Telephone Toll Fraud Coverage

“Thieves called into our insured’s phone system and navigated to specific extensions of employees they apparently knew were not at work that day. They accessed the voicemail boxes at each station using that employee’s password and set them to forward voicemails to international premium numbers (like 900 numbers) that triggered charges in excess of $500,000. The claim has been denied by the property, crime, and cyber liability carriers under the attached forms. Do you agree and, if so, is there a way to provide this coverage?”

“An unknown outside person hacked into our school system insured’s phone computer system. They were able to use a password to access an extension then ring up $50,000 in toll charges over a two-week period. The insurance company denied the claim under computer fraud, employee dishonesty, funds transfer fraud, and credit/debit/charge card forgery under the crime policy. Seems like it should be covered somewhere.”

None of the coverage forms provided cover these claims. Such fraud can occur in both business and personal situations, with or without a phone system. Years ago, my son’s computer was hacked and used to run up $9,000 in overseas phone charges. The phone company had a “forgiveness policy” based on one-strike-and-you’re-out, so they let us off the hook that one time.

The good news is, for commercial exposures, there is a solution thanks to the advocacy efforts of your Big “I” national Technical Affairs Committee which meets annually with ISO. The committee first brought this issue to ISO’s attention in 2005 without success. We reintroduced it in 2009 based on a number of real-life claims like yours, along with an increasing reluctance of phone companies to forgive fraud of this type, that made the business case to ISO that a coverage option was needed for this exposure.

As a result of our efforts, the CR 04 16 – Toll Fraud Endorsement was included in the 2010 multistate revision to ISO’s Crime and Fidelity program. Under the terms of the endorsement, coverage applies to long distance telephone charges incurred by the insured resulting from fraudulent use or fraudulent manipulation of an account code or system password to gain access to the insured’s voice computer (telephone) system. This is an endorsement that should be recommended for most commercial insureds.