A Texas court has issued a split decision in a dispute between an American International Group (AIG) unit and RealPage Inc over an allocation of recovery provision, ruling that the property management software company is entitled to retain a portion of funds recovered following a phishing attack.
The phishing attack occurred in 2018, leading to the theft of $10 million from RealPage. A report from AM Best said that the stolen amount included $9 million in rent payments owed by RealPage to its landlord clients and approximately $1 million in transaction fees the company was due, according to court documents.
In response to the theft, RealPage reimbursed its clients for the stolen rent funds. The company then sought coverage under its commercial crime insurance policy with AIG’s National Union Fire Insurance Co of Pittsburgh, Pennsylvania, seeking reimbursement for both the stolen transaction fees and the $9 million paid to clients.
National Union agreed to pay $1.2 million to cover the transaction fees but denied the $9 million claim, arguing that RealPage’s decision to reimburse clients was a business decision and an indirect loss not covered by the policy
The court sided with National Union, ruling that the client reimbursements constituted a separate loss outside the policy’s coverage.
While the case was ongoing, the US Secret Service recovered approximately $2.9 million of the stolen funds. RealPage filed a petition, which was granted, claiming entitlement to the recovered funds.
In September 2020, National Union requested that RealPage reimburse the $1.2 million paid under the policy, citing the policy’s allocation of recovery provision (ARP).
The ARP specified that any recoveries, whether made before or after payment under the policy, should first be applied to any excess loss incurred by the policyholder, with the insurer entitled to reimbursement for its payout thereafter.
National Union argued that the recovered funds were subject to the ARP and that the insurer should be fully reimbursed, as RealPage’s covered loss—the stolen transaction fees—had already been paid in full.
RealPage refused to reimburse the insurer, contending that the ARP only applied to recoveries of covered losses. The company argued it was unclear whether the recovered funds pertained to the covered transaction fees or the uncovered client reimbursements.
National Union responded by filing a breach of contract suit against RealPage, while RealPage filed a counterclaim, alleging that the insurer violated the Texas Insurance Code by engaging in unfair or deceptive acts. Both parties sought summary judgment.
US District Court Judge Jane J. Boyle, presiding over the case in the Northern District of Texas, dismissed RealPage’s claim regarding violations of the Texas Insurance Code. The court found that RealPage did not suffer actual damages related to the policy misinterpretation, aside from legal expenses.
However, Boyle ruled in favor of RealPage on the ARP issue, determining that the recovered funds were not subject to the allocation provision and that National Union was not entitled to reimbursement.
What are your thoughts on this story? Please feel free to share your comments below.
