“Do you have coverage for Fraudulent Wiring Instructions?”
This can be a significant exposure to a law firm or title agency. Unlike in the past, now just by hitting a button, you can send millions of dollars out of your Trust account. This has sped up commerce, but it does have a dark downside. Many Law Firms and Title Agencies have fallen victim to being scammed out of the funds by transferring the funds to a fictitious account.
When closing a purchase and being the custodian of the funds, there is last second call, fax or e-mail that instructs the firm to change the routing of where the funds are to be sent. In seconds hundreds of thousands or millions of dollars is unknowingly sent off to a bank in Nigeria or Russia never to be seen again. Chances of recovery are slim to none.
Best course of action is to have procedures in place to verify by a phone call to a known number and person that you know prior to the fax or e-mail to verify that the changes in instructions are valid. But even with the best of procedures bad things can happen.
There are possibly 4 different types of insurance policies that could provide coverage.
1. Attorney Malpractice Insurance Policy—may provide this type of coverage but this will be on a case by case basis and carrier by carrier basis. Some insurance malpractice carriers will consider this part of professional services and would provide coverage. Most will not cover this exposure under a Lawyers Professional Liability Insurance Policy. Very few Title Agent Errors & Omissions or Attorney Malpractice Insurance specifically addresses this, but some do specifically exclude coverage for this exposure.
2. Cyber Insurance Policy—may also provide coverage for this, if properly endorsed. But in most cases coverage for this exposure will not be found in a Cyber Insurance Policy. And even if it is it may not be a Cyber even that triggers the loss of funds.
3. Business Owners Policy—likely has a limited amount of crime insurance included in the basic policy. And you may be able to endorse coverage for higher limits, but generally the limits are too low for most firms and title agencies.
4. Crime Insurance—is designed to address the exposure of doing a fraudulent funds transfer. It is the best policy to address these exposures. Again it needs to be properly endorsed to specifically address this exposure. Many people are confused about the difference between a Crime Bond and Crime Insurance. A Crime Bond only addresses reimbursement to a 3rd party. The bonding company is only guaranteeing payment; it does not transfer the exposure. A Crime Insurance Policy does transfer this exposure to the insurance carrier. Every Title Insurance Agency and Law Firm should consider having Crime Insurance Coverage.