September 12, 2025

Texas Gulf Bank Sues Insurers Over Cyber Fraud Losses

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 a lawsuit against Great American Security Insurance Company, Great American Alliance Insurance Company, and ABA Insurance Services, Inc. following the refusal of these insurers to cover nearly $1.5 million in losses incurred due to a cyber fraud incident. The lawsuit was officially filed in the U.S. District Court for the Southern District of Texas. The bank claims that the insurers breached their contracts and acted in bad faith by denying coverage for the cyber fraud that transpired.

The legal dispute arose after Sequeira Civil Construction, LLC (SC2), a customer of Texas Gulf Bank, lodged a suit against the bank in October 2023. SC2 accused the bank of executing unauthorized wire transfers from its account, which allegedly breached a Wire Transfer Agreement between the two parties. The cyber fraud originated when a cybercriminal accessed the email account of an SC2 employee, Beth Behenna, and began submitting false wire transfer requests to the bank starting on August 3, 2023.

In processing the fraudulent requests, Texas Gulf Bank failed to adhere to proper procedures by using a telephone number provided in the fraudulent emails rather than the one specified in the Wire Transfer Agreement. As a result, the bank was able to recover $297,400 of the total fraudulent transfers, but $1,481,540 remained unrecoverable. On September 11, 2023, SC2 demanded payment from Texas Gulf Bank for the unrecovered amount.

The lawsuit between Texas Gulf Bank and SC2 ultimately reached a settlement on May 22, 2025, in which the bank compensated SC2 with a payment of $787,500. Throughout this process, Texas Gulf Bank notified Great American Security Insurance Company in a timely manner about SC2’s claim under the terms of their Cyber Policy. However, on October 12, 2023, coverage was denied by ABA Insurance Services, which represented Great American Security Insurance Company, citing the “Non-Company Security Breach Exclusion.”

This exclusion states that the insurer is not responsible for covering losses related to breaches that do not involve the company’s own systems. Texas Gulf Bank contends that the bonding policy issued by Great American Alliance Insurance Company did not stipulate the necessity of including a “Predetermined Telephone Number” in the Written Agreement, which was part of the grounds for denial of coverage.

More allegations from Texas Gulf Bank include accusations of misrepresentations concerning policy terms, failures to conduct reasonable investigations into the claims, and violations of Texas insurance regulations. Through this lawsuit, the bank is seeking damages amounting to at least $1.2 million, alongside attorney fees exceeding $50,000.

This case brings to the forefront several key issues: the limitations of policy coverage in situations where cybercriminals exploit vulnerabilities outside the insured’s systems and the definition of adequate verification processes within financial institution bonds. As financial institutions increasingly grapple with sophisticated cyber threats, the outcome of this case is expected to play a significant role in shaping how both insurers and those insured approach the matters of cyber risk and financial fraud insurance moving forward.

As it stands, the lawsuit remains unresolved, leaving unanswered questions about the dynamics of insurance policy exclusions in the context of cyber fraud. The implications for the insurance industry could be substantial, potentially leading to changes in policy formulation and risk assessment approaches as the market adapts to the evolving landscape of cyber threats.

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Author: STAFF HERE GEORGETOWN

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