O. Peter Sherwood, J.
This is an insurance coverage action by plaintiff Universal American Corp. (Universal) in connection with a "Computer Systems Fraud" insurance policy (Policy) issued to plaintiff by defendant National Union Fire Insurance Company of Pittsburgh, PA (National Union). Universal moves, pursuant to CPLR 3212, for an order granting partial summary judgment and declaring that certain losses that Universal suffered from the entry of electronic data into its computer system are covered by the Policy. National Union cross-moves for an order granting summary judgment dismissing the complaint. For the reasons stated below, the motion is denied, the cross motion is granted and the complaint is dismissed.
According to the complaint, Universal is a health insurance company which provides Medicare managed-care plans, Medicare prescription drug benefits and other insurance products. Universal's offerings include "Medicare Advantage Private Fee-For-Service" plans (MA-PFFS), which are government-regulated alternatives to Medicare. Essentially, members enroll in health care plans offered by private insurers, which plans receive reimbursement payments from the Centers for Medicare and Medicaid Services (CMS), an agency of the U.S. Department of Health and Human Services. The plans also receive payments from plan members themselves. Under such plans, health care providers submit claims for services provided to plan members, similar to traditional health insurance policies. In Universal's case, many of the claims are "auto-adjudicated" through Universal's computer system, with payments rendered without any manual review.
Rider No.3 to a Financial Institution Bond (the "Bond") issued to Universal by National Union on July 29, 2008, provided insurance coverage to Universal against a variety of losses. The Rider is titled "Computer Systems Fraud" and provides indemnification for:
Loss resulting directly from a fraudulent
(1) entry of Electronic Data or Computer Program into, or
(2) change of Electronic Data or Computer Program within the Insured's proprietary Computer System...provided that the entry or change causes
(a) Property to be transferred, paid or delivered,
(b) an account of the Insured, or of its customer, to be added, deleted, debited or credited, or
(c) an unauthorized account or a fictitious account to be debited or credited.
The term "Computer Program" was defined as "related electronic instructions which direct the operations and functions of a computer...which enable the computer...to receive, process, store or send Electronic Data." The term "Electronic Data" was defined as "facts or information converted to a form usable in a Computer System by Computer Programs, and which is stored on magnetic tapes or disks, or optical storage disks or other bulk media."
The Rider has a policy limit of $10 million with a $250, 000 deductible for each "single loss." The Rider provided that a series of losses arising from the fraudulent acts of one individual, or of several unidentified individuals using the same method of operation, would constitute a single loss under the policy.
Universal states that, in late 2008, it suffered approximately $18, 321, 296 in losses from fraudulent claims made against its MA-PFFS plans. Most of these claims were submitted, by providers, directly into Universal's computer system and processed through the system. In some cases, the perpetrators enrolled new members in the MA-PFFS plan with the person's cooperation, in return for which the member received a kickback from the provider. In some cases, the provider used the member's personal information without that person's knowledge. In either event, the provider itself did not enroll in the plan. Instead, they were able to submit claims after obtaining a ...