Professional Liability Insurance Coverage

Professional Liability Insurance Coverage – A Primer

By Sarah E. Morris, Esq. and Amy E. Lanser, Esq.

Professional liability insurance policies are often termed “errors and omissions” policies. They are designed to protect members of a professional group from liability for negligence, omissions, mistakes and errors inherent in working in the profession. St. Paul Fire & Marine Ins. Co. v. Nat’l Real Estate Clearinghouse, Inc., 957 F. Supp. 187, 189 (D. Minn. 1997) (citation omitted).

The coverage granted by professional liability insurance policies dovetails with exclusions in other policies for the rendering or failure to render professional services. See, e.g., Kirkham, Michael & Assoc. Inc. v. Travelers Indem. Co., 493 F.2d 475 (8th Cir. 1974) (addressing exclusion in architectural firm’s CGL policy for “professional liability arising from defects in plans, designs or specifications”); Piper Jaffray Cos. v. Nat’l Union Fire Ins. Co., 38 F. Supp. 2d 771 (D. Minn. 1999)

(addressing professional services exclusion in D&O policy); Cunningham v. Middle Ga. Mut. Ins. Co., 601 S.E.2d 382 (Ga. Ct. App. 2004) (construing professional services exclusion in homeowner’s policy); Mork Clinic v. Fireman’s Fund Ins. Co., 575 N.W.2d 598, 603 (Minn. Ct. App. 1998) (applying exclusion for injuries arising out of the rendering of medical services in CGL policy).

• LOSS MUST ARISE FROM INSURED’S PROFESSIONAL SERVICES.

A. Some policies define “professional services.”

See, e.g., Pacific Ins. Co. v. Burnet Title, Inc., 380 F.3d 1061 (8th Cir. 2004) (“professional services” definition in title company’s errors and omissions policy stated that the term meant “services performed and advice given in the Insured’s capacity as Title Agent, Title Abstractor and Escrow Agent”); Wittmack v. Fed. Ins. Co., No. D044764, 2005 WL 2633071 (Cal. App. Ct. 2005) (interior designer’s policy defined “professional services” as “the preparation and/or execution of: plans, maps, drawings, analyses, reports or surveys; orders, change orders, designs or specifications; or other customary interior design services”); Terramatrix, Inc. v. U.S. Fire Ins. Co., 939 P.2d 483, 490 (Col. Ct. App. 1997) (environmental consultant’s policy defined “professional services” as the performance of “site assessment; remedial investigations; feasibility studies; environmental impact assessment; hydrogeological and geotechnical investigations”).

“[T]he actual language of a policy [] ultimately controls the determination of what risks are covered.” Westport Ins. Co. v. Jackson Nat’l Life Ins. Co., 900 N.E.2d 377 (Ill. App. Ct. Ill. 2008) (“the type of insurance purchased is germane to determining the meaning of policy language.”)

B. Where the phrase is undefined, many courts consider whether there was a causal relationship between the act at issue and the insured’s professional services.

• Doctor’s wife’s actions of “filing, and making the doctor aware of, lab reports” fell within the professional services exclusion as her “duties were an ‘intricate part’ of the medical services provided by the doctor.” Estate of Tintervin v. Nationwide Mut. Ins. Co., 23 So. 3d 1232 (Fla. Dist. Ct. App. 2009) (agreeing with the trial court that it would not “‘unbundle’ the acts which are part of providing medical services and put one act under a legal microscope.”).

• Mortgage insurance provider that allegedly engaged in kickback scheme with lenders was not engaged in merely administrative behavior; the claim against it “implicates the way in which it finds and services its customers” – the “heart” of its business. Therefore, it was engaged in professional services. PMI Mortgage Ins. Co. v. Am. Internat’l Specialty Lines Ins. Co, 394 F.3d 761, 768 (9th Cir. 2005).

C. Other courts consider whether the challenged conduct was in furtherance of the services to be rendered by the insured.

• Attorney hired to consult on labor relations and negotiate with unions was not rendering professional services. Ellenstein v. Herman Body Co., 129 A.2d 268, 272-73 (N.J. 1957) (“controlling circumstance is whether the attorney was in fact engaged for the purpose of obtaining his legal services”).

• Attorney who procured expert witness testimony in client’s lawsuit was acting in furtherance of the client’s cause, requiring his malpractice carrier to defend him in a collection action by the witness after the lawyer failed to pay the witness’s fee. See Transamerica Ins. Co. v. Rutkin, 218 So.2d 509 (Fla. Ct. App. 1969).

• Surveying firm was not rendering professional services when it prepared to bid on a project; it was acting for its own benefit in seeking to obtain work. R.L. Schafer & Assoc. v. Certain Underwriters at Lloyds of London, No. F048216, 2006 WL 1553601 (Cal. Super. Ct. June 8, 2006).

D. Others focus on whether the acts or omissions at issue involved the professional’s expertise.

“[I]t must be necessary for the professional to use his specialized knowledge or training.” Atlantic Lloyd’s Ins. Co. v. Susman Godfrey, L.L.P., 982 S.W.2d 472 (Tex. Ct. App. 1998); see Admiral Ins. Co. v. Ford, No. 09-50671 (5th Cir. May 21, 2010) (“[w]hen the policy does not specify a definition of professional services, a court is free to apply the legal definition of ‘professional services’ to the exclusion”).

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Professional Liability Insurance Coverage – A Primer

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