Erie sues insurer over $1M scam claim

ERIE — Erie is suing National Union Fire Insurance Co. of Pittsburgh, Pennsylvania, for breach of contract over the insurer’s alleged refusal to pay a claim filed after the town was scammed out of more than $1 million. 

The fraud, which occurred in late 2019, involved the mistaken payment of $1.01 million to a scammer claiming to be SEMA Construction Inc., the firm contracted to build Erie Parkway Bridge. 

In October 2019, an unknown person accessed Erie’s website and obtained a vendor payment form. The scammer then completed it using SEMA’s information and uploaded it.

Erie paid the invoice and the payment was routed from a bank in Florida to other banks in Mexico and Dubai, court documents show.

When Erie officials discovered the fraud in November, the FBI was brought in. Investigators determined that the scheme was not perpetrated by town employees and “concluded the fraud had been perpetrated by outside criminal actors,” the complaint said.

As a result, Erie filed a claim with AIG Claims Inc. and subsidiary National Union under the town insurance policy’s provision for losses attributed to “Forgery or Alteration,” or “Computer Fraud,” court documents filed this week in U.S. District Court in Denver show. 

“Despite language in the policy to the contrary, National Union has wrongfully taken the position that Erie’s only coverage for this matter is for ‘Impersonation Fraud Coverage,’” the complaint said. “… Despite having coverage for $2 million for both ‘Computer Fraud’ and ‘Forgery or Alteration,’ National Union has wrongfully refused to compensate Erie under the policy and has wrongfully insisted that Erie is entitled to only $100,000 in coverage.”

In February, Erie officials wrote to National Union to dispute the insurer’s position that the policy provides only $100,000 in coverage for this particular type of scam.

“National Union and AIG Claims Inc. failed to respond for over five weeks. When they did respond, National Union and AIG Claims Inc. failed to rebut any of the assertions made by Erie concerning coverage under the policy and continued to unreasonably deny coverage under the computer fraud and forgery coverages,” according to court documents. 

National Union and AIG representatives did not respond to requests for comment. As of publication, Erie town officials had not commented. 

The suit claims Erie is entitled to damages worth “two times the covered benefits under the policy plus reasonable attorney’s fees and costs.”

“As other recent examples have shown, the nature of electronic business processes expose the town’s operations to bad actors who are always on the lookout for ways to steal money,” Erie town administrator Malcolm Fleming said in an email. “The town of Erie paid for insurance to cover this risk. We believe National Union and AIG should honor the insurance coverage the town bought from them to protect against this kind of loss, and we believe the court will agree with the town.”

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