This is a significant exposure for many law firms or title agencies. By hitting a button, you can send millions of dollars out of your Trust account anywhere in the world also instantaneously. This speeding up of commerce has a dark side. Many Law Firms and Title Agencies continue to fall victim to being scammed out of the funds by transferring the monies to fictitious accounts.
When closing a purchase and being the custodian of the funds a last second call, fax or e-mail instructs the firm to change the routing of where the funds are to be sent. With time running out pressure is on to get the funds transferred. 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.
Without adequate procedures in place to verify the new information by a phone call to a previously known number and person you might end up using the new fax or e-mail wiring instructions. And as the criminals become more sophisticated even with the best of procedures bad things can happen. That is where insurance comes in.
There are 4 different types of insurance policies that could provide coverage:
1. Attorney Malpractice or Title Agency E&O Insurance—may provide this type of coverage but many times it will not. Some insurers consider this part of professional services and provide coverage. Most will not cover this exposure under a Professional Liability or Errors & Omissions Insurance Policy. Very few Title Agent Errors & Omissions or Attorney Malpractice Insurance specifically address this; some do specifically exclude coverage for this exposure; or provide a sublimit that is inadequate.
2. Cyber Insurance Policy—can provide coverage this if properly endorsed with the right insurer. But the coverage language is important as some specifically state that the fraud has to be committed by a computer for coverage. So, if the fraudulent instructions came by fax or phone you are likely out of luck.
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 that deal in real estate or business closings.
4. Crime Insurance—is designed to address the exposure of doing a fraudulent funds transfer when properly endorsed. It can be the best policy to address these exposures. Many people are confused about 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. So, if there is a loss the bonding company will demand reimbursement from you. A Crime Insurance Policy transfers this exposure to the insurer.
Every Title Insurance Agency and Law Firm should consider having Cyber and/or Crime Insurance. L Squared Insurance practices what it preaches. In addition to our E&O and Business Owners coverage we carry Cyber Insurance and Crime Insurance.
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Lee Norcross, MBA, CPCU Managing Director, CEO (616) 940-1101 Ext. 7080 |
