A federal district court has ordered an insurer to cover the loss suffered by a law firm in a check scam, finding that the loss fell within both the policy's forgery and alteration endorsement and the policy's false pretenses exclusion and that the policy therefore was ambiguous.

The Case

The Delaware law firm Morris James LLP alleged that it was approached by a foreign company calling itself Esa Corporation Group Oyj for assistance with collecting a debt allegedly owed by a Delaware entity, B & B Industries, under a sales agreement. Esa signed an engagement letter with the firm and also provided the firm with a copy of the purported sales agreement regarding the products sold and the outstanding debt.

According to the law firm, Esa informed the firm that B & B had agreed to a settlement of the debt to avoid litigation. Three days later, the firm alleged, Esa notified it that B & B had made a partial payment toward the settlement. The law firm alleged that it then received what appeared to be a cashier's check drawn on Citibank in the amount of $195,495 (“the purported check”). According to the firm, the purported check included all of the identifying marks of a valid Citibank cashier's check, including an “Official Check” notation and branch and teller numbers.