Fraudulent wire transfers can be a significant exposure to Law Firms and Title Agencies. Even with proper controls in place a firm could be faced with a 6 or 7 figure loss. 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 side. Law Firms and Title Agencies are being scammed out of the funds by transferring the funds to a fictitious account.
It often starts with a last second call, fax or e-mail that instructs the firm to change the routing of where the funds are 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 previously established known number and person 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. Some malpractice insurers consider this part of professional services and provide coverage. Many do not cover this exposure under Attorney Malpractice Insurance. Some insurers specifically exclude coverage for this exposure.
2. Cyber Insurance Policy—a properly endorsed cyber policy may provide coverage. But the sequence of events that triggered the loss of funds may not be a cyber event.
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 law 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. It needs to be properly endorsed to specifically address this exposure with high enough policy limits. What is 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 insurer. Every Title Insurance Agency and Law Firm should consider having Crime Insurance Coverage.
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Lee Norcross, MBA, CPCU
Managing Director, CEO
(616) 940-1101 Ext. 7080