November 10, 2010 -
Summary Judgment for Insurer in Scammed-Lawyer Case
SRBC partners Regina Roman and William Boesch have assisted a professional liability insurer-client in obtaining summary judgment in a coverage lawsuit brought by a South Carolina law firm that fell victim to a familiar e-mail scam. The law firm responded to an e-mail purportedly sent on behalf of a Hong Kong client seeking local assistance in handling collection matters. The "client" signed an engagement agreement, and then informed the law firm that a debtor would soon be delivering a bank check for a payment due to the client.
The check arrived, and the law firm deposited it in its client-funds account. The next day, the law firm contacted its bank, and was told that funds in the amount of the check had been "posted" to the firm's account. At the client's request, the firm then issued wire-transfer requests to the bank for a total of some $360,000, and the funds were sent to two Japanese bank accounts. Only when it was too late to recover the wires did the firm and the bank learn that the check delivered to the firm was a forgery. The bank sought to make itself whole by taking other funds of the firm it held, and sued the firm for the rest. The firm sought coverage under its malpractice policy.
The coverage dispute centered on whether the case involved "professional services" of the firm within the meaning of the policy, whether it involved a misappropriation of client funds within the meaning of an exclusion in the policy, and whether the bank sought "damages" as that term was used in the policy. On the professional-services issue, the firm argued that it subjectively believed it had been retained by a client and asked to perform legal work on its behalf. A South Carolina federal court agreed with SRBC and its client that this was not enough: the evidence undisputedly showed that if a putative "client" ever existed, he clearly sought to "engage" the law firm only for purposes of carrying out the fraud. While making clear that the firm was undoubtedly deserving of sympathy, the court nonetheless awarded summary judgment in favor of SRBC's client.