Ride the Lightning

Another Scammed Law Firm Sues Insurance Company

February 9, 2016

Arkansas Business reported on Monday that Watts Donovan & Tilley P.A. of Little Rock lost about $100,000 in an increasingly common scam, according to a lawsuit it filed last month.

The disaster began in March 2014 when it retained someone "representing himself as Bernard Stillwell, an architect based in London, England," according to the firm's lawsuit, now in U.S. District Court in Little Rock. WDT was hired to collect professional fees allegedly owed to Stillwell by Arkansans.

On April Fool's Day 2014 (how appropriate), the firm received a $97,588 cashier's check made out to WDT from one of the alleged debtors. The law firm deposited the check. The man who said he was Stillwell called and e-mailed and told the firm where it could wire the money, which the firm did.

I know you can see this coming, but indeed the bank delivered the news that the cashier's check was a forgery and that the firm was liable to the bank for the amount of the transfer.

WDT filed a claim with its insurance carrier, Valley Forge Insurance Co. of Chicago, to recover the money. Valley Forge denied the claim. The law firm sued for the money lost in the scam plus other damages.

Valley Forge filed its answer and listed nearly two dozen reasons why the case should be dismissed. Valley Forge said the policy provision regarding forgeries doesn't apply to this situation because the provision covers situations in which the forged check or other instrument was made by or drawn upon the law firm.

The policy reads: "We will pay for loss resulting directly from 'forgery' or alteration of, on, or in any check, draft, promissory note, bill of exchange, or similar written promise, order or direction to pay a sum certain money, made by or drawn upon you, or made or drawn by one acting as an agent or claiming to have been so made or drawn."

The policy defines forgery this way: " 'Forgery' means the signing of the name of another person or organization with intent to deceive; it does not mean a signature which consists in whole or in part of one's own name signed with or without authority, in any capacity for any purpose."

This kind of scam is becoming more and more prevalent and it seems to me that most law firms believe they are covered when they are (likely) not. If you haven't called your insurance broker to ascertain the precise nature of your coverage, perhaps the woes of this firm may cause you to pick up the phone.

We were in Little Rock just last week lecturing and can't imagine a more hospitable and welcoming group. Our condolences to our friends in Little Rock.

And once again, being trained to spot these common spams may save your bacon – well worth the investment of time and money!

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