News Summary
Texas Gulf Bank is taking legal action against its insurers for denying coverage related to significant losses from a cyber fraud incident. The lawsuit aims to recover approximately $1.5 million lost due to unauthorized wire transfers, which resulted from a breach involving a client, Sequeira Civil Construction. The bank claims the insurers misapplied policy exclusions and is seeking substantial damages and attorney fees. As cyber threats increase, this case may set important precedents for cyber insurance policies and financial institutions.
Texas – Texas Gulf Bank, N.A. has initiated legal action against Great American Security Insurance Company, Great American Alliance Insurance Company, and ABA Insurance Services, Inc. for their refusal to cover close to $1.5 million in losses resulting from a cyber fraud incident. The lawsuit, filed in the US District Court for the Southern District of Texas, claims the insurers breached contractual agreements and acted in bad faith by denying necessary coverage for the bank’s losses.
The conflict originated when Sequeira Civil Construction, LLC (SC2), a customer of Texas Gulf Bank, filed a lawsuit in October 2023, accusing the bank of executing unauthorized wire transfers from its account that were in violation of a designated Wire Transfer Agreement. The fraudulent activity began on August 3, 2023, when a cybercriminal gained access to the email account of a SC2 employee, Beth Behenna. The attacker then sent fraudulent wire transfer requests to Texas Gulf Bank, which the bank processed after contacting a phone number provided in the email, rather than the number outlined in the Wire Transfer Agreement.
While Texas Gulf Bank successfully recalled $297,400 of the fraudulent transfers, a substantial amount of $1,481,540 remained unrecoverable. SC2 formally demanded this amount from Texas Gulf Bank on September 11, 2023. Eventually, both parties reached a settlement in May 2025, with the bank agreeing to pay SC2 $787,500.
In compliance with the bank’s Cyber Policy, Texas Gulf Bank promptly informed Great American Security Insurance Company about SC2’s claim. However, on October 12, 2023, ABA Insurance Services, acting on behalf of the insurer, declined coverage, citing a “Non-Company Security Breach Exclusion.” This exclusion indicates that the insurer is not liable for incidents arising from breaches that do not involve the insurance company’s own systems.
The bank further contests the denial, asserting that the bond provided by Great American Alliance Insurance Company did not necessitate a “Predetermined Telephone Number” in the written agreement, despite this being cited as a reason for the coverage rejection. In its lawsuit, Texas Gulf Bank accused the insurers of misrepresenting the terms of their policies, failing to perform thorough investigations, and violating Texas insurance statutes.
Texas Gulf Bank is now seeking damages amounting to no less than $1.2 million, alongside at least $50,000 in attorney fees. This case raises key issues regarding the scope of policy exclusions, particularly when cybercriminals exploit vulnerabilities that lie outside the insured’s computer systems. Additionally, questions arise about what constitutes adequate verification under a financial institution bond and how these standards might shift in response to evolving cyber threats.
The lawsuit highlights the complex nature of cyber insurance coverage, which has become increasingly essential as financial institutions face sophisticated cyber threats. The resolution of this case may have significant implications for both insurers and policyholders as they navigate the complicated landscape of cyber risk and financial fraud coverage.
The outcome of the lawsuit remains pending, leaving stakeholders in the financial sector and insurance industry to anticipate how the courts will interpret and apply these coverage issues in light of the ongoing struggle against cybercrime.
Deeper Dive: News & Info About This Topic
- Insurance Business
- Wikipedia: Cyber Insurance
- KHOU
- Google Search: Texas Gulf Bank lawsuit
- Times of India
- Google Scholar: Cyber Fraud Insurance Claims
- Houston Chronicle
- Encyclopedia Britannica: Cybersecurity
- KNUE
- Google News: Texas Gulf Bank cyber fraud
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