UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

ERNST AND HAAS MANAGEMENT No. 20-56212 COMPANY, INC., Plaintiff-Appellant, D.C. No. 2:20-cv-04062- v. AB-PVC HISCOX, INC., Erroneously Sued As Hiscox Insurance Company Inc., OPINION Defendant-Appellee,

and DOES, 1 through 10, Defendants.

Appeal from the United States District Court for the Central District of California Andre Birotte, Jr., District Judge, Presiding

Argued and Submitted October 19, 2021 Pasadena, California

Filed January 26, 2022 2 ERNST & HAAS MGMT. CO. V. HISCOX

Before: Ryan D. Nelson and Lawrence VanDyke, Circuit Judges, and Karen E. Schreier, * District Judge.

Opinion by Judge VanDyke

SUMMARY **

Insurance Law

The panel reversed the district court's order dismissing Ernst and Haas Management Company, Inc.’s diversity insurance coverage action, and remanded for further proceedings.

Hiscox, Inc. sold Ernst a commercial crime insurance policy in 2012. In 2019, an Ernst accounts payable clerk, in response to a fraudulent email, wired payments to a fraudulent actor she believed to be the founder and managing broker of Ernst. In 2019, Ernst submitted a $200,000 claim under the policy. Hiscox denied Ernst’s claim because purportedly the funds transfer fraud portion of Ernst’s policy did not cover the fraud here because an employee had taken action to initiate the wire transfer.

Two provisions of the parties’ 2012 insurance policy were disputed: the “Computer Fraud” provision, and the “Funds Transfer Fraud” provision.

* The Honorable Karen E. Schreier, United States District Judge for the District of South Dakota, sitting by designation. ** This summary constitutes no part of the opinion of the court. It has been prepared by court staff for the convenience of the reader. ERNST & HAAS MGMT. CO. V. HISCOX 3

The panel held that the district court erred when it held that neither disputed provision in the 2012 crime insurance policy covered Ernst’s $200,000 loss.

First, the district court incorrectly interpreted the 2012 Computer Fraud provision for two reasons: (1) the district court wrongly relied on facts analyzed in Pestmaster Servs., Inc. v. Travelers Cas. & Sur. Co. of Am., 656 Fed. App’x 332 (9th Cir. 2016), which were dispositively different than the facts here; and (2) improper reliance on Pestmaster’s embezzlement-based analysis led to a flawed interpretation of the computer fraud provision and how it applied to the pleaded facts of this case. Here, Ernst immediately lost its funds when the funds were transferred as directed by the fraudulent email, and there was no intervening event. The panel held that, taking the pleaded facts as true, Ernst suffered a loss resulting “directly” from the fraud, arguably entitling Ernst to coverage under the policy. The panel remanded with instructions to reconsider the case with the recognition that Ernst’s loss fell within the Computer Fraud provision of the 2012 policy.

The panel held that the Funds Transfer provision also covered Ernst’s loss resulting directly from the fraudulent email instruction. The district court erred when it reasoned that Ernst’s alleged loss did not result directly from fraudulent instructions. Here, the fraudulent email directed the Ernst employee to transfer funds, provided wire details, and provided fraudulent authorization. The Ernst employee initiated a wire pursuant to the fraudulent authorization, resulting in Ernst’s loss. The panel remanded with instructions to reconsider the case with recognition that, under the facts as alleged by Ernst, Ernst’s loss fell within the F