Canada: Posco Daewoo: U.S. District Court Applies Ownership Condition In Rejecting Creditor's "Reverse" Social Engineering Fraud Claim Under Its Own Crime Policy

Last Updated: November 29 2018
Article by David S. Wilson, Christopher McKibbin and Stuart M. Woody

On November 19, 2018, the U.S. District Court for the District of New Jersey released its decision in Posco Daewoo America Corp. v. Allnex USA, Inc. and Travelers Casualty and Surety Company of America. The decision represents a "sequel" to the Court's 2017 decision arising out of the same claim (see our November 6, 2017 post). The case features an interesting twist on the usual social engineering fraud claim scenario, in that it was the intended payee of the funds, not the payor, which asserted a claim under its own crime policy for recovery of funds which the payor had been duped into paying to an impostor. This type of claim has been referred to as a "reverse" social engineering fraud claim. Numerous such claims have been advanced by intended payees recently, typically when it comes to light that the payor did not maintain its own social engineering fraud coverage.

The 2017 decision dismissed the claim of the insured, Posco Daewoo America Corp. ("Daewoo"), under Fed. R. Civ. P. 12(b)(6) for failure to state a claim upon which relief could be granted (this is similar to Ontario's Rule 21.01(1)(b)). However, the Court granted leave to Daewoo to re-plead its claim. In so doing, Daewoo made some novel arguments concerning the scope of the ownership condition.

The Facts

Daewoo is an importer and exporter of chemicals. Allnex USA ("Allnex") is a vendor of specialty chemicals, and was a customer of Daewoo. Daewoo supplied Allnex with product for which Allnex owed payment. An impostor posing as an employee of Daewoo's accounts receivable department sent emails to an employee of Allnex, requesting that payments to Daewoo on certain outstanding receivables be remitted to "new" Wells Fargo accounts.

Allnex paid $630,058 into the Wells Fargo accounts. By the time that the fraud was discovered, $367,613 had been transferred from the Wells Fargo accounts to accounts overseas. Daewoo never had possession of any of the funds owed to it by Allnex at any time.

Daewoo maintained a Wrap+ policy with Travelers. Daewoo submitted a claim to Travelers, asserting that the impostor's emails to Allnex, coupled with Allnex's transfers to the Wells Fargo accounts, constituted a covered loss to Daewoo. Travelers took the position that Daewoo had not satisfied the ownership condition in the policy. This condition provided as follows:

Ownership of Property; Interests Covered

The property covered under this Crime Policy ... is limited to property:

(i) that the Insured owns or leases;

(ii) that the Insured holds for others:

(a) on the Insured's Premises or the Insured's Financial Institution Premises; or

(b) while in transit and in the care and custody of a Messenger; or

(iii) for which the Insured is legally liable, except for property located inside the Insured's Client's Premises or the Insured's Client's Financial Institution Premises.

Travelers took the view that, while Daewoo was undoubtedly owed money by Allnex, Daewoo never actually owned or held the funds, nor had Daewoo been legally liable for them.

The Court agreed with Travelers' position in the 2017 motion, finding that Daewoo's failure to meet the ownership condition was dispositive. Until such time as funds were actually transferred to Daewoo, Daewoo had, at most, a receivable and a chose in action (i.e. a right to sue) in the event that it was not paid. This did not meet the ownership condition. As a result, the Court granted Travelers' Rule 12(b)(6) motion, but granted leave to Daewoo to re-plead its claim.

The Re-Pleaded Claim and the 2018 Decision

Daewoo proceeded to re-plead the claim in 2018, advancing several arguments as to why it "owned" the funds in Allnex's possession. These included:

  1. Daewoo owned the stolen funds because Allnex had taken the position that it does not owe Daewoo any additional money, because Daewoo "owns" such funds;
  2. Daewoo owned an account receivable, "which is 'tangible property' of Daewoo within the meaning of the Policy." An account receivable is a "tangible asset" for "accounting purposes", so it is also "tangible property" under the policy and therefore covered; and,
  3. Once Allnex placed the funds into the funds transfer system, "Daewoo would have had the right and ability to impose a constructive trust over the funds."

Travelers brought a further Rule 12(b)(6) motion in respect of the re-pleaded claim. The Court granted the motion in respect of the new pleadings. The first contention was dealt with fairly summarily; the Court held that Allnex's characterization of who owned the funds has no impact on whether the policy actually covers the alleged loss.

Daewoo's contention regarding "tangible property" required more nuanced consideration. The Court found that the characterization of the receivable as tangible property was irrelevant to the separate and discrete issue of whether the ownership condition was met. In other words, Daewoo could not establish that its alleged loss of the receivable met the ownership condition, meaning that it was irrelevant whether an account receivable could be considered "tangible" property. An insured must establish both a loss of covered property (usually Money, Securities or Other Property, each as defined) and that any such loss meets the ownership condition.

However, the Court went further and also rejected the argument that an account receivable is "tangible" property:

The Court also disagrees with Plaintiff's argument that its account receivable is tangible property because such receivable is considered a tangible asset for accounting purposes. The dispute concerns insurance coverage under the Policy; it is not an accounting matter. Moreover, the Policy does not indicate that terms are to be given the same meaning as they would for accounting purposes. ... certain New Jersey courts have found that accounts receivable constitute intangible property. See, e.g., J.B. Williams Co. ("It is well established that accounts receivable and other intangible personal property may acquire a situs for purposes of taxation at some place other than the technical domicile of the owner."); M. Rutkin Elec. Supply Co. (observing that an account receivable "is an intangible" for Uniform Commercial Code purposes). [citations omitted]

Finally, the Court rejected Daewoo's contention that the alleged constructive trust which attached to the funds once they were wired by Allnex served to satisfy the ownership condition:

Daewoo's constructive trust argument is unavailing to establish that Daewoo has ever owned the funds. Constructive trusts are an equitable remedy used to prevent unjust enrichment or fraud. A constructive trust can be imposed when "the holder of the legal title may not in good conscience retain the beneficial interest" of the property. ... A constructive trust is an equitable remedy which courts may compel following adjudication; the remedy does not mean that Daewoo owned the funds in the first instance.

As a result, Travelers' second Rule 12(b)(6) motion was successful, and Daewoo's claim was dismissed. This time, the Court granted the motion with prejudice.


Like its predecessor, the second Posco Daewoo decision provides helpful guidance to fidelity claims professionals regarding the proper interpretation and application of the ownership condition. The Court effectively rejected the notion that Daewoo's status as a creditor made it a "constructive" owner of the funds in Allnex's possession. Fidelity insurers occasionally face creative arguments concerning "constructive" ownership, and both of the Posco Daewoo decisions provide examples of a court rejecting such arguments. The Court's analysis reaffirms the fundamental coverage requirement that an insured must own, hold or have antecedent legal liability for the property which forms the subject of a claim.

Posco Daewoo also provides helpful commentary as to whether an account receivable is properly considered "tangible" property. In our view, the Court correctly rejected this argument, while also correctly finding that an insured must establish both a loss of covered property and compliance with the ownership condition.

Finally, the decision reinforces the importance of social engineering fraud coverage – in this case, for companies in the position of Allnex. Although it is not clear from the Court's reasons, one surmises that Allnex did not maintain social engineering fraud coverage, which might have responded to the loss in issue here. Given the increasing frequency of vendor impersonation and other social engineering fraud losses, insureds would be well-advised to consult with their brokers about the risks that social engineering fraud poses to their business, and the availability of social engineering fraud coverage.

Posco Daewoo America Corp. v. Allnex USA, Inc. and Travelers Casualty and Surety Company of America, 2018 WL 6077983 (D.N.J.)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

David S. Wilson
Christopher McKibbin
Stuart M. Woody
Events from this Firm
6 Feb 2019, Other, Toronto, Canada

When it comes to class actions, costs regimes vary across Canada. Ontario follows the traditional two-way costs regime while other jurisdictions like British Columbia have adopted a no cost regime.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions