Sue E. Mako, R. Scott Girdwood, and Mako & Associates, P.A. (collectively Mako) had a professional liability insurance policy with Lawyers Mutual Liability Insurance Company (Lawyer’s Mutual) for the period August 7, 2011 through August 7, 2012. On June 17, 2011, Mako received an email from Oliver Burkeman, a potential client. He sought assistance in collecting $350,000 that his former employer, Crest Iron and Steel (Crest), allegedly owed him. Burkeman claimed the money was part of a workers compensation claim settlement.

On June 23, 2011, Burkeman sent a signed fee agreement to Mako. Mako agreed to represent Burkeman in collecting his settlement money. Mako would assess Burkeman a contingent fee of 20% of any amount obtained.

On July 11, 2011, Mako received a cashier’s check from Crest for $175,000, representing partial payment of the amount Crest purportedly owed to Burkeman. Mako deposited the check into its client trust account on July 12. Mako’s policy was to hold funds for ten days prior to distribution but the policy was not enforced and distributing the funds was authorized that same day. Burkeman was to collect $140,000 after the contingent fee of $35,000 was deducted from the $175,000 check. Mako attempted to wire $140,000 to a bank account in Japan according to Burkeman's instructions. Because of an error in account information, the wire was unsuccessful and Mako could not collect its contingent fee.

On July 14, 2011, Mako received a second cashier’s check from Crest for $175,000, representing partial payment of the amount Crest purportedly owed Burkeman. Mako deposited the second check on July 15 and again, not abiding by its policy of holding funds for ten days, immediately wired $140,000 to the Japanese bank account. Mako collected a $35,000 contingent fee from the second check that was deposited to its trust account. Also on July 15, RBC Bank notified Mako that the first of the two checks was being returned unpaid. On July 18, RBC Bank notified Mako that the second check was also being returned unpaid. Both checks were determined to be fraudulent. As a result, Mako sustained a total loss of $175,000 from its trust account.

Mako filed a claim with Lawyers Mutual on November 1, 2011 to recover $175,000 in funds lost as a result of the fraud. Lawyers Mutual filed a complaint for declaratory relief on November 2, 2011. On December 12, 2011, Lawyers Mutual filed a motion for summary judgment but withdrew that motion on December 21, 2011. It then filed a motion for judgment on the pleadings that same day but the motion was not heard. Mako filed a motion for summary judgment on December 23, 2011 which the trial court denied on April 3, 2012.

Lawyers Mutual filed an amended complaint for declaratory relief on May 30, 2012. It then filed for summary judgment on October 15, 2012. On December 18, 2012, the trial court granted Lawyers Mutual's motion for summary judgment, stating: “It is undisputed that the funds at issue in this action were lost at a time when the deposit had not yet ‘cleared’ Defendant’s trust account at the depository bank. The court concludes that the phrase ‘irrevocably credited’ in the insurance policy precludes coverage of Defendants' claim of loss.” Mako appealed.

On appeal, Mako argued that the trial court erred in granting Lawyers Mutual's motion for summary judgment because the term “irrevocably credited” was ambiguous.

Mako’s policy provided in part that:

“I. Exclusions ... [T]his policy does not afford to any Insured any coverage or benefits whatsoever, including, but not limited to, any right to any defense, with respect to: … (r) any claim, or any theory of liability asserted in a suit, based in whole or in any part upon disbursement by any Insured, or any employee or agent of any Insured, of funds, checks or other similar instruments deposited to a trust, escrow or other similar account unless such deposit is irrevocably credited to such account[.] “

Mako stated that it believed that a cashier’s check was the same as cash and assumed that its policy would cover losses from forged cashier’s checks because a cashier’s check, like cash, is irrevocably credited upon deposit.

The appellate court disagreed. It noted that North Carolina law treats cashier’s checks the same as traditional checks and that the provisional settlement period that accompanies traditional checks also applies to cashier’s checks. “As such,” the court said, “Lawyers Mutual’s policy’s use of ‘irrevocably credited’ refers to the statutory provisions which govern a check’s acceptance or rejection during its provisional settlement period.”

The appellate court affirmed the trial court’s decision.

Lawyers Mutual Liability Insurance Company of North Carolina v. Mako. North Carolina Court of Appeals. No. COA13-69. April 1, 2014