Interactive Communications International, Inc. and HI Technology Corp. (together, “InComm”) operate a business that allows customers to put money onto reloadable bank-issued debit cards. The money is added by the customer first buying a chit from a retailer and then calling InComm’s 1-800 number which connects to an interactive voice response (IVR) computer system. The consumer enters the debit card number and the PIN located on the chit at which time the IVR credits the value of the chit to the card. The funds become immediately available to the cardholder.
Between November 2013 and May 2014, fraudsters identified a vulnerability within InComm’s IVR system that permitted multiple redemptions of a single chit. The vulnerability occurred when two or more calls were made to the IVR system simultaneously for the redemption of the same chit. One call would transfer the funds from the chit to the debit card account, while the other would return the chit to an “unredeemed” state which permitted a future redemption. Over seven months, InComm’s system processed 25,553 fraudulent redemptions associated with 1,988 individual chits.
After the loss was discovered, InComm made a claim for $10.7 million against its computer fraud policy underwritten by Great American Insurance Company (GAIC). The policy provides coverage for:
“loss of, and loss from damage to, money, securities and other property resulting directly from the use of any computer to fraudulently cause a transfer of that property from inside the premises or banking premises: (a) to a person (other than a messenger) outside those premises; or (b) to a place outside those premises.”
GAIC filed for summary judgment as to coverage contending that the policy does not cover InComm’s loss because the scam was not executed through the direct use of a computer. It argued that the loss occurred as a result of the misuse of the IVR system. The district court granted the summary judgment and InComm appealed.
The appellate court affirmed the ruling of the district court. It held that the loss was not the result of a computer and that even if it had been due in some way to a computer, the loss remained excluded because the loss was not due to any direct use of a computer.
Interactive Commc'ns Int'l, Inc. v. Great Am. Ins. Co., No. 17-11712, 2018 WL 2149769 (11th Cir. May 10, 2018)
