Hacked Company Loses Insurance Battle Over Customer Payment Scam

2

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.

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

Clear

Suncorp Reaches Maximum Reinsurance Retention Following Severe Storms in Queensland and NSW

11 Dec 2025: Paige Estritori

Recent supercell thunderstorms in South East Queensland and northern New South Wales have led to a surge in insurance claims, prompting Suncorp to reach its maximum reinsurance retention of $350 million. The insurer has reported over 10,000 claims related to these events, with approximately half pertaining to home damages and the other half to motor vehicles. - read more

NTARC Report Identifies Inattention and Speed as Primary Factors in Major Truck Crashes

11 Dec 2025: Paige Estritori

The National Truck Accident Research Centre (NTARC) has released its latest Major Incident Investigation Report, highlighting inattention, distraction, and inappropriate speed as the most frequent human factors behind major truck crashes in Australia. While there has been a modest reduction in these incidents compared to previous years, they continue to pose significant risks to road safety. - read more

Rising Mental Health Claims Reshape Australia's Insurance Landscape

10 Dec 2025: Paige Estritori

The Australian insurance industry is witnessing a significant shift as mental health conditions have become the leading cause of total and permanent disability (TPD) claims. Recent data from the Council of Australian Life Insurers (CALI) indicates that mental health issues now account for nearly one-third of all TPD claims, marking a substantial change in the industry's claim patterns. - read more

Australian General Insurers Achieve $6 Billion Profit Amid Fewer Natural Disasters

10 Dec 2025: Paige Estritori

In a remarkable turnaround, Australian general insurers have reported a combined profit of $6.1 billion over the past year. This substantial increase is attributed to a period of relative calm in natural catastrophes and robust investment returns. - read more

Australian Life Insurers Under Review for Mental Health Exclusion Practices

10 Dec 2025: Paige Estritori

Recent findings have revealed that certain Australian life insurers continue to implement blanket exclusions for mental health conditions, a practice that contravenes the industry's code of practice. This has raised significant concerns about the fairness and legality of such exclusions. - read more

Click for more Insurance News