Does Business Insurance Cover Wire Fraud?

Many businesses today utilize wire transfers to make and receive payments from customers, clients, vendors, and others. In the real estate industry, wire transfers have been a popular choice for homebuyers making earnest money deposits and even paying closing costs. However, while wire transfer technology has made in easier for people to make payments, it has also served to attract cyber criminals, identity thieves, and other unscrupulous individuals that attempt to engage in wire fraud.

What is Wire Fraud?

The U.S. Department of Justice Criminal Resource Manual Section 941.18 U.S.C. 1343 cites these as the key elements of wire fraud: “1) that the defendant voluntarily and intentionally devised or participated in a scheme to defraud another out of money; 2) that the defendant did so with the intent to defraud; 3) that it was reasonably foreseeable that interstate wire communications would be used; and 4) that interstate wire communications were in fact used.”

How Does Wire Fraud Happen?

Those who fall victim to fraud typically do so as a result of cyber criminals or identity thieves using a telemarketing scam or phishing tactics. In the real estate industry, phishing is more prevalent — cyber criminals attempt to obtain the username and password of real estate professionals in order to gain access to their email, and subsequently use the personal and financial information they find in relation to a real estate transaction to dupe the parties involved into sending money via wire transfer.

Essentially, an actor poses as a real estate professional or other related party using the legitimate business credentials and other information they obtained through illegal means, and convince another party to send money for an earnest money deposit, a down payment on a piece of property, etc.

Being a victim of wire fraud isn’t fun for anybody involved in a real estate transaction. And while you may not ever be able to reclaim the funds that were stolen, there might be another recourse — business insurance.

Does Business Insurance Cover Wire Fraud?

There is no simple yes or no answer to this question. Some policies may have wire fraud protection written into them, while others may not. Likewise, even if a business insurance policy does cover wire fraud, the business may still have to prove that they were not liable.

In the real estate industry, where wire fraud is increasing in frequency, it is especially important to make sure that your policy covers wire fraud. If it doesn’t you may need to either change insurance policies, or sign up for cyber insurance. Cyber Insurance is a type of business insurance that covers losses and other related costs and expenses as a result of a data breach, cyber attack, and wire fraud event.

Understanding Cyber Insurance

Many real estate professionals, including closing agents, escrow agents, and law firms involved in real estate obtain cyber insurance in addition to their standard business insurance policy. In a nutshell, cyber insurance offers protection and coverage for losses resulting from Internet-based risks. Depending on the policy, losses may also include third-party losses, reimbursements to third-parties, and claims payments.

Coverage for the first-party refers to the losses incurred by your business. For example, if an escrow agent was the victim of fraud, the cyber insurance may cover the loss to the business, as well as any additional losses related to the fraud.

Third-party claims are claims made against your business by another party. This could be a claim made by a home buyer or the seller whose data was compromised when a real estate professional fell victim to a phishing email.

So, Does Cyber Insurance Always Cover Wire Fraud?

Before you assume that cyber insurance is the answer, think again. As with standard business insurance, not every cyber insurance policy covers wire fraud either. It really all depends upon the circumstances that led to the act of fraud. For example, cyber insurance may cover wire fraud if it occurred as a result of a data breach or other Internet-related attack.

But if a fraudster were to simply convince someone else to send money without necessarily utilizing your network or the Internet to commit the crime, such as an identity thief that tricks the buyer into wiring closing costs to a fraudulent account, things could get tricky.

There may also be limits to how much coverage is provided for wire fraud. The amount of coverage can vary greatly from policy to policy, and limits can also vary dependent upon how the fraud was committed. Many cyber insurance policies also have deductibles for wire fraud and other Internet-related crimes.

Due to increasing incidents of fraud and other Internet-related crimes affecting the real estate industry, it is important to always thoroughly review any business insurance policy or cyber insurance policy so that you know exactly what your coverages are. You’ll definitely want to confirm the details regarding each policy and how they cover wire fraud, including any deductibles and coverage limits. It’s also a good idea to coordinate the two policies if you choose to get cyber insurance, so that you can improve the coverage across various incidences that could occur.

Why an ACH Transfer System is Better

Aside from getting cyber insurance that covers wire fraud, you can also significantly reduce the risks of fraud by using an ACH transfer system instead of wire transfers to collect earnest money deposits and other related payments and fees. Because an ACH transfer goes through a clearinghouse to be processed, it is subject to much more scrutiny and payment technology security protocols, making it much harder for fraudsters to steal funds from unsuspecting victims.

Some ACH transfer platforms, such as, add even more security in the form of bank-level encryption and advanced identification processes. Each electronic money transfer sent through is highly secure, fully tracked, and the system ensures that the parties involved in a transfer are exactly who they say they are.

Many real estate professionals have already realized the greater security benefit in using ACH transfers over wire transfers and cashier’s checks, and have encouraged their clients to make earnest money deposits and other payments with a secure electronic money transfer system.

There may be a good amount of additional information to be found about wire fraud and how it is affecting the real estate industry on various online forums and blogs.

To learn more about how using can be safer and more secure than a wire transfer, and other ways it can be beneficial to your business, schedule a free demo today!