Many Law Firms carry large balances in Escrow Trust and IOLTA accounts. What would happen if those funds disappear?
Law firms may rely on a “trusted” employee to manage the funds, balance the accounts, deposit funds and write checks. Unfortunately this “trusted” employee is a leading cause of loss. In addition to employee theft, someone outside the firm may dupe staff or attorneys into disbursing funds to the wrong party or an unauthorized person gains access to the IOLTA account.
Most law firms carry attorney malpractice insurance and business owners insurance (BOP). Did you know that some attorney malpractice insurers specifically exclude coverage for these accounts because of theft? Or if not specifically excluded, it is not a covered cause of loss for an attorney malpractice policy. This leaves the BOP.
The BOP contains some coverage for theft of funds. But often the sub-limits in the BOP for this coverage are too low to cover the value of the funds in the IOLTA account. Law firms need to review their BOP coverage to determine if this sub-limit is adequate to meet their needs.
If possible the firm should increase the theft sub- limit for Employee Dishonesty & Forgery coverage on the Business Owners to an adequate limit. But depending on the BOP insurer, they may limit this coverage to $25,000 or $50,000. A BOP may or may not cover theft by conversion. Many BOPs also sub-limit theft of funds via computer 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
Yes crime insurance is not inexpensive. But consider the consequences if your IOLTA account funds disappear.