Risk Update

Risk Roundup — Insurance & Email Spoofing, In-house Privilege, and Paralegal Ethics

Risk Management Issue: Is e-mail ‘spoofing’ covered under the computer fraud provision in an insurance policy?” —

  • “Medidata submitted a claim for the loss under its insurance policy issued by the Defendant Federal Insurance Company (‘Federal’). The policy included a Computer Fraud Coverage provision, which covered ‘direct loss of Money, Securities or Property sustained by an Organization resulting from Computer Fraud committed by a Third Party.’ The policy defined ‘Computer Fraud’ as ‘the unlawful taking or the fraudulently induced transfer of Money, Securities or Property resulting from a Computer Violation.’ In turn, ‘Computer Violation’ included both ‘the fraudulent: (a) entry of Data into . . . a Computer System; [and] (b) change to Data elements or program logic of a Computer System.'”
  • “On appeal, the Second Circuit rejected Federal’s argument that the spoofing attack was not covered and affirmed the lower court’s ruling. In particular, the Court held that “the spoofing code enabled the fraudsters to send messages that inaccurately appeared, in all respects, to come from a high-ranking member of Medidata’s organization. Thus the attack represented a fraudulent entry of data into the computer system, as the spoofing code was introduced into the email system. The attack also made a change to a data element, as the email system’s appearance was altered by the spoofing code to misleadingly indicate the sender.” Id. at 118-119. The Court further concluded that spoofing attack “clearly amounted to a violation of the integrity of the computer system through deceitful and dishonest access, since the fraudsters were able to alter the appearance of their emails so as to falsely indicate that the emails were sent by a high-ranking member of the company.” On this basis, the Court concluded that Medidata’s losses were covered by the terms of the computer fraud provision. Id. at 118.”

How Law Firms Can Preserve In-House Privilege” —

  • “arlier this decade, there were several high-profile decisions in states like Georgia and Massachusetts examining the extent to which law firms enjoy the protections of the in-house privilege. The complicating factor, according to courts, was that if a law firm is seeking internal advice about an ongoing client factor, there may be a conflict of interest between the law firm’s interests and the client’s interests. Indeed, some critics maintained, if a lawyer is seeking legal advice internally while a client representation is ongoing, is it possible that the lawyer is thinking about his or her own interests before the client’s? However, most jurisdictions have soundly resolved this issue in favor of law firms to protect their privilege with their in-house general counsel—with some parameters and caveats.”
  • “Although general counsel or the risk manager of a firm is often part of the firm’s management or leadership, it is helpful to remember to treat the general counsel or risk manager as counsel to the firm, both in form and in substance. For some firms, this means having a specifically-identified general counsel or deputies. A constant pro hac assignment of GC responsibilities for a revolving door of firm attorneys may cause a third-party to question whether the firm is truly treating their in-house attorney as an attorney to the firm.”
  • “Ensuring the effectiveness of in-house counsel typically involves the assignment of responsibilities to that counsel, including the investigation and analysis of matters that might involve attorney exposure and generally advising firm attorneys on risk management. In-house counsel’s role may also include purchasing legal malpractice insurance, identifying and resolving conflicts of interests, advising attorneys on ethical obligations, reporting potential claims and actual claims, and updating the status of the firm’s partnership agreement or corporate structure.”

Podcast on paralegal ethics” —

  • “Because paralegals hold vulnerable information in trust, competence in ethical rules is crucial to protecting their firm, cients, and even themselves. But what exactly are paralegal ethics and why do they matter?”
  • “Those are some of the questions that are addressed in this recent podcast of the Paralegal Voice, in which the hosts discuss a broad overview of basic ethics definitions and then zero in on best practices for conscientious adherence to ethics rules.”
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