There are frequent stories about employees embezzling funds from their employers. Government entities, businesses, and non-profits have all been victims. What many attorneys do not realize is that law firms are frequent victims of embezzlement. Both large and small law firms have been victims of embezzlement. And without adequate proper insurance the law firm just eats the loss. Here is a recent example of just such a loss.
According to a June 14, 2018 story in the Connecticut Law Tribune, paralegal Stephen Gionfriddo has been accused of stealing more than $900,000 from the law firm he worked at. Paralegal Gionfriddo had been previously convicted of fraud in 2006. Normally crime insurance is the best way to cover for such a loss.
Crime Insurance is property coverage, not a liability coverage. Legal Malpractice Insurance is intended to coverage attorney malpractice liability claims. Don’t expect that a theft of funds will trigger a malpractice claim. Law firms that have decided to not get crime insurance under the false hope that their attorney malpractice policy will cover the loss of funds could be in for a surprise. It is important to have adequate coverage for employees with sticky fingers.
Here is an example of a need for adequate crime insurance coverage limits through either Business Owners Policy (BOP) and/or a standalone crime policy as the legal malpractice policy did not provide coverage:
In Cadre Law v Proassurance the US District Judge granted a summary judgement to Proassurance stating that the Proassurance policy excludes coverage for misappropriation of client funds.
“I begin, then, with the words of the Policy. The Policy undertakes to reimburse amounts which "the Insured shall become legally obligated to pay as damages because of any claim or claims[.]" (Policy§ 2.1.1) The word “claim" is defined by the Policy as "a demand or suit for damages received by the Insured." (Id. § 1)2 "Damages" are then defined as
monetary judgments, award or settlements, but does not include the
return or restitution of legal fees, costs and expenses charged by the
Insured, or any allegedly misappropriated client funds or interest
(Id.) "[M]isappropriated client funds," then, are expressly excluded from the definition of damages……….”
While it is true that not all legal malpractice policies may exclude this type of loss, don’t assume that your malpractice policy does without a through reading of your coverage.