In its recent decision in Henson v. United States Liability Insurance Company, 2012 U.S. Dist. LEXIS 101963 (N.D. Miss. July 23, 2012), the United States District Court for the Northern District of Mississippi had occasion to consider the boundaries of what constitutes professional services under an insurance broker’s errors and omissions policy; in particular, whether giving deposition testimony constitutes “professional services.”

The insured, Mid-Delta Insurance Agency, was insured under a professional liability policy issued by Lloyd’s for the period October 8, 2009 to October 8, 2010.  The policy had a retroactive date concurrent with the policy’s inception, meaning that the insured had no coverage for wrongful acts committed prior to October 8, 2009.  

At issue was coverage for the insured’s alleged error in applying for a client’s insurance policy in June 2009.  The coverage was placed with Republic Insurance Company, but Republic later denied coverage for a significant loss on the basis of misrepresentations contained in the policy application.  Mid-Delta was sued by its client for its alleged errors, and Mid-Delta thereafter sought a defense under the Lloyd’s policy.  Lloyd’s denied coverage on the basis that the wrongful act happened prior to the policy’s retroactive date.  Mid-Delta nevertheless argued coverage was triggered because the individual broker responsible for completing the application with Republic made statements in a January 2010 examination under oath (“EUO”) taken by Republic that formed part of the basis for Republic’s decision to deny coverage.  Mid-Delta, therefore, contended that it was the examination under oath that was the “wrongful act” and that the broker’s testimony at the EUO constituted “professional services.”  Lloyd’s argued, on the other hand, that it was the June 2009 completion of the Republic application that was the “wrongful act,” not testimony given at an EUO used to confirm a “wrongful act.”

In analyzing this issue, the court looked to the policy definition of “professional services,” which was defined in pertinent part as “services the Insured performs for others in their capacity as a licensed agent or broker, general agent, managing general agent or underwriter, program administrator …” and included specific services such as consulting, appraising real estate, benefits counseling, premium financing, notary public, serving as an expert witness, e-commerce services, and risk management.  Noting that this definition was specifically detailed, the court concluded that giving testimony in an EUO did not constitute professional services, stating:

Henson did not give his sworn statement while marketing, selling, or serving insurance products.  Instead Henson answered questions regarding his alleged errors in completing  [the] insurance application.   Henson was not providing professional services; he was making statements about events which transpired in June 2009.  The court cannot conclude that testifying about an insured’s allegedly wrongful act is in itself a wrongful act or professional service covered by the E&O policy.

Having concluded as such, the court went on to address whether the October 8, 2009 retroactive date in the policy was proper.  Mid-Delta showed evidence that it had requested to purchase prior acts coverage.  Lloyd’s, however, had rejected this request since Mid-Delta had allowed its prior professional liability to lapse.  The court found Lloyd’s decision in this regard reasonable, and observed that Mid-Delta could have avoided a gap in its coverage by purchasing an extended reporting period from its prior carrier.  In passing, the court noted that as an insurance-related company, Mid-Delta “should have known that the [Lloyd’s] E&O policy did not provide coverage for prior acts.”