Hacked Company Loses Insurance Battle Over Customer Payment Scam

The information on this website is general in nature and does not take into account your objectives, financial situation, or needs. Consider seeking personal advice from a licensed adviser before acting on any information.

A company recently faced a significant setback after losing an insurance claim dispute related to funds stolen in a fraudulent email scheme.

Cybercriminals infiltrated the business's email system, sending out fake invoices that directed clients to pay into a bogus bank account.

Consequently, two customers inadvertently transferred a total of $66,148 to the fraudulent account.

Attempts to retrieve this money were unsuccessful, and the customers refused further payments to the company.

The company, holding a management liability insurance policy, sought to claim under its third-party crime coverage to recover the outstanding bills from the customers. However, AIG Australia denied the claim, stating that the policy only addressed "direct financial loss" from theft or fraud by a third party, and argued that since the stolen money belonged to customers, the business itself did not suffer a direct loss.

The Australian Financial Complaints Authority (AFCA) reviewed the case and acknowledged the company's loss. However, it determined that the loss did not align with the policy's specific terms. The ruling emphasized that only the company's customers faced direct financial loss, whereas the company experienced an indirect one due to subsequent non-payments.

The AFCA explained that the hack did not meet the company's policy definition of theft, as the stolen funds belonged to the customers, not the business. This discrepancy meant that the policy's electronic and computer crime coverage was not applicable. Additionally, the policy's criteria for "fraudulent act," which required acts of forgery or counterfeiting the insured had acted upon, were not met since the company was unaware of the false invoices.

This case highlights the critical distinction between direct and indirect financial losses in insurance claims, emphasizing the importance of understanding policy terms. For businesses, particularly those prone to cyber threats, it underscores the significance of having insurance coverage that appropriately addresses loss scenarios stemming from such events. It also serves as a cautionary tale of the complexities involved in recovering from cybercrime attacks without adequate protection.

Moving forward, businesses should ensure robust cybersecurity measures to prevent similar email hacks, coupled with clarifying insurance policies for adequate coverage against indirect financial losses as a result of customer fraud. This scenario may lead insurance providers to reevaluate their product offerings, potentially driving the development of more comprehensive cybercrime coverages. Additionally, the financial sector might witness increased discussions on how to formulate clearer policy definitions that align with the evolving nature of cyber threats.

Published:Tuesday, 11th Mar 2025
Source: Paige Estritori

Please Note: If this information affects you, seek advice from a licensed professional.

Share this news item:

Insurance News

Climate Change's Impact on Home Insurance Costs: IAG's Warning

16 Dec 2025: Paige Estritori

Insurance Australia Group (IAG), a leading insurer in the Australian market, has recently raised concerns about the escalating impact of climate change on home insurance premiums. The company warns that Australians should anticipate rising costs, attributing this trend to the increasing frequency and severity of weather events driven by climate change. - read more

Australian Insurers' Risk Preparedness Falls Behind Global Standards

16 Dec 2025: Paige Estritori

The Australian insurance industry is facing mounting challenges as it falls behind international counterparts in preparedness levels, according to the latest PwC Insurance Banana Skins Survey. The findings come at a time when Australian insurers are grappling with multiple simultaneous threats ranging from digital security concerns to regulatory pressures and affordability challenges. - read more

Australia's Insurance Market Set for Significant Growth by 2029

16 Dec 2025: Paige Estritori

Australia’s general insurance market is expected to experience steady expansion over the next five years, with total direct written premiums (DWP) projected to reach $144.5 billion by 2029. This follows a compound annual growth rate (CAGR) of 8.8%, according to analysis by data and analytics firm GlobalData. - read more