Fraudulent wire transfers are a significant exposure to Law Firms and Title Agencies. Even with proper controls in place a firm could face a 6 or 7 figure loss. 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 or their clients are defrauded by transferring funds to a fictitious account.
It often starts with a last second call, fax, or e-mail with instructions to change the routing funds. The firm then sends hundreds of thousands or millions of dollars to a bank in Nigeria or Russia. Chances of recovery are slim to none.
Having procedures in place to verify by phone to a previously established known number and person to verify that the changes in instructions are valid help. But even with the best of procedures things happen. Clients are especially vulnerable, as they rarely engage in these types of transactions and are often not aware of these frauds.
There are four different insurance policies that might provide coverage:
1. Attorney Malpractice Insurance Policy—may provide coverage but this will be on a case by case basis. Some malpractice insurers consider this part of professional services and provide coverage. Many insurers 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 trigger the loss of funds may not be a cyber event.
3. Business Owners Policy—might have a limited amount of crime insurance included in the basic policy. And you might be able to endorse coverage for higher limits, but limits may be too low for most law firms and title agencies.
4.Crime Insurance—addresses the exposure of doing a fraudulent funds transfer. A properly endorsed crime policy can specifically address this exposure with the proper 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.
Lee Norcross, MBA, CPCU
Managing Director, CEO
(616) 940-1101 Ext. 7080