Wire Fraud and Law Firms: Does Your Lawyers Professional Liability Insurance Cover It?
The Rising Threat of Wire Fraud in Law Firms
In today’s digital world, cybercriminals increasingly target law firms using sophisticated phishing, spoofing, and social engineering tactics. One of the most devastating forms of attack is fraudulent wire transfer schemes, where a criminal deceives a lawyer or staff member into wiring client funds to a fake account. These scams can lead to significant financial loss and potential lawsuits from clients.
The big question we hear often is:
“Will my Lawyers Professional Liability (LPL) insurance cover this?”
The short answer? Usually not. But let’s break it down.
What Is (and Isn’t) Covered Under an LPL Policy?
Lawyers Professional Liability Insurance protects against claims of errors, omissions, and negligence in the course of providing legal services. For example, if an attorney misses a filing deadline or provides flawed legal advice, the policy steps in.
But wire fraud is a different beast. Most LPL policies contain exclusions for:
- Criminal acts
- Fraud
- Dishonesty
- Theft or misappropriation of funds
In other words when the fraudster tricks a law firm into wiring money due to a fake email or spoofed communication, the LPL policy will almost always exclude coverage for the actual monetary loss even if the client later sues the firm.
Can LPL Ever Cover Related Claims?
Possibly. If a client sues the firm for professional negligence related to the fraudulent transfer (e.g., alleging failure to follow security protocols), the policy might defend the firm under a reservation of rights, especially if the claim alleges a mix of covered and uncovered allegations. Or with disciplinary action taken against the attorney or firm the policy may provide defense coverage.
However, even in these cases, the actual stolen funds would typically not be reimbursed.
The Right Coverage: Cyber and Crime Insurance
To truly protect your firm from wire fraud, you need to supplement your LPL policy with:
- Cyber Liability Insurance
- Crime Insurance
- Social Engineering Fraud or Funds Transfer Fraud (FTF) coverage is critical.
- Covers losses when a hacker tricks a staff member into sending money to the wrong account.
- Can cover data breaches and phishing scams.
- Covers employee theft, forgery, and certain types of third-party fraud.
- Can include coverage for wire transfer fraud initiated by deception or unauthorized access.
Real-World Scenario
A real estate attorney receives an email that appears to have come from a client, requesting a change in wire instructions. The paralegal complies and sends $250,000 in closing funds to a fraudster’s account.
– LPL Insurance: Denied the claim based on exclusions for fraudulent acts and theft.
– Cyber Insurance with FTF Endorsement: Paid out the stolen funds, minus deductible.
Risk Management Tips
- Verify wire instructions verbally via known phone numbers—never by email alone.
- Train your staff to recognize phishing and spoofing tactics.
- Use dual control procedures for all wire transfers.
- Encrypt sensitive communications involving financial transactions.
Relying on your LPL policy alone is a risky bet in today’s environment. As wire fraud schemes grow more sophisticated, it’s essential to build a layered insurance strategy that includes cyber and crime coverage tailored for law firms.
At L Squared Insurance, we specialize in protecting law firms from the risks they face every day. If you’re unsure whether your current policy covers wire fraud or want to learn more about cyber liability and crime coverage—we’re here to help.
Contact Me Today
Lee Norcross, MBA, CPCU
California License # 0D87292
L Squared Insurance Agency, LLC ® DBA in California as L2 L Squared Insurance Agency, License # 0L93416
Managing Director, CEO
Lee@L2Ins.com
616-726-7080
