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Are you actually covered? A cyber insurance warning for real estate attorneys

12/1/25

By: William R. Covino and Nancy M. Reimer

For real estate practitioners, this might be the most important client alert you read this year. Imagine this scenario: you are a real estate closing attorney who has received the funds necessary to pay off a seller’s pre-existing mortgage. You follow your firm’s written policies, best practices and every safeguard you know of to try to ensure the disbursement is sent to the correct recipient. Yet, despite your best efforts, you later learn that the email you relied upon—and even the “confirmation” you received by telephone—were both generated by a fraudster. Your electronic systems had been compromised, your client’s payoff information accessed and you were duped into diverting the funds necessary to satisfy a pre-existing mortgage to a criminal’s account. The funds are gone, and there is no way to recoup them at this stage.

While this scenario would undoubtedly be a nightmare—one becoming all too common given the sophistication of cyberattacks and AI-driven impersonation—you may initially take a deep breath, assuming: “at least my insurance will cover this.” But will it?

Unbeknownst to many experienced practitioners, several insurance carriers are writing policies containing exclusions to carve out cyber-related incidents unless you or your firm opt for additional coverage. While these provisions vary, they may broadly exclude coverage arising out of the “commingling, improper use, theft, stealing, conversion, embezzlement or misappropriation of funds or accounts.” Consequently, they may exclude coverage for social engineering schemes, fraudulent or altered wire instructions, email compromise or impersonation, misdirected or diverted disbursements or losses arising out of system intrusions or phishing attacks. In other words, the very scenario practitioners are often most concerned about is carved out of the policy entirely.

The moment you realize your policy does not cover this loss is the moment you realize that you are left shouldering it yourself. For every real estate practitioner reading this article, follow this simple recommendation: talk to your broker about your cyber coverage. Confirm whether your E&O policy provides comprehensive cyber-coverage for cyber-induced wire fraud, or whether you need a cyber endorsement or cyber policy. Otherwise, you may discover—far too late—your insurance won’t resolve this nightmare, and you will be personally on the hook for the loss.

For more information on this topic, please contact Will Covino at william.covino@fmglaw.com, Nancy Reimer at nancy.reimer@fmglaw.com or your local FMG relationship partner.

Information conveyed herein should not be construed as legal advice or represent any specific or binding policy or procedure of any organization. Information provided is for educational purposes only. These materials are written in a general format and not intended to be advice applicable to any specific circumstance. Legal opinions may vary when based on subtle factual distinctions. All rights reserved. No part of this presentation may be reproduced, published or posted without the written permission of Freeman Mathis & Gary, LLP.