Coverage for Negligence Claim Against Law Firm Arising from Wire Fraud Barred by Professional Liability Policy’s “Theft Exclusion”

Applying Florida law, the United States District Court for the Southern District of Florida has held that a theft exclusion bars coverage under a lawyers’ professional liability policy for a negligence claim against the insured law firm arising out of allegations of wire fraud. Harrington Law Associates, PLLC v. Landmark American Ins. Co., 2021 WL 3783278 (S.D. Fla. July 27, 2021).

In the underlying action, the plaintiffs had retained the insured law firm as their attorney in the purchase of a property. The firm instructed the clients to wire $511,500 to its trust account in connection with the purchase. Thereafter, the clients received a fraudulent email purporting to be from the firm with alternate wire instructions, which they followed. After the clients were unable to recover any of the money they had wired, they sued the firm for negligence in failing to use reasonable security measures to protect against wire fraud. The firm tendered the claim to its professional liability insurer, which denied coverage pursuant to a “theft exclusion” in the policy. The theft exclusion stated that “this policy does not apply to any Claim or Claim Expenses based upon or arising out of …[t]he actual or alleged theft, stealing, conversion, commingling, embezzlement, or misappropriat[ion] by any person of any kind of monies, funds, negotiable instruments, securities, property of any kind or assets of any kind.”    

In the resulting coverage litigation, the court granted the insurer’s motion to dismiss on the basis that the theft exclusion unambiguously applied to preclude coverage. The court rejected the insured’s argument that the phrase “any person” in the theft exclusion was ambiguous and should be interpreted narrowly to mean only “the insured and those acting under the insured’s umbrella.” According to the court, there is no other interpretation for the phrase “any person” beyond its plain meaning: anyone. Because the claim against the firm arose from a theft, the plain language of the exclusion supported a denial of coverage, regardless of the identity of the thief. Finally, the court determined that, although the allegations against the insured firm were not “directly charges of theft,” it sufficed that they “stem from and are dependent on the theft of funds by the fraudster” in order for the exclusion to apply.