Depending on the type of practice an attorney has, the Law Firm could be carrying large balances in Escrow and IOLA accounts. With smaller law firms, the firm may be relying on a “trusted” employee to manage the funds, balance the accounts, deposit funds and write checks. Unfortunately this “trusted” employee can be the cause of loss in this account. This loss could be from employee theft or from someone outside the firm duping the employee or an attorney into disbursing funds to the wrong party or being generally defrauded. Larger firms also have many of the same exposures.
Generally most law firms carry Lawyers Professional Liability Insurance and Business Owners Policy (BOP). A number of attorney malpractice carriers specifically exclude coverage for these accounts or the cause of loss, ie theft, is not a covered cause of loss in an attorney malpractice policy. This leaves the BOP.
Most law firms BOPs contain at least some coverage for theft of funds. But often the limits in the BOP for this coverage are either too low to cover the value of the funds in the Law Firms Escrow accounts. Law firms need to review their BOP coverage to determine if this limit is adequate to meet their needs.
One method is for the firm to increase the theft limit for Employee Dishonesty & Forgery coverage on the Business Owners to an adequate limit. But depending on the insurance carrier they may limit this coverage to $25,000 or $50,000. This still may leave the firm exposed to other pearls such as Computer and Funds transfer Fraud.
A better solution is purchasing a Crime Insurance policy. In addition to Employee Theft; a crime insurance policy can cover perils such as:
- Computer & Funds Transfer Fraud’
- Money & Securities
- Depositors Forgery or Alteration
- Credit, Debit, or Charge Card Forgery
- Money Orders & Counterfeit Currency
- Investigation Expenses
- Identity Theft Recovery Expenses Reimbursement