Principle Solutions Grp., LLC v. Ironshore Indem., Inc.

• Decision Date: 09 December 2019
• Docket Number: No. 17-11703,17-11703
• Parties: PRINCIPLE SOLUTIONS GROUP, LLC, Plaintiff – Appellee, v. IRONSHORE INDEMNITY, INC., Defendant – Appellant.
• Court: U.S. Court of Appeals — Eleventh Circuit

944 F.3d 886

PRINCIPLE SOLUTIONS GROUP, LLC, Plaintiff – Appellee,

v.IRONSHORE INDEMNITY, INC., Defendant – Appellant.

No. 17-11703

United States Court of Appeals, Eleventh Circuit.

December 9, 2019

James John Leonard, II, Barnes & Thornburg, LLP, ATLANTA, GA, Scott N. Godes, Barnes & Thornburg, LLP, WASHINGTON, DC, for Plaintiff - Appellee.

Philip Wade Savrin, William Hollis Buechner, Jr., Freeman Mathis & Gary, LLP, ATLANTA, GA, for Defendant - Appellant.

Before WILLIAM PRYOR, TJOFLAT, and GILMAN,^* Circuit Judges.

WILLIAM PRYOR, Circuit Judge:

This appeal requires us to decide whether a loss of more than $1.7 million to scammers was covered under a commercial crime insurance policy. The loss stemmed from a sophisticated phishing scheme in which a scammer posing as an executive of Principle Solutions Group, LLC, persuaded an employee to wire money to a foreign bank account. After Principle discovered the fraud and determined that it could not recover the funds, it sought coverage under the "fraudulent instruction" provision of its policy with Ironshore Indemnity, Inc., which then denied Principle’s claim. Ironshore asserted that the scammer’s communications with the employee did not meet the conditions for a fraudulent instruction under the policy and that the loss did not result directly from the alleged fraudulent instruction, as the policy required. Principle filed a complaint against Ironshore to enforce the policy. The district court concluded that the policy covered the loss and granted summary judgment in favor of Principle. Because we also conclude that the policy unambiguously covers Principle’s claim, we affirm.

I. BACKGROUND

On the morning of July 8, 2015, Principle lost over $1.7 million in a fraud scheme. It began at 9:10 a.m., when Loann Lien, the controller for Principle, received an email purporting to be from Josh Nazarian, a managing director of Principle. The email informed Lien that Principle had been secretly working on a "key acquisition" and asked her to wire money "in line with the terms agreed ... as soon as possible." As for the details of the wire transfer, the email told Lien to give her "full attention" to "attorney Mark Leach," who would provide further information. Because the purported deal was not public, Lien was to "treat [the] matter with the upmost discretion and deal solely with" Leach. Lien responded to Nazarian’s purported email that she would give her "total attention" to Leach.

Lien received an email five minutes later from someone purporting to be Leach, a partner at the London-based law firm Bird & Bird. After Lien confirmed that Principle could wire the money, Leach sent Lien remittance details for a bank in China. Leach later reiterated to Lien over the phone that Nazarian approved the wire transfer.

Lien worked with another Principle employee to create and approve the transfer, but a fraud prevention service, Wells Fargo, asked for verification that the wire transfer was legitimate. Lien then confirmed with Leach that Nazarian had approved the transaction. Lien relayed this information to Wells Fargo, which released the hold. At 11:21 a.m., about two hours after Lien received the first email, Principle wired more than $1.7 million to the scammers.

Lien discovered that the request was fraudulent a day later when she spoke with Nazarian, who told her that he was not even in the office that day. Nazarian promptly called Wells Fargo to report the fraud, but neither Principle nor law enforcement could recover the funds.

Principle sought coverage for the loss under its insurance policy with Ironshore. The policy covered "[l]oss resulting directly from a fraudulent instruction directing a financial institution to debit [Principle’s] transfer account and transfer, pay or deliver money or securities from that account." Ironshore denied coverage. It asserted that Nazarian’s purported email did not "direct[ ] a financial institution to debit [Principle’s] transfer account" because it only told Lien to await instructions from Leach. Ironshore also argued that the asserted loss did not "result[ ] directly from" a fraudulent instruction because Leach conveyed necessary details to Lien after the initial email and Wells Fargo held the transaction, both of which were intervening events between the instruction and the loss.

Principle filed a complaint against Ironshore in state court seeking payment under the policy and alleging that Ironshore had acted in bad faith. Ironshore removed the case to federal court based on diversity jurisdiction. 28 U.S.C. §§ 1332(a)(1), 1441(a). The parties filed competing motions for summary judgment. Although the district court concluded that the policy provision was ambiguous, it held that Georgia’s rule requiring construction of insurance policies in favor of policyholders required it to grant partial summary judgment to Principle on its coverage claim. The district court also granted partial summary judgment to Ironshore on Principle’s claim of bad faith. Only Ironshore appealed.

II. STANDARD OF REVIEW

We review a summary judgment de novo . Regions Bank v. Legal Outsource PA , 936 F.3d 1184, 1189 (11th Cir. 2019). Summary judgment is warranted "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a).

III. DISCUSSION

Under Georgia law, which the parties agree governs, we use a three-step approach to interpret insurance policies. As with any contract, we first look to the text of the policy and, if it is "explicit and unambiguous, [our] job is simply to apply the terms of the contract as written, regardless of whether doing so benefits the carrier or the insured." Ga. Farm Bureau Mut. Ins. Co. v. Smith , 298 Ga. 716, 784 S.E.2d 422, 424 (2016) (citation and internal quotation marks omitted). But "if a provision of an insurance contract is susceptible of two or more constructions, even when the multiple constructions are all logical and reasonable, it is ambiguous," and we must move to the second step of applying Georgia’s "statutory rules of contract construction." Hurst v. Grange Mut. Cas. Co. , 266 Ga. 712, 470 S.E.2d 659, 663 (1996). And if the ambiguity "cannot be resolved through the rules of construction," we may, at the third step, look to parol evidence. Coppedge v. Coppedge , 298 Ga. 494, 783 S.E.2d 94, 97 n.3 (2016) (citation and internal quotation marks omitted). But "if the parol evidence is in conflict, the question of what the parties intended becomes a factual issue for the jury." Id. (citation and internal quotation marks omitted); see also Ga. Code Ann. § 13-2-1 ("The construction of a contract is a question of law for the court. Where any matter of fact is involved, the jury should find the fact.").

Ironshore repeats its twin justifications for denying coverage: no communication between the scammers and Lien triggered the fraudulent-instruction provision, and the loss did not "result[ ] directly from" any alleged fraudulent instruction. Both fail. We address each argument in turn.

A. The Loss Involved a Fraudulent Instruction Directing a Financial Institution to Transfer Funds.

To receive coverage, Principle had to identify a "fraudulent instruction" that "direct[ed] a financial institution to debit [Principle’s] transfer account and transfer, pay or deliver money or securities from that account." As relevant here, the policy defines a "fraudulent instruction" as an "electronic or written instruction initially received by [Principle], which instruction purports to have been issued by an employee, but which in fact was fraudulently issued by someone else without [Principle’s] or the employee’s knowledge or consent." Ironshore contends that no communication satisfied both conditions of the coverage provision, but we disagree.

As Ironshore concedes, the email purporting to be from Nazarian, which informed Lien of the need to wire money and told her to await further instructions from Leach, qualifies as a fraudulent instruction. It was, after all, a "fraudulently issued" "electronic ... instruction" that "purport[ed] to have been issued by an employee ... without [Principle’s] or the employee’s knowledge or consent." But Ironshore asserts that the email instructed Lien only to work with Leach to wire funds later in the day, not to wire a specific amount of money to a specific recipient. So, it explains, the email did not "direct[ ]" Principle to pay money out of its accounts, as the coverage provision required.

This argument is unpersuasive. As an initial matter, we are hard pressed to construe the email as doing anything but "directing a financial institution to debit [Principle’s] transfer account and transfer ... money ... from that account." The email told Lien, "I will need you to make the initial wire as soon as possible, for which you have my full approval to execute." But even if we assume that the email needed additional details before we could fairly construe it as "directing" a wire transfer, a later email from Leach identified the amount of the wire transfer, the recipient bank, and the purported beneficiary of the transfer. That email remedied any possible lack of detail.

Ironshore agrees that Leach’s email was sufficiently detailed, but it contends that the email was not a "fraudulent instruction" under the policy because someone purporting to be an outside attorney, not a Principle employee, sent it. In other words, Ironshore contends that Leach’s email, though fraudulent and specific, was not a "fraudulent instruction," and that Nazarian’s purported email, though a "fraudulent instruction," was not specific enough to meet the provision’s other requirements.

We disagree with Ironshore’s divide-and-conquer approach. Nothing in the policy language warrants the assumption that the two emails could not be part of the same fraudulent instruction. Although the policy defines a fraudulent instruction as a singular "electronic or written...