Law Times

www.lawtimesnews.com LAW TIMES 4 COVERING ONTARIO'S LEGAL SCENE | JANUARY 21, 2019 BY MICHAEL MCKIERNAN For Law Times GLOBAL law firm Dentons Canada LLP is locked in a $1.7-millon dispute with its in- surer after staff at the firm's Van- couver office fell victim to an alleged scam. According to Ontario Superi- or Court Justice Carole Brown's recent decision in Dentons Canada LLP v. Trisura Guar- antee Insurance Company, an associate at the firm was duped into transferring $2.5 million in- tended to clear the mortgage on a client's property into a fraud- ster's Hong Kong bank account as part of an alleged "social engi- neering" fraud. Although the law firm managed to recover around $800,000, it made a claim for its net loss under a computer fraud rider to its policy with Trisura. But the insurer refused to pay out, claiming that the incident was not covered because the transfer of funds itself was not fraudulent. In addition, the insurer noted that Dentons had turned down the opportunity to add a social engineering fraud rider offered by Trisura, and claimed other exclusions in the policy applied. That prompted the law firm to apply for a declaration that the insurer is in breach of its policy and has a duty to pay up. Brown's decision came when Trisura moved to convert the applica- tion to an action, and Dentons responded by narrowing its ap- plication to call for an advisory opinion on the interpretation of the computer fraud rider. Her Dec. 11 ruling went in favour of Trisura. "Determining the advisory question, at this juncture is not, in all circumstances, an expedi- tious or efficient use of judicial time and resources," the judge wrote, noting that an action would deliver a full factual ma- trix, allowing the court to make a more comprehensive determi- nation of the issues. Nina Bombier, a partner at Lenczner Slaght Royce Smith Griffin LLP who acted for Dentons, says the court missed an opportunity to f lesh out Can- ada's extremely limited caselaw on coverage in the context of these types of fraud. "In our view, it would have been more efficient to get an initial interpretation of the com- puter fraud rider, because if it isn't broad enough to cover what happened here, then everything else ends," she says. "There is a bit of caselaw around this issue in the U.S. which cuts both ways, so it would have been helpful to get some law here. It's an impor- tant issue, because with cyber security issues, the fraudsters are getting more and more creative all the time." In the 2017 Alberta case of The Brick Warehouse L.P. v. Chubb Insurance Company of Canada, the retailer was denied coverage under its crime policy after falling for a similar scam, but Bombier insists the breadth of the language in Dentons' pol- icy means her clients should be covered. Chris McKibbin, a partner at Blaney McMurtry LLP who acted for Trisura, declined an opportunity to comment. In a statement to Law Times, Dentons spokesperson Neetisha Seenundun said the firm has a training regime in place to deal with phishing attacks and cyber- security. "The training is updated and repeated annually. Participa- tion is mandatory by all Den- tons partners and employees," she wrote, noting that the con- tent has been "adjusted to high- light the hallmarks of this kind of fraud." Seenundun says no firm policies were broken during the transaction, explaining that scammers were able to obtain details about the timing of the real estate deal at the heart of the case after breaching the com- puter systems of a third party, and then impersonating its rep- resentatives. "We have not been targeted by this scheme on any other occasion, although it is public knowledge that other law firms have been, as the Law Society of B.C. has issued alerts regarding this fraud to its members," she added. According to Brown's deci- sion, Dentons acted for a client in the sale of a property which closed on Dec. 30, 2016. Around $2.5 million of the proceeds was earmarked to pay off part of a mortgage held by a third party, whose bank details were pro- vided to the law firm for a trans- fer to occur on the next business day, Jan. 3 2017. However, on the day of the transfer, Brown's decision says emails purportedly from the mortgage holder asked for the funds to be sent instead to an international account, due to an audit going on at its Canadian bank provider. After requesting and apparently receiving letters of authorization, Dentons wired the money to a Hong Kong bank account, only to discover days later that the real mortgage hold- er was still waiting on the funds. Jason Green of Hexigent Consulting, a digital investiga- tion and cyber security com- pany geared towards law firms, says the case sounds all-too familiar. "I wish I could say this was unique, but it's not. We see it in multiple industries, where it looks like legitimate emails have been received at the last minute from CEOs who are travelling and otherwise unreachable," he says. "Once the money has been sent, it's very hard to trace, because you're dealing with law enforcement in several jurisdic- tions." Michael Lesage, a Toronto insurance lawyer uninvolved in the case, says he will be follow- ing its progress closely. "It's going to come down to the specific language of the poli- cies, both in terms of coverage and exclusions," he says. "This is certainly an emerg- ing area of law, and that will likely lead to numerous coverage disputes in the future." 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NOMINATIONS CLOSE MARCH 29, 2019 For more information or to nominate visit www.innovatio-awards.com SAVE THE DATE September 26th | Arcadian Court, Toronto Questions? Contact Jennifer Brown | jen.brown@tr.com THE E B O L G AND MAIL SIGNATURE SPONSOR BRONZE SPONSOR MEDIA PARTNER GOLD SPONSOR PLATINUM SPONSOR COCKTAIL SPONSOR Untitled-1 1 2019-01-11 12:27 PM Cyber-security scammers 'getting more and more creative' Firm in $1.7-million dispute with insurer

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