No Professional Liability Coverage for Law Firm Victimized by Check Scam

On June 28, the U.S. District Court for the District of New Hampshire issued a ruling denying coverage under a professional liability policy to an insured attorney and his law firm who were victimized by a Nigerian-style check scam. The court held that the claim fell under a policy exclusion for losses from “conversion, misappropriation or improper commingling by any person” of funds held or controlled by an insured.

INS BLOG_checkAttorneys Liability Protection Society, Inc. v. Whittington Law Associates, PLLC, the insureds, Whittington Law Associates and W.E. Whittington, were contacted by an imposter prospective client. The imposter asked the insureds to deposit a check for $195,790 into the insured attorney’s client trust account in Ledyard National Bank and then promptly wire the bulk of the funds to a bank account in Japan. Ledyard later discovered that the check deposited to the insured’s account was invalid, by which time the wire transfer to the Japanese bank account already had been processed and the funds withdrawn from the insured’s account.

Ledyard sued the insureds in New Hampshire state court to recover the funds, prompting the insureds to seek coverage from their professional liability insurer, Attorneys Liability Protection Society, Inc. The insurer responded by filing an action in the federal court seeking a declaration that no coverage was available for the claim. The insureds filed counterclaims for declaratory judgment and breach of contract.

The insurer moved for summary judgment, arguing that there was no coverage because the claim did not fall within the definition of “an act, error or omission in professional services that were or should have been rendered,” and that even if the claim fell within the insuring agreement, it was excluded as “conversion, misappropriation or improper commingling.” In response, the insureds cross-moved for summary judgment.

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