In cautionary tale, defrauded law firm loses insurance suit.

Byline: Pat Murphy

A law firm's business policy did not cover losses stemming from its processing of a fake cashier's check that it received from a "new client" who had retained the firm under a false identity, a U.S. District Court judge in Boston ruled in dismissing a lawsuit against the insurance carrier.

Wells Fargo notified Brooks & DeRensis on Nov. 4, 2021, that the bank had dishonored a cashier's check for nearly $90,000 that the law firm had deposited into its IOLTA account just days earlier.

The Boston firm had accepted the check as settlement of an employment matter brought by a new client claiming to be "Brian Rodriguez." The firm promptly wired $88,385 of the deposited amount to the bank account of the client, but it turned out later that the "client" was using a false identity.

The law firm's insurance carrier, Twin Cities Fire Insurance Co., denied coverage of losses stemming from the fraudulent check. Brooks & DeRensis sued Twin Cities in U.S. District Court to establish its entitlement to coverage, asserting claims for breach of contract and violation of G.L.c. 93A.

Judge Denise J. Casper granted the insurance carrier's motion to dismiss the law firm's suit in a Sept. 19 ruling.

First, Casper concluded that the cashier's check at issue was neither "made or drawn by" nor "drawn upon" the law firm for purposes of falling within the scope of the policy's standard forgery coverage.

"Taking the factual allegations in the complaint as true, B&D received a forged cashier's check from a third-party purporting to be Rodriguez's employer," Casper wrote. "As a cashier's check, it was purportedly made or drawn by and drawn upon Wells Fargo, N.A. B&D was the payee or the bearer in this circumstance, not the maker, drawer or drawee."

While Casper found coverage existed under an endorsement providing "Counterfeit Currency and Money Orders Coverage," the judge went on to conclude the insurance contract's "false pretenses" exclusion applied.

"This exclusion addresses a scenario where the insured willingly transfers funds to a third-party based on some false representation or receipt of a false check," Casper wrote.

The 12-page decision is Brooks & DeRensis, P.C. v. Twin Cities Fire Insurance Co.

Lawyers beware

Nina E. Kallen, an insurance coverage litigator in Roslindale, Massachusetts, said she has had colleagues who have been taken in by similar scams. That includes lawyers who thought they were taking adequate precautions.

"The worst-case scenario involved a lawyer who had...