A $5 million cyber fraud loss, a denied insurance claim, and a fight over coverage have sparked a legal battle between financial firm Baird and insurer Chubb.
Robert W. Baird & Co. Incorporated, a Milwaukee-based financial services company, has filed a complaint in the United States District Court for the Eastern District of Wisconsin against Federal Insurance Company, known as Chubb, alleging breach of contract, bad faith, and seeking declaratory relief. The dispute centers on whether Chubb must pay $2.5 million under an excess Financial Institution Bond after Baird suffered a $5,153,840.49 loss from a fraudulently induced wire transfer in a municipal bond transaction.
According to the complaint, the events began in late 2024, when Baird entered into a written agreement with White Lake Township to purchase approximately $29 million in municipal bonds. On November 13, 2024, Baird received an email, purportedly from White Lake’s town supervisor, Rik Kowall, instructing the firm to wire the funds to a new bank account at Citibank. The email was later determined to be fraudulent. Hackers had accessed the township supervisor’s email account, altering the domain name to “@whltelaketwp” and providing new wire instructions.
Relying on these instructions, Baird transferred $29,064,355.50 on November 21, 2024. The fraud was discovered soon after, and with assistance from law enforcement and the banks involved, Baird was able to recover most of the money. However, $5,153,840.49 remained unrecovered.
Baird’s insurance portfolio included a primary Financial Institution Bond from AIG and an excess bond from Chubb. The AIG bond contained a Fraudulently-Induced Payment Coverage clause, which indemnified the insured for “Loss of Funds resulting directly from an Insured having, in good faith, transferred Funds from its own account in reliance upon Fraudulently-Induced Instruction(s).” The policy defined “Fraudulently-Induced Instruction” as an instruction communicated by a person purporting to be an employee of a vendor with a legitimate pre-existing arrangement or written agreement to provide goods or services to the insured. The terms “vendor,” “goods,” and “services” were not defined in the bond.
After the loss, AIG paid its $2,500,000.00 policy limit under the Fraudulently-Induced Payment Coverage, acknowledging that Baird’s loss was covered. Chubb, however, denied coverage, asserting that White Lake “did not contract with Baird to provide goods and services,” and therefore was not a “Vendor Requestor” as required by the policy, and that there was no “Fraudulent Instruction.” Baird responded that, as a financial institution, the goods it deals in are financial instruments and the services it provides are financial ones, and argued that Chubb’s denial rendered the coverage meaningless for its business.
The complaint alleges that Chubb’s refusal to pay was arbitrary, capricious, and not supported by a reasonable interpretation of the policy. Baird seeks a declaration regarding Chubb’s obligations under the excess bond, damages for breach of contract, and punitive damages for alleged bad faith conduct.
As this is a newly filed complaint, all allegations remain unproven, and the case is at its earliest stage.
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