year toliowing such termination, if the termination results from the voluntary
liquidation or voluntary dissolution of the Parent Organization.

Loss Discovered Option
In addition to the Exclusions in Subsections (A) and (i3) above and if the Loss Discovered option is
purchased, as set forth in item 3 of the Crime Declarations, no coverage will be available for:

(1) ioss unless sustained by any insured, and Discovered prior to the termination of this Coverage
Part as to such insured;

(2) loss unless sustained, and Discovered prior to the termination of any insuring Clause or any
particular coverage offered under any insuring Clause;

(3) loss unless sustained, and Discovered prior to the termination of this Coverage Part in its
entirety;

(4) loss uniess sustained prior to the termination of this Coverage Part and Discovered within one

(1) year following such termination it the termination results from the voluntary liquidation or
voluntary dissolution of the Parent Organization; or

(5) any loss that an Insured is aware of prior to the inception date of this Policy,

provided that in no event wiil coverage be available under this Coverage Part for such ioss if such loss is
covered under any renewal or replacement of this Coverage Part or any Insuring Clause or any particuiar
coverage offered under any Insuring Ciause.

 

IV. ERISA PLAN EXTENSION

(A)

Soiely with respect to toss sustained by an ERISA Plan, payment by the Company for covered loss shall
be to the Plan sustaining such loss. if such payment is in excess of the amount of coverage
required by the Employee Retirement Income Security Act of 1974, as amended, for such Plan(s),
such excess shall be held for the use and bene?t of any other named ERISA Pian(s) should such ERISA
Pian(s) aiso discover ioss recoverabie hereunder.

With respect to each Plan:

(1) if covered loss is sustained by any ERISA Plan which does not have any employer securities, the
Limit of Liability applicable to such covered loss shall be the greater of:

$1,000; or

ten percent of the Plan?s funds handled as of the beginning of such ERISA
Plan?s ?scal year,

up to $500,000; or

chubb Group of Insurance Companies g?ii? 3 GSM
15 Mountain View Road .

Warren, 07059 Crime Coverage Part
CHUEB

 

 

(2) if covered loss is sustained by any Plan which does have any employer securities, the
Limit of Liability applicable to such covered loss shall be the greater of;

$1,000; or

ten percent of the Plan?s funds handled as of the beginning of such 
Plan?s fiscal year,

up to $1,000,000,

provided that, in all events, it the applicable Limit of Liability set forth in item of the Crime
Declarations:

is less than or equal to the amounts set forth in Paragraphs or above, then the
applicable Limit of Liability shall be amended to the respective amounts set forth in Paragraphs
or(B)(2) above; or

(ii) is greater than the amounts set forth in Paragraphs or above, then the applicable
Limit of Liability for each Plan shall be the amounts set forth in Paragraphs or 
above, with the remaining limit in the amount by which the applicable Limit of Liability set forth in
item of the Crime Declarations exceeds the amounts in Paragraphs or above to
be allocated equally between all Plans sustaining the loss.

(C) Solely with respect to loss sustained by an ERISA Plan:
(1) Insuring Clause (A), Employee Theft Coverage, is replaced with the following:

The Company shall pay an ERISA Plan for direct loss of Money, Securities or Property
sustained by such ERISA Plan resulting from a fraudulent or dishonest act, including larceny,
theft, embezzlement, forgery, misappropriation, wrongful abstraction, wrongful conversion and
willful misapplication, committed by an Employee acting alone or in collusion with others.

(2) The words "sixty (60) days" are deleted from the exclusions applicable to this Coverage Part,
wherever they appear, and the words ?one (1) year? are substituted in place thereof.

(D) No Retention shall apply to loss sustained by an ERISA Plan covered under this Coverage Part.

 

V. LEGAL EXPENSES EXTENSION

in addition to the Limits of Liability set forth in the Crime Declarations, the Company shall pay the Parent
Organization:

(A) as a result of loss covered under Insuring Clause (D), Forgery Coverage, reasonable court costs and
attorneys? fees incurred and paid, with the Company?s prior written consent, in defending an
Organization or an Organization?s bank in any legal proceeding brought against it to enforce payment
of a Financial instrument; and

(B) as a result of loss covered under insuring Clause (H), Credit Card Fraud Coverage, reasonable court
costs and attorneys' fees incurred and paid with the Company's prior written consent in defending an
Organization in any legal proceeding brought against it to enforce payment of a written instrument,
required in connection with any credit card.

 

Chubb Group of Insurance Companies 3 QSM
15 Mountain View Road 
Warren, NJ 07059 Crime Coverage Part

 

CHUBB

 

Vi. PROOF OF LOSS AND LEGAL PROCEEDINGS

(A) Knowledge possessed by any insured or Discovery shall be deemed knowledge possessed by or
Discovery by all lnsureds.
(B) it is a condition precedent to coverage hereunder that, upon Discovery, the Parent Organization will:
(1) give written notice to the Company at the earliest practicable moment, and in no event later than
180 days after such Discovery;
(2) furnish af?rmative proof of loss with full particulars to the Company at the earliest practicable
moment, and in no event later than 180 days after such Discovery;
(3) submit to examination under oath at the Company's request;
(4) produce all pertinent records at such reasonable times and places as the Company shall

. designate; and
(5) provide full cooperation with the Company in all matters pertaining to a loss or claim.

(C) The Parent Organization may offer a comparison between an Organization?s inventory records and
actual physical count of its inventory to prove the amount of loss, only where an Organization

establishes wholly apart from such comparison that it has sustained a covered loss, caused by an
Employee.

(D) No Insured shall institute legal proceedings against the Company:
(1) after two (2) years immediately following any Discovery; or

(2) to recover a judgment or settlement against it or its bank resulting from Forgery, Credit Card
Fraud or related legal expenses as set forth in Section V, Legal Expenses Extension, after two

(2) years immediately following the date upon which such judgment shall become ?nal or
settlement was entered.

 

VII. LIMITS OF LIABILITY

(A) The Company's maximum liability for each loss shall not exceed the Limit of Liability applicable to such
loss set forth in Item 2 of the Crime Declarations, regardless of the number of Insureds sustaining the
loss, provided that with respect to an ERISA Plan, the Limit of Liability shall apply in accordance with the
terms of Section N, ERISA Plan Extension.

(B) If a direct loss is covered under more than one Insuring Clause, the maximum amount payable under this
Coverage Part shall not exceed the largest applicable Limit of Liability of any such Insuring Clause.

(C) All loss resulting from a single act or any number of acts of the same Employee or Third Party, and all
loss whether such act or acts occurred before or during the Policy Period, will be treated as a single loss
and the applicable Limit of Liability set forth in Item 2 of the Crime Declarations will apply, subject to
Section X, Liability for Prior Losses.

 

RETENTION

(A) The Company?s liability under this Coverage Part shall apply only to that part of each loss which is in
excess of the applicable Retention set forth in Item 2 of the Crime Declarations.

(B) If an Insured receives payment under another policy or bond, after applying a deductible or retention, for
loss also covered hereunder, then the applicable Retention set forth in item 2 of the Crime Declarations
shall be reduced by the deductible or retention previously applied to such loss.

 

Chubb Group of Insurance Companies POWQEQ 3 
15 Mountain View Road 

Warren, 07059 Crime Coverage Part
GHUBB

    

 

IX. OWNERSHIP

(A) Solely for the purposes of Insuring Clauses (A), Employee Theft Coverage; (B), Premises Coverage; (C),
In Transit Coverage; (D), Forgery Coverage; (E), Computer Fraud Coverage; (F), Funds Transfer Fraud
Coverage; Money Orders and Counterfeit Currency Fraud Coverage and (H), Credit Card Fraud
Coverage, the Company's liability under this Coverage Part shall only apply to Money, Securities or
Property owned by an Organization or for which the Organization is legally liable, or held by the
Organization in any capacity whether or not the Organization is liable, provided that:

the Company's liability will not apply to damage to the Premises unless the Organization is the
owner of such Premises or is legally liable for such damage; or

(2) with respect to Insuring Clause (A), Employee Theft Coverage, the Company?s liability will not
apply to Money, Securities or Property of a Client.

(B) Soleiy for the purposes of insuring Clause Client Coverage, the Company?s liability under this
Coverage Part will only apply to Money, Securities or Property:

(1) owned by a Client, which is held by an Organization in any capacity or for which the
Organization is legally liable; or

(2) held or owned by a Client, for which the Client is legally liable.

 

X. LIABILITY FOR PRIOR LOSSES
(A) if the Loss Sustained option is purchased as set forth in item 3 of the Crime Declarations:

(1) coverage will be available for loss sustained prior to the inception date of this Policy, or the
effective date of coverage for any additional insureds, or the effective date of any coverage
added by endorsement, subject to the following:

an Organization or some predecessor in interest of such Organization carried a prior
bond or policy, which at the time such prior loss was sustained, afforded some or all of
the coverage of an Insuring Clause under this Coverage Part applicable to such prior
loss;

such coverage continued without interruption from the time such loss was sustained until
the inception date or effective date(s) speci?ed above;

(0) such prior loss was first Discovered by an Insured after the time allowed for discovery
under the last such bond or policy; and

some or all of the coverage of an insuring Clause under this Coverage Part would be
applicable to such prior loss;

(2) if such prior bond or policy carried by an insured or predecessor in interest of such Insured was
issued by the Company or any subsidiary or af?liate of The Chubb Corporation, such prior bond
or policy shall terminate as of the inception of this Policy and such prior bond or policy shall not
cover any loss not discovered and noticed to the Company prior to the inception of this Policy,
provided that this Paragraph (2) shall not apply to:

any loss sustained in its entirety and discovered prior to the inception date of this
Policy, and (ii) notified to the Company in writing on or after the inception date of this
Policy, provided such notice is in accordance with any applicable reporting, notice or
exclusionary provision of the Crime coverage section of such prior bond or policy; or

any loss sustained in its entirety prior to the inception date of this Policy, (ii) and
discovered and noti?ed to the Company in writing within sixty (60) days following
termination of the Crime coverage section of such prior bond or policy, provided such
notice is in accordance with any applicable reporting, notice or exclusionary provision of
the Crime coverage section of such prior bond or policy; and

    

QHUBB

Chubb Group of Insurance Companies Foreme 3 ?ght?
15 Mountain View Road 
Warren, 07059 Crime Coverage Part

 

(3)

An insured shall neither be entitled to a separate recovery under each policy in force at the time
any part of the prior loss was sustained, nor shall the Insured be entitled to recover the sum of
the limits of liability of any such policies. The Company?s maximum liability for the prior loss shall
not exceed the lesser of either the limit of liability of the policy immediately preceding this
Coverage Part under which part of the prior loss was sustained, or the applicable Limit of Liability
set forth in Item 2 of the Crime Declarations.

(B) If the Loss Discovered Option is purchased as set forth in item 3 of the Crime Declarations:

(1)

coverage will be available for loss sustained at any time and Discovered during the Policy
Period, provided that coverage for loss sustained prior to the effective date of this Coverage Part
or the effective date of coverage for any additional insureds, or the effective date of any
coverage added by endorsement, is subject to the following:

if an Organization or some predecessor in interest of such Organization carried a prior
bond or policy which afforded coverage for a loss sustained during the period of such
prior bond or policy and such prior bond or policy was not issued by the Company or any
subsidiary or af?liate of The Chubb Corporation and such loss was ?rst Discovered by
an Insured prior to the expiration of the time allowed for discovery under the last such
policy, then no coverage shall be available under this Coverage Part, unless the total
amount of covered loss exceeds the limit of liability of the last such bond or policy carried
by the Organization or predecessor in interest of such Organization, and the
Company?s Limit of Liability for any such loss wilt be in excess of the limit of liability of the
last bond or policy subject to all of the terms and conditions of this Coverage Part; or

if an Organization or some predecessor in interest of such Organization carried a prior
bond or policy which afforded coverage for a loss sustained during the period of such
prior bond or policy and such prior bond or policy was issued by the Company or any
subsidiary or af?liate of The Chubb Corporation then such prior bond or policy shall
terminate as of the inception of this Policy and such prior bond or policy shall not cover
any loss not discovered and noticed to the Company prior to the inception of this Policy
and then the Company?s Limit of Liability for such loss shall be the applicable Limit of
Liability set forth in item 2 of the Crime Declarations.

 

XI. NON-ACCUMULATION OF LIABILITY

(A) When there is more than one insured, the maximum liability of the Company for loss sustained by one or
all lnsureds shall not exceed the amount for which the Company would be liable if all losses were
sustained by any one insured.

(B) Regardless of the number of years this coverage remains in effect and the total premium amounts due or
paid, the limit of liability of the Company with respect to any loss shall not be cumulative from Policy Year
to Policy Year or from Policy Period to Policy Period.

 

Xll. OTHER INSURANCE

if an Insured or any other party in interest in any loss covered by this Coverage Part has any bond, indemnity or
insurance which would cover such loss in whole or in part in the absence of this Coverage Part, then this
Coverage Part shall be null and void to the extent of the amount recoverable or received under such other bond,
indemnity, or insurance; but this Coverage Part shall cover such loss, subject to its exclusions, conditions and
other terms, only to the extent of the amount of such loss in excess of the amount recoverable or received under
such other bond, indemnity or insurance.

 

Page 13 of 14

 

 

Chubb Group of insurance Companies 3 63M
15 Mountain View Road 
CHUBB
Xill. TERMINATION OF PRIOR BONDS 0R POLICIES

Any prior bonds or policies issued by the Company or any subsidiary or af?liate of The Chubb Corporation shall
terminate, if not already terminated, as of the inception of this Policy.

 

XIV.

VALUATION AND FOREIGN CURRENCY

The Company shall pay:

(A)

the actual market value of lost, damaged or destroyed Securities at the closing price of such Securities
on the business day immediately preceding the day on which a loss is Discovered; or the cost of
replacing Securities, whichever is less, plus the cost to post a Lost instrument Bond;

the cost of blank books, pages or tapes or other blank materials to replace lost or damaged books of
account or other records;

the least of:
(1) the actual cash value of the Property; or

(2) the cost to repair or replace Property, other than precious metals, with that of similar quality and
value,

at the time the Parent Organization complies with Section VI, Proof of Loss and Legal Proceedings,
regarding the furnishing of proof of loss;

the United States of America dollar value of foreign currency based on the rate of exchange published in
The Wall Street Journal on the day loss involving foreign currency is Discovered; or

the United States of America dollar value of any precious metals based on the amount published in 

Wall Street Journal Cash Prices, Precious Metals, on the day loss involving such precious metals is

Discovered.

 

ENDORSEMENTIRIDER
Coverage Section: ForeFront Portfolio 3.0 Crime Coverage Part Federal

Effective date of
this endorsement/rider: October 31, 2013 Federal insurance Company

Endorsement/Rider No. 1
To be attached to and
form a part of Policy No. 8234?4543

issued to: AF GLOBAL CORPORATION

 

TEXAS AMENDATORY ENDORSEMENT
TO THE CRIME COVERAGE PART

In consideration of the premium charged, it is agreed that Subparagraph Loss Sustained Option,
of Section Iii, Exclusions, of this Coverage Part, is deleted and repiaced with the foliowing:

(1) loss uniess sustained by an Insured prior to the termination of this Coverage Part as to such
Insured, and Discovered and written notice thereof is given to the Company within one (1) year
following such termination;

The titie and any headings in this endorsement/rider are solely for convenience and form no part of the terms and
conditions of coverage.

All other terms, conditions and limitations of this Policy shall remain unchanged.

QAM

Authorized Representative

 


Coverage Section: ForeFront Portfolio 3.0 Crime Coverage Part Federal

Effective date of
this endorsement/rider: October 31, 2013 Federal Insurance Company

EndorsementfRider No. 2

To be attached to and
form a part of Policy No. 8234-4543

Issued to: AF GLOBAL CORPORATION

 

SECTION ADDED ENDORSEMENT

in consideration of the premium charged, it is agreed that this Coverage Part is amended to include the following
section:

RECOVERIES

(A) Recoveries for any loss covered under this Coverage Part, whether effected by the Company or by an
Insured, less the cost of recovery, shail be distributed as foilows:

(1) ?rst, to an Insured for the amount of such loss, otherwise covered, in excess of the applicable
Limits of Liability;

(2) second, to the Company for the amount of such loss paid to an insured as covered loss;
(3) third, to an Insured for the Retention applicable to such loss;
(4) fourth, to an Insured for the amount of such loss not covered under this coverage section.
(B) Recovery from reinsurance or indemnity of the Company shail not be deemed a recovery hereunder.
The titie and any headings in this endorsement/rider are solely for convenience and form no part of the terms and
conditions of coverage.

All other terms, conditions and limitations of this Policy shail remain unchanged.

Qasxm

Authorized Representative

 

EN 

Coverage Section: ForeFront Portfolio 3.0 Crime Coverage Part Federal

Effective date of
this endorsement: October 31, 2013 Company: Federal insurance Company

Endorsement No. 3
To be attached to and

form a part of Policy No. 8234-4543

Issued to: AF GLOBAL CORPORATION

 

PRIVACY AND DATA BREACH EXCLUSIONS ENDORSEMENT

In consideration of the premium charged, it is agreed that Section Exclusions of this coverage part, is amended as
follows:

1. Exclusion is deleted.
2. No coverage will be available for:
loss involving the disclosure of an lnsured?s or another entity or person?s con?dential or

personal information while in the care, custody or control of an Insured including, but not
limited to, patents, trade secrets, processing methods, customer lists, ?nancial information,
credit card information, health information or any similar type of nonpublic information;

(ii) loss involving the use of another entity or person?s con?dential or personal information while
in the care, custody or control of an Insured including, but not limited to, patents, trade
secrets, processing methods, customer lists, ?nancial information, credit card information,
health information or any similar type of nonpublic information; or

fees, costs, ?nes, penalties or any other expenses incurred by an Insured which result,
directly or indirectly, from the access to or disclosure of another entity or person?s con?dential
or personal information, including but not limited to, patents, trade secrets, processing
methods, customer lists, ?nancial information, credit card information, health 'nformation or
any similar type of nonpublic information,

provided, however, that the above exclusions shall not apply to loss that is otherwise covered under
Insuring Clause (F), Funds Transfer Fraud Coverage.

The title and any headings in this endorsement are solely for convenience and form no part of the terms and conditions of
coverage.

 

Ail other terms, conditions and limitations of this policy shali remain unchanged.

QEAW

 

Authorized Representative

Proof of Loss
AFGlobal Corporation

Commercial Crime

Policy Number: 
Policy Period: October 31, 2013 to October 31, 2014

This Proof of Loss is being submitted to Federal insurance Company under policy number?
issued to AFGlobal Corporation for the period of October 31, 2013 to October 31, 2014. The policy limit
is $3,000,000 subject to a $100,000 deductible. AFGlobal Corporation suffered a loss of $480,000 as a
result of a fraudulent transfer of funds as described below.

FACTUAL BACKGROUND

On Wednesday, May 21, 2014 and continuing to Tuesday May 27, 2014 one employee from AFGlobal
Corporation ordered a wire transfer to Agriculture Bank of China, based on instructions received from a
person he believed was Mr. Gean Stalcup, the CEO of AFGlobal Corporation. The person sending the
instructions was not Mr. Gean Stalcup and is referred to hereafter as the "lmposter." The employee was
Glen Wurm, Director of Accounting of AFGlobal Corporation. The lmposter?s email read:

?Glen, have assigned you to manage file T521. This is a strictly confidential financial operation, to
which takes priority over other tasks. Have you already been contacted by Steven Shapiro (attorney
from This is very sensitive, so please only communicate with me through this email, in order
for us not to infringe SEC regulations. Please do not speak with anyone by email or phone regarding
this. Regards, Gean Stalcup."

Approximately 30 minutes later, Mr. Wurm was contacted via phone and via email by Mr. Shapiro
stating that due diligence fees associated with the China acquisition in the amount of USD 480,000.00
were needed. Mr. Shapiro followed up via email with wiring instructions.

Mr. Wurm engaged our global Cash Manager and our Treasurer with transferring the funds under the
full belief he was being instructed the company and that confidentiality was very
important. After the funds transfer was made, Mr. Wurm did not receive any further correspondence
from the lmposter until Tuesday May 27, 2014 when the lmposter acknowledged receipt of the funds
and asked Mr. Wurm to send an additional USD 18 million. it was at this time Mr. Wurm became
suspicious and told the lmposter that he could not wire the funds without at a minimum informing his
immediate supervisor and the company Treasurer. Mr. Wurm then immediately alerted his immediate
supervisor and the officers of the company of his suspicion: Chief Accounting Officer (Torn Edgeller),
Treasurer (Perry Ewing), General Counsel (Tom Giles), and Chief Financial Officer (Brian Fontana).

The lmposter seemed to know the normal procedures of the company and also that Gean Stalcup had a
long?standing, very personal and familiar relationship with Mr. Wurm sufficient enough that Mr.
Wurm would not question a request from the CEO. Once Mr. Edgelier and the aforementioned officers
of the company reaiized that they had been a victim of fraud, they reacted quickly to try and retrieve the
funds. The Treasurer and the Cash Manager reacted rapidly and attempted to recall the wire from Bank
of America. Moreover, they instructed Bank of America to alert all the banks involved (Le. beneficiary
banks) and their security departments of the fraud. Finally, they filed a police report with the Houston
Police Department.

EXHIBIT 

DATE OF LOSS
The funds were transferred on Wednesday May 21, 2014

DISCOVERY OF THE FRAUD

Gean Staicup was informed of the fraud on Tuesday May 27, 2014. The Treasurer received an email
from Bank of America which confirmed that the funds were transferred on Wednesday May 21, 2014.
Moreover, they were informed that the beneficiary account had been zeroed out and closed.

CLAIM AMOUNT
A wire transfer of USD 480,000 was made to Agricultural Bank of China.

DOCUMENTATION OF THE LOSS
Documentation to fully substantiate the loss includes: Banking records and email correspondence.

NOTIFICATION TO INSURER
Federal Insurance Company was first made aware of the situation on Tuesday May 27, 2014 via the
brokerage firm Aon Risk Services.

RESERVATION OF RIGHTS

The above information is a summary of the currently available information in support of AFGlobal
Corporation?s claim due to wire and computer fraud under the existing policy. AFGlobai Corporation is
aggressively pursuing all avenues in an effort to mitigate their insured loss. AFGiobal Corporation
reserves all rights to submit a supplemental proof of loss with additional information and/or loss
amount, including the costs associated with the recovery actions, should subsequent information be
developed.

POST-DISCOVERY RECOVERY EFFORTS
Following the discovery of this matter, AFGlobal Corporation did the foliowing:

- Tuesday May 27, 2014 filed a police report with Houston Police Department
0 Tuesday May 27, 2014, notified Bank of America

CURRENT STATUS

AFGlobai Corporation has made no representations nor have we taken any action to compromise
subrogation rights.

AFGlobal Corporation

 

 

Perry Ewing 

Corporate Treasurer



   

Sworn to before me this day of 2014.

 

   

 
   
 



   
 
   

$55 0:93 Lopez 
. 53; My Commission Expires
-r 

  
 

CHUBB GROUP OF INSURANCE COMPANIES
Fifth Avenue Place, 120 Fifth Avenue, Pittsburgh, PA 15222-3008
Phone: (412) 456-8000 Facsimile: (412) 456-8009

July 7, 2014
Via E-Mail
Henry Hanke
Claims Advocate
Financial Services Group
Legal & Claims Practice Group
Aon Risk Services Central, Inc.
200 East Randolph Street, 8th Floor
Chicago, IL 60601
RE:

Insured:
Policy No.:
Policy Type:
Claim:
Company:
Claim No.:

AF Global Corporation
Forefront Portfolio 3.0 Policy/Crime Coverage Part
Fraudulent Request for Transfer of Funds
Federal Insurance Company

Dear Mr. Hanke:
Thank you for the information that has been provided with regard to AF Global Corporation’s (“AF
Global”) loss related to the fraudulent e-mail request for the transfer of funds. Federal has reviewed
the information provided and we regret that we must decline coverage for this matter under
Forefront Portfolio Policy No.
.
According to the information that has been provided, on May 21, 2014, an AF Global’s Director of
Accounting, Glen Wurm, requested that AF Global’s bank send a wire transfer in the amount of
$480,000 to Agriculture Bank of China based on e-mail instructions from a person purporting to be
AF Global’s Chief Executive Officer, Gean Stalcup. The e-mail instructions received by Mr. Wurm
advised that this was a confidential financial operation, which should take priority over other tasks.
The e-mail also indicated that Mr. Wurm would receive a call from Steven Shapiro, purportedly an
attorney for KPMG. About 30 minutes after receipt of the e-mail, Mr. Wurm received a call and an
e-mail, purportedly from Mr. Shapiro, requesting that Mr. Wurm wire $480,000 to Agriculture Bank
of China. Based on the instructions from the person purporting to be Mr. Shapiro, Mr. Wurm had
the transfer made by AF Global’s bank, Bank of America (“BOA”), pursuant to the instructions
received in the e-mail.
On May 27, 2014, the person purporting to be Mr. Shapiro, acknowledged receipt of the funds
and asked Mr. Wurm to send an additional $18 million. Mr. Wurm became suspicious and
alerted his immediate supervisor and the officers of the company. After determining that both

EXHIBIT C

 Henry Hanke
Claims Advocate
Financial Services Group
Legal & Claims Practice Group
Aon Risk Services Central, Inc.
July 7, 2014
Page 2
requests were fraudulent, AF Global attempted, without success, to recall the wire from BOA
and reported the matter to the police. As a result, AF Global has sustained a $480,000 loss.
AF Global purchased Forefront Portfolio 3.0 Policy
for the period of October 31,
2013 to October 31, 2014. The Crime Coverage Part of the Policy provides Forgery Coverage
Computer Fraud Coverage and Funds Transfer Fraud Coverage each with a $3,000,000 limit
and a $100,000 deductible.
In consideration of payment of the premium and subject to the Declarations, General Terms and
Conditions, and the limitations, conditions, provisions and other terms of this coverage section,
the Company and the Insureds agree as follows:
I.

INSURING CLAUSES
Insuring Clause (D): Forgery Coverage
(D)

The Company shall pay the Parent Organization for direct loss sustained by an
Insured resulting from Forgery or alteration of a Financial Instrument
committed by a Third Party.

Insuring Clause (E): Computer Fraud Coverage
(E)

The Company shall pay the Parent Organization for direct loss of Money,
Securities or Property sustained by an Insured resulting from Computer Fraud
committed by a Third Party.

Insuring Clause (F): Funds Transfer Fraud Coverage
(F)

II.

The Company shall pay the Parent Organization for direct loss of Money or
Securities sustained by an Insured resulting from Funds Transfer Fraud
committed by a Third Party.

DEFINITIONS
For purposes of this Coverage Part:
Computer Fraud means the unlawful taking of Money, Securities or Property resulting
from a Computer Violation.

 Henry Hanke
Claims Advocate
Financial Services Group
Legal & Claims Practice Group
Aon Risk Services Central, Inc.
July 7, 2014
Page 3
Computer System means a computer or network of computers, including its input,
output, processing, storage and communication facilities, and shall include off-line media
libraries.
Computer Violation means an unauthorized:
(A)

entry into or deletion of Data from a Computer System;

(B)

change to Data elements or program logic of a Computer System, which is kept
in machine readable format; or

(C)

introduction of instructions, programmatic or otherwise, which propagate
themselves through a Computer System,

directed solely against an Organization.
Data means information contained in records, manuscripts, accounts, microfilms, tapes
or other records, which are processed and stored in a Computer System.
Financial Instrument means checks, drafts or similar written promises, orders or
directions to pay a sum certain in money, that are made, drawn by or drawn upon an
Organization or by anyone acting as an Organization’s agent, or that are purported to
have been so made or drawn.
Forgery means the signing of another natural person’s name with the intent to deceive,
but does not mean a signature that includes, in whole or in part, one’s own name, with or
without authority, in any capacity for any purpose. Mechanically or electronically
produced or reproduced signatures shall be treated the same as handwritten
signatures.
Funds Transfer Fraud means fraudulent written, electronic, telegraphic, cable, teletype
or telephone instructions (other than Forgery), purportedly issued by an Organization,
and issued to a financial institution directing such institution to transfer, pay or deliver
Money or Securities from any account maintained by such Organization at
such institution, without such Organization’s knowledge or consent.
Insuring Clause (D), Forgery Coverage requires that any alleged Forgery or alteration is
covered only if it is on a Financial Instrument, as that term is defined. Even if an electronic
signature on an e-mail qualifies as a Forgery, and we do not agree that it does, there would be no
coverage under Insuring Clause (D) because the e-mail is not a Financial Instrument. The

 Henry Hanke
Claims Advocate
Financial Services Group
Legal & Claims Practice Group
Aon Risk Services Central, Inc.
July 7, 2014
Page 4
fraudulent e-mail received by AF Global conferred no rights upon any payee but was simply an
e-mail asking AF Global to wire transfer funds to a fraudulent account. It was Mr. Wurm’s
subsequent wire instructions to BOA that caused a payment to be made. Therefore, we cannot
agree that an e-mail qualifies as a Financial Instrument, as required by Insuring Agreement
(D).
In addition, Insuring Clause (D) requires that the loss result directly from the Forgery. Even if
there was a Forgery in this instance, which we dispute, the alleged Forgery on the e-mail did
not result in any direct loss to AF Global. If Mr. Wurm had not acted on the e-mail and had not
instructed payment to be made by BOA, there would have been no loss. Therefore, AF Global
did not sustain a direct loss resulting from a Forgery on an e-mail, thus the Forgery Coverage
does not apply to this claim.
In order for coverage to apply under Insuring Clause (E), Computer Fraud Coverage there must
be a direct loss of Money, Securities or Property sustained by AF Global resulting from
Computer Fraud committed by a Third Party. Computer Fraud is defined as the unlawful
taking of Money, Securities or Property resulting from a Computer Violation. There is no
coverage for AF Global’s claim under Computer Fraud Coverage because there was no
Computer Violation, as defined above. Even though Mr. Wurm received fraudulent
instructions via e-mail to initiate the wire transfer, it was Mr. Wurm who requested that the funds
be transferred via wire by BOA. Therefore, there was no unauthorized entry into, deletion of,
change to Data or Data elements of a Computer System and no unauthorized introduction of
instructions through a Computer System.
According to the definition of Computer Violation, the unauthorized instructions must
propagate themselves through a Computer System. An example of this would be a computer
virus which takes over a computer. The e-mail instructions received by Mr. Wurm did not
propagate themselves through a Computer System. The e-mails entered into an e-mail in-box
and that is where they stayed. Secondly, the introduction of instructions must be unauthorized.
In this case, the instructions were sent via e-mail to an in-box which was open to receive e-mails
from anyone. While the sender of the e-mail was acting fraudulently, it cannot be said that the
sender was not authorized to introduce e-mails into Mr. Wurm’s e-mail in-box.
The loss in this claim was caused by the transfer of funds pursuant to Mr. Wurm’s instructions to
BOA. No Third Party used a computer to take the funds. The definition of Computer Fraud
requires a taking of Money resulting from a Computer Violation. The e-mail was not a taking
of Money. If Mr. Wurm had not issued instructions to BOA, there would have been no loss
despite the e-mail. A loss of this nature is not a Computer Fraud simply because Mr. Wurm
acted in reliance on a fraudulent e-mail. An e-mail is simply a means for communicating
information; it is not a means of transferring Money.

 Henry Hanke
Claims Advocate
Financial Services Group
Legal & Claims Practice Group
Aon Risk Services Central, Inc.
July 7, 2014
Page 5

Finally, there is no coverage for the loss under Funds Transfer Fraud Coverage Insuring Clause F,
because the fraudulent written instructions were not purportedly issued by BOA. In this case, the
fraudulent e-mail was sent to Mr. Wurm directing him to issue a wire transfer to a fraudulent
account. Mr. Wurm, with knowledge and consent, then instructed BOA to issue the wire transfer to
the fraudulent account.
For the reasons outlined above, Federal declines coverage for the claim submitted by AF Global
under the Policy for the period of October 31, 2013 to October 31, 2014.
Federal’s position is based on the information received to date and is subject to further evaluation if
additional information is provided by the Insured. Federal expressly reserves all rights as provided
under the Policy and at law, and neither this letter nor any subsequent investigation or inquiry is to
be deemed an admission of liability or a waiver of any such rights.
Should you have any questions or concerns regarding this matter, please feel free to contact me at
412-456-8011 or at brobbibaro@chubb.com.

Very truly yours,
Chubb & Son
A division of Federal Insurance Company
Bruce Robbibaro
Sr. Fidelity Claims Examiner
Direct Dial: (412) 456-8011
Fax: (412) 456-8009
E-mail: brobbibaro@chubb.com

 CHUBB GROUP OF INSURANCE COMPANIES
Simsbury Claim Service Center
82 Hopmeadow Street
Simsbury, CT 06070-7683
Facsimile: 855-842-1349

October 9, 2014

Via E-Mail
William M. Shea
Vice President
Financial Services Group
Legal & Claims Practice Group
Aon Risk Services Central, Inc.
200 East Randolph Street, 8th Floor
Chicago, IL 60601
RE:

Insured:
Policy No.:
Insurer:
Policy Type:
Matter:
Ref. No.:

AF Global Corporation (“AF Global”)
(the “Policy”)
Federal Insurance Company (“Federal”)
Forefront Portfolio 3.0 Policy/Crime Coverage Part
Fraudulent Request for Transfer of Funds

Dear Mr. Shea:
Reference is made to your letter dated August 12, 2014, sent in response to my letter of July 7,
2014. Federal has carefully considered the issues raised in your letter and reaffirms its position
that AF Global’s loss is not covered by the Crime Coverage Section of the Policy issued to AF
Global for the reasons previously advised.
Federal disagrees with your contention that Insuring Clause (D): Forgery Coverage is implicated
by this matter. Your August 12 letter asserts that “[t]he Forgery by a Third Party in this incident
was of a Financial Instrument.” Federal is unaware of any authority to support your position that
the e-mail you reference qualifies as a Financial Instrument (as that term is defined in the
Policy). To be a Financial Instrument, the subject e-mail must be a check, draft, or a similar
written promise, order or direction to pay a sum certain in money that is made, drawn by or
drawn upon an Organization or by anyone acting as an Organization’s agent, or that is
purported to have been so made or drawn. Your August 12 letter appears to argue that “[t]he
email constituted an order or direction to pay” because Mr. Shapiro’s May 21, 2014 e-mail
contained wire transfer instructions as to where the funds (apparently discussed in a separate
phone conversation between “Mr. Shapiro” and Mr. Wurm) were to be sent. This argument

EXHIBIT D

 William M. Shea
Vice President
Financial Services Group
Legal & Claims Practice Group
Aon Risk Services Central, Inc.
October 9, 2014
Page 2

ignores the fact that what defines a Financial Instrument under the Policy is not merely the
existence of a written promise, order or direction to pay, but a written promise, order or direction
to pay that is “similar” to a “check” or “draft”. In the context of a commercial crime policy,
“checks” and “drafts” are widely understood to be types of negotiable instruments. They
represent unconditional written orders or promises to pay a fixed amount of money on demand,
or at a definite time, to a payee or bearer, and they can be transferred outside of the maker or
drawer’s control. The e-mail at issue in this matter -- which is not negotiable -- is in no way
similar to these types of instruments. By way of example, Federal’s counsel suggested that we
refer you to Vons Companies, Inc. v. Fed. Ins. Co., 57 F. Supp. 2d 933, 945 (C.D. Cal. 1998)
aff'd, 212 F.3d 489 (9th Cir. 2000), particularly at page 945, wherein the Court stated that
“coverage requires forgery of certain types of documents. It is not the same to say that the
investors' reliance on the legitimacy of the invoices, purchase orders, and wire information is
interchangeable with the forgery of a negotiable instrument or its equivalent. [T]he rationale
behind making forgery a crime is the need of business to rely on negotiable instruments. [] As a
result, the documents have traditionally been those with legal effect, documents that can be
‘deposited.’ The invoices and other documents here, are not of that type. There can be no doubt,
moreover, that the policy unequivocally contemplates documents of the same type and effect as
checks and drafts.” 1
Federal also disagrees with your argument that Insuring Clause (E): Computer Fraud Coverage is
implicated by this matter. Your August 12 letter asserts that the subject e-mail to Mr. Wurm
constitutes “an unauthorized introduction of instructions, programmatic or otherwise, which
propagate themselves through a Computer System.” Federal is not aware of any relevant
authority to support the position that receipt of the subject e-mail constitutes an “unauthorized
introduction of instructions…which propagate themselves through a Computer System.”
Federal’s counsel has advised that the June 24, 2011 Owens Schine Memorandum of Decision
referenced in your letter has no bearing on the present matter. Counsel has indicated that apart
from the fact that Owens Schine addressed a materially different definition of “Computer Fraud”
in an unpublished decision under Connecticut law, your August 12 correspondence also fails to
identify that a subsequent Order was issued on or about April 18, 2012 (and entered on the
Owens Schine docket on or about April 27, 2012) indicating that, among other things, the June
24, 2011 Memorandum of Decision upon which you rely was vacated.
Federal’s counsel further advises that Federal’s position that the term “unauthorized” in the
definition of Computer Violation requires a hacking event -- in which someone obtains
unauthorized access or entry to a computer -- is supported by a number of recent instructive
decisions. In particular, Federal’s counsel suggested we refer you to the following cases:
Universal Am. Corp. v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA, 38 Misc. 3d 859 (N.Y. Sup.
1

In any event, Federal does not concede that the subject e-mail contains a Forgery as that term is defined by
the Policy.

 William M. Shea
Vice President
Financial Services Group
Legal & Claims Practice Group
Aon Risk Services Central, Inc.
October 9, 2014
Page 3

Ct. 2013), aff’d, 110 A.D.3d 434 (1st Dep’t, 2013)(which, counsel advises us, at page 434 states
that the “plain meaning of defendant's computer systems fraud rider, covering loss from a
fraudulent ‘entry of electronic data’ or ‘change of electronic data’ within the insured's
proprietary computer system, was intended to apply to wrongful acts in manipulation of the
computer system, i.e., by hackers, and did not provide coverage for fraudulent content....”), leave
to appeal granted, 23 N.Y. 3d 904 (2014); Pestmaster Servs., Inc. v. Travelers Cas. & Sur. Co.
of Am., 2:13 cv-5039 (JFW MRWX), 2014 WL 3844627 (C.D. Cal. July 17, 2014)(which,
counsel advises us, at page *7 indicates that the conduct at issue “does not constitute ‘Computer
Fraud’ as defined by the Policy because the transfer of funds was at all times authorized and did
not involve hacking or any unauthorized entry into a computer system”); and Brightpoint, Inc. v.
Zurich Am. Ins. Co., 2006 WL 693377 (S.D. Ind. 2006)(which, counsel advises us, at page *7
rejects the insured’s argument that “all that is required in terms of [computer fraud] coverage is
the use of a computer followed by a theft that is some way connected to the use of the
computer”).
Federal also maintains that the subject e-mail is not reasonably characterized as “an unauthorized
introduction of instructions” -- to the extent that the purported “instructions” were “introduced”
via a publicly accessible e-mail in-box. Further, there is no evidence that even suggests that the
claimed “instructions” were capable of spreading on their own (i.e., they cannot “propagate
themselves”). To the contrary, the facts indicate that the Insured’s loss was caused by a social
engineering ploy (as to which computer use was, at most, incidental), not “Computer Fraud”, as
that term is defined in the Policy.
Federal also disagrees with your contention that Insuring Clause (F): Funds Transfer Fraud
Coverage is implicated by this matter. In order for the Funds Transfer Fraud Coverage to
apply, fraudulent instructions to the bank must purport to have been issued by the Insured, but
without the Insured’s knowledge or consent. In this case, AF Global’s proof of loss confirms
that the instructions to the bank were in fact issued by AF Global -- not another party purporting
to be AF Global -- and the instructions were issued with AF Global’s knowledge and consent.
Finally, Federal respectfully disagrees with your conclusory assertion that any of the undefined
terms in the Policy are ambiguous.
For the reasons outlined above and in our prior letter dated July 7, 2014, Federal maintains its
declination of coverage for the claim submitted by AF Global under the Policy for the period
October 31, 2013 to October 31, 2014.
Federal’s position is based on the information received to date and is subject to further
evaluation if additional information is provided by the Insured. Federal expressly reserves all

 William M. Shea
Vice President
Financial Services Group
Legal & Claims Practice Group
Aon Risk Services Central, Inc.
October 9, 2014
Page 4

rights as provided under the Policy and at law, and neither this letter nor any subsequent
investigation or inquiry is to be deemed an admission of liability or a waiver of any such rights.
Should you have any questions or concerns regarding this matter, please feel free to contact me
at 412-456-8011 or at brobbibaro@chubb.com.
Very truly yours,
Chubb & Son
A division of Federal Insurance Company
Bruce Robbibaro
Sr. Fidelity Claims Examiner
Direct Dial: (412) 456-8011
Fax: (855) 842-1349
E-mail: brobbibaro@chubb.com

cc:

Henry Hanke
Claims Advocate
Financial Services Group
Legal & Claims Practice Group
Aon Risk Services Central, Inc.
200 East Randolph Street, 8th Floor
Chicago, IL 60601