Insurer Cites Summary of Events in Denying Coverage for Hacking

By Don R. Sampen, published, Chicago Daily Law Bulletin, September 9, 2025

The 1st District Appellate Court recently held that an undisputed summary of events not appearing in an underlying complaint could be used as a basis for an insurer to deny coverage based on a policy exclusion.

The case is Certain Underwriters at Lloyd’s v. Galey Consulting, LLC, 2025 IL App (1st) 241909-U. The insurer, Lloyd’s, was represented by BatesCarey LLP of Chicago. Galey Consulting was pro se. Tribler Orpett & Meyer P.C. of Chicago represented the underlying claimant, Monroe Infrastructure LLC.

Galey provided construction management services for Monroe on a road construction project in Tennessee. Among its responsibilities was “pay application management,” meaning that it had an obligation to review and approve payment by Monroe for work done on the project by others.

In 2021, hackers obtained access to Galey’s email account with the ability to divert emails to and from legitimate accounts. As a result, upon authorizing Monroe to pay $673,000 to a legitimate vendor, the hackers diverted payment to a fraudulent account. When the vendor complained about nonpayment, the hackers’ scheme was discovered, although the funds were never recovered.

Galey reported the incident to its errors and omissions carrier, Lloyd’s, by way of a summary detailing the e-mail hacking and wire fraud that had occurred.

While the policy provided coverage for claims arising out of an alleged negligent act or breach of contract, it contained an exclusion for claims “arising directly or indirectly out of any cyber event,” which included a computer system hacking attack. Lloyd’s therefore denied coverage and filed the instant declaratory action.

Monroe then filed suit against Galey for professional negligence, breach of contract and breach of fiduciary duty. The complaint made no mention of email hacking or that wire fraud played any role in causing the loss. Monroe and Galey subsequently settled, with Galey assigning to Monroe all of its rights against Lloyd’s. As assignee, Monroe answered the declaratory complaint and filed a counterclaim.

Upon cross-motions for summary judgment on Lloyd’s duty to defend, the trial court granted the motion of Lloyd’s and denied that of Monroe, and Monroe took this appeal.

Analysis

In an opinion by Justice James Fitzgerald Smith, the 1st District affirmed. He noted Monroe’s primary argument that the duty-to-defend analysis cannot include consideration of Galey’s summary of the hacking events provided to Lloyd’s. Smith disagreed and observed that, while the use of evidence extrinsic to the underlying complaint may sometimes appropriately be used to affirmatively establish the duty to defend, it may also be used by an insurer to deny a defense obligation.

Nothing in the factual record, moreover, wrote Smith, called into question the facts set forth in the summary. Nor did anything in the record suggest that the fact that an email hacking incident occurred was even an issue of dispute in the underlying case. Nor did the summary give rise to any disputed questions involving legal interpretation.

Monroe further argued, however, that even if the policy’s cyber events exclusion were to be considered, it did not preclude coverage for losses that had other concurrent causes, such as Galey’s alleged negligence. Smith rejected this argument because, in his view, Galey’s summary of events was clear that Monroe’s loss can only be characterized as “arising directly or indirectly out of” a cyber event, even if other potential causes of the loss could also be identified.

The court therefore affirmed summary judgment in favor of Lloyd’s.

Justice Aurelia Pucinski dissented, arguing that there was nothing in Galey’s summary to demonstrate that it took the necessary precautions to prevent the hack.

Key Point

In determining the duty to defend in a declaratory judgment context, the court may rely on evidence extrinsic to the underlying complaint, including a summary of events by the insured to its insurer, so long as no determination is made of factual matters at issue in the underlying case.