A company whose overseas electronic funds transfer went to a fraudster instead of a medical devices supplier should have their loss covered, the dispute authority has ruled.

The claimant, which held a non-profit association liability package, intended to pay $45,536 to a UK business.

It received an invoice and an email advising of a bank details change, and sent the funds on September 1 2022. The equipment was not delivered and a currency loss claim was lodged after the fraud was discovered.  

The insured had tried to check the email and account validity, but the fraudster, whose identity remains unknown, had impersonated parties involved including employees.

Berkley Insurance Company said its cover for direct financial loss did not include international electronic funds transfers and an exclusion applied for “knowingly” giving or surrendering money in an exchange or purchase.

The insurer said money needed to be “of a physical nature” and its wording referenced coins, bank notes, cheques, postal orders, money orders and bullion.

But the Australian Financial Complaints Authority says “currency” should be understood by its “ordinary everyday usage” and financial instruments “not expressly categorised according to their degree of physicality” are included in the policy definition.

“The insurer has provided no logical or rational explanation as to why EFTs should now be excluded from the cover intended by the policy when financial instruments such as postal orders and money orders are included,” it says.

It rejects the argument that cheques are lower risk due to “the scrutiny of human eyes at multiple stages” and account name and number matching during a slower process that increases the chance of early fraud detection.

“This is speculation at best and, in this instance, it is not supported by actuarial research or cyber investigations that have established modern banking methods are any less secure than, for example, making a cheque or money order out to bank details provided by a scammer,” the ombudsman says.

AFCA finds the terms currency, local currency and foreign currency in the policy definition of direct financial loss include electronically held funds and their transfer.

And it says the “knowing” exclusion does not apply because the goods did not arrive after payment, the transaction did not involve reciprocity, and the complainant and fraudster were acting with different purposes.

“It follows there was no informed, ‘knowing’ (or knowledgeable) exchange or purchase. In that sense, the complainant did not knowingly surrender the funds.”

The decision is available here. 

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