A federal appeals court confirmed on Wednesday that property-management service provider, RealPage’s commercial-crime insurance policy did not cover a $5 million phishing loss because the company never “held” any of the ill-gotten funds.
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The 5th U.S. Circuit Court of Appeals affirmed a victory for National Union Fire Insurance Company of Pittsburgh, owned by AIG, which covered RealPage against losses from theft of property that the company owned, leased, or “held for others.”
The appeals court determined RealPage’s loss did not qualify as it only provided information and instructions to online payment processor, Stripe, who then transferred rent money from tenants to the firms represented by RealPage.
“In other words, when money changed hands, RealPage’s fingers never touched it,” Circuit Judge Cory Wilson wrote, in juncture with Chief Circuit Judge Priscilla Owen and Circuit Judge Edith Jones.
According to the complaint filed in a Dallas federal court, “bad actors” acquired its log-in credentials in April 2018 by sending an email that pretend to come from Stripe, complete with a fraudulent link.
The scammers netted about $10 million in payments using the credentials. However, RealPage detected the activity quickly and notified Stripe, who was able to successfully stop payment of $4 million of that sum.
RealPage reimbursed its client property managers for the remained, but also filed a claim for more than $6 million with National Union and its excess carrier, Beazley Insurance.
It was concluded that RealPage “owned” about $1 million in service fees that it would have accumulated had the transactions been legitimate, but denied coverage for the remaining $5.1 million because RealPage never “held” that money because it never physically possessed it.
The district court sided with National Union , entering judgment for both insurers in March of this year.
The court determined RealPage never actually possessed the funds that were caught in the phishers’ net. The panel also said that RealPage did not control the lost funds either, notwithstanding the routing instructions it provided to Stripe.”
The 5th Circuit disagreed with RealPages appeal argument that possession was unnecessary as it “held” the funds by controlling the payment instructions.
“While Stripe handled the funds as RealPage directed, Stripe, not RealPage, ultimately controlled the funds in Stripe’s custody — demonstrated by the very fact that RealPage could do nothing to recover the stolen funds without Stripe’s help,” the court held.
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