The U.S. Court of appeals rejected National Union Fire Insurance Co’s. – a subsidiary of American International Group Inc. (AIG) — ‘direct loss’ defense on a computer hacking claim that involved DSW Shoe Warehouse.  The ruling entitles the national retailer to recover $6.8 million for a computer hacking claim that includes $5.3 million in losses and about $1.5 million in interest.

DSW’s losses from the incident included customer communications, public relations, customer claims and lawsuits and legal fees related to investigations in multiple states by the Federal Trade Commission (FTC) and state attorney generals.

According to court documents, DSW’s local wireless network was breached in 2005 by a hacker who downloaded credit card and checking account information of more than 1.4 million customers through their chain of more than 100 stores.  As a result of the data breach, fraudulent transactions ensued.

In the court case, AIG’s attempted to exclude coverage with several exclusions, including that the “direct loss” provision in its crime insurance policy excluded the retailer’s computer hacking claim.  The appeals court ruled that the exclusion language in the policy was not unmistakably clear.

With the growing threat of computer data breaches, the court ruling is significant for businesses that accept credit cards and buyers of fidelity, crime and financial institution bond coverage.

(Photo credited to: cbsnews.com)

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