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Scammed law firm wins suit for reimbursement from its insurer

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Law firms spend substantial sums on legal malpractice insurance. No matter how high are premiums for any insurance, do not be surprised when the insurer opts to litigate over an obligation to cover a claim rather than to just pay it. They are businesses looking at the financial bottom line.

Email spam comes to me at the rate of dozens weekly — usually from people overseas, with their geographic location as an excuse not to meet with me in person, and perhaps as a way to avoid prosecution and enforcement — asking for my law firm to help collect debts and enforce divorce settlements, and sometimes to refer to another lawyer if I do not do such work (lending legitimacy to the scammer’s email to any lawyer I refer them to, which I do not do). This is an ongoing fraud that some lawyers bite at, receiving a fraudulent certified check to cover the opponent’s financial obligation, depositing the check into the lawyer’s bank trust account, distributing the funds to the "client" and the lawyer’s operating account, and then having the bank tell the law firm that the deposit is being reversed as coming from a fraudulent certified check.

A law firm recently fell victim to this fraud — even after making efforts to verify the transaction’s legitimacy — and made a claim to its malpractice insurer, who denied the clam. The law firm recently won in federal trial court. O’Brien & Wolfe v. Liberty Insurance Underwriters, ___ F. Supp. 2nd ___ (D. Minn., Aug. 3, 2012). (Thanks to a fellow listserv member for providing me the court opinion.)

Lessons learned: This scam is still happening. Beware of being hired by otherwise anonymous clients that you never meet in person. Lawyers need always to beware of disbursing funds from a settlement check before the time that it is safe to know that the settlement check is fraudulent or drawn on insufficient funds. Whenever a person or business with insurance suffers a financial loss, consider whether the insurance covers it, and consider suing the insurer when coverage is declined.