AIG's Motion to Dismiss the insured's claim based upon a fraudulent transfer of funds was largely denied by the court. SS&C Tech. Holdings v. AIG Spec. Ins. Co., 2019 U.S. Dist. LEXIS 194196 (S.D. N. Y. Nov. 6, 2019).
SS&C was a global provider of software and software-enabled services. In March 2016, unknown third parties using stolen credentials sent transfer requests via e-mail to SS&C, falsely claiming to be acting on behalf of Tillage Commodities Fund, L.P. Over the court of three weeks, SS&C transferred over $5.9 million from Tillage's accounts to certain bank accounts in Hong Kong, as requested by the fraudsters.
Tillage sued SS&C for gross negligence. The case was ultimately settled.
SS&C held a policy from AIG to protect losses resulting from claims against SS&C due to its negligence, errors or omissions, relating to the performance of its professional services. AIG agreed to defend the underlying case, but denied indemnity coverage based upon exclusions in the policy. SS&C sued AIG for (1) breach of contract; (2) declaratory judgment that there was coverage under the policy; and (3) breach of the implied covenant of good faith and fair dealing.
Exclusion 3 (a) of the policy denied coverage for losses in connection with claims alleging dishonest, fraudulent, criminal or malicious acts, errors or omissions . . ., "provided, however, AIG will defend suits that allege any of the foregoing conduct, and that are not otherwise excluded until there is a final judgment . . . at which time the Insureds shall reimburse AIG for Defense Costs."
AIG argued that the first clause before the "provided, however," meant that the exclusion applied not only to "dishonest, fraudulent, criminal or malicious acts, errors, or omissions by its insured, but also broadly to such acts committed by third-party fraudsters, such as here. The argument failed. Coupling the first clause with the "provided, however" clause of the same sentence clearly indicated that Exclusion 3 (a) applied only to dishonest, fraudulent, criminal or malicious acts committed by SS&C, and not to acts such as committed by third-party fraudsters. At the very least, an ambiguity existed, which construed in favor of SS&C.
The court agreed to dismiss the second count for declaratory judgment because it was duplicative of the other counts. The third count on bad faith survived the motion to dismiss, however. If SS&C's allegations were true, AIG improperly invoked Exclusion 3 (a) to deny coverage and AIG impaired SS&C's contractual rights. The fact that AIG engaged in allegedly pretextual reading of the policy to deny coverage could qualify as an act of bad faith.
