What Is a MOTF Insurance Claim?

What Is a MOTF Insurance Claim? An MOTF insurance claim refers to a claim made under Misappropriation of Trust Funds (MOTF) insurance, which is designed to protect legal firms from financial losses caused by the theft or mismanagement of client trust funds by attorneys or authorized staff members

Who needs this cover?

Attorneys who receive a client’s money into their trust account for a legal matter. All legal practitioners are obliged to operate a trust account.  In fact, they must operate two separate accounts- one trust and one business. Monies held in trust on behalf of clients may not be mixed with the firm’s business funds. Attorneys must preserve a client’s money in trust pending the performance of a legal transaction. Typical instances when this would be the case, are holding monies for a deceased estate, a conveyancing matter, or a plaintiff’s settlement/ award of damages in a personal injury matter.

Once the legal transaction has been completed, monies may be transferred from the trust account. If fees are to be paid from the monies held in trust, only when the fee is earned, ie, when a legal service has been received by the client, may the attorney withdraw the amount required to cover his fee, from the trust account and transfer same to his firm’s business account.

Who is covered under the policy?

The attorneys practising under the firm and the staff members. Not all staff members are automatically covered. Make sure to name the staff who may be required to gain, or already have access to, the firm’s trust account to effect payments on behalf of the firm to clients.

Why do staff members need the cover?

Well, staff authorised to make and effect transfers from the firm’s trust account could abuse their positions. Such an abuse would render the law firm liable to the client for a loss. Once a client has a claim against the firm for a reimbursement of any money placed with the firm, the firm could find itself having to close its doors should it not be insured against such losses.

Are there instances where attorneys steal trust funds?

We would like to think this should never happen, however there are reported cases where this has happened. Should an investigation by a client or the law society reveal that trust funds have been misappropriated by an attorney, that attorney will be disciplined and disbarred from practising as one however disbarring the attorney does not mean the client will be refunded its money which was held in trust.

Why is insurance cover for this risk so important?

Well, firms that don’t have MOTF cover, won’t be covered for theft of trust funds by their employees, should this event arise and would have to pay the client back themselves, which could have the effect of closing the firm down (ie having insufficient funds in business to pay the client).

Does the law society not offer this cover to its members?

The attorney’s insurance indemnity fund specifically excludes claims against law firms arising from or in connection with misappropriation or unauthorised borrowing by an attorney or employee or agent of the attorney of any money or other property belonging to a client.