Background
Blue Compass RV, L.L.C. hired SPD Construction to build an RV sales center. SPD Construction sent a fraudulent email changing its banking details. Blue Compass paid over one million dollars to the fraudulent account. Blue Compass sought coverage under its crime insurance policy, but the insurer denied the claim based on an exclusion for deception fraud.
The court’s reasoning
The court reviewed the insurance policy under Texas law. The policy excluded coverage for losses resulting from deception fraud. The fraud involved a party pretending to be a vendor. The court defined vendor as a business entity selling goods or services. The court found that construction work constitutes services under the ordinary meaning of the term. Therefore, the loss resulted from deception fraud and was excluded from coverage.
What it means going forward
Insurers may rely on vendor exclusions to deny coverage for fraudulent transfers involving construction or service providers.
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