Most lawyers or their firms have purchased professional liability policies. Fortunately, most of us never need to look at those policies. But, every defense attorney who defends, cross-complains against, or is otherwise adverse to a professional needs to know something about professional liability coverages. How a case is litigated can have a substantial impact on whether a professional liability policy will respond as well as the amount of coverage available. And, for the coverage attorney looking at a professional liability policy for the first time, having a roadmap of recurring issues is beneficial.
When we hear the term "professional liability coverage," many of us think of professionals like ourselves, physicians, accountants, engineers and others with advanced education. However, professional liability policies are also purchased by insurance brokers, collection agencies, travel agencies, trustees, real estate brokers, property managers, process servers, and software companies, among others. There are significant differences between professional liability policies and general liability or automobile liability policies, and failing to understand those differences can hurt you and your client.
It is difficult to generalize about the terms of professional liability policies because Insurance Service Office ("ISO") forms do not occupy the same dominant position in the professional liability marketplace as they do in the general liability insurance domain. While professional liability policies share a common structure and have many similar provisions, many of the companies who issue those policies use their own proprietary policy provisions.
The aim of these posts is to provide sufficient background information to allow the defense attorney to identify relevant issues frequently raised by professional liability policies and to formulate a plan for addressing them. This is not a treatise on how different jurisdictions view professional liability issues. For that, the reader should review the DRI's 2012 publication Professional Liability Insurance: A Compendium of State Law. This is part 1 of 7.
Professional Liability Policies Apply to Professional Services
Professional liability policies insure against liability for wrongful acts committed in the course of performing professional services. Generally, "professional services" is a defined term. For example, a policy might say something along the following lines:
"Professional Services" means only those professional services listed on the Declarations Page as performed by or on behalf of the Named Insured for others for a fee or other form of compensation.
The specific description of "professional services" on the policy's Declarations Page is important as is the requirement that the services be for others, for a fee or other form of compensation. If there is no definition of "professional services," some courts have found the term ambiguous. See, Home Ins. Co. v. Law Offices of Jonathan DeYoung, PC, 32 F.Supp.2d 219 (E.D. Pa. 1998) (issue of fact as to capacity in which insured was engaging in personal loan transactions). Again, however, the precise language of the policy is critical. Some policies do not require a professional service relationship between the insured and the claimant, so long as the insured was engaging in his usual professional services as a mortgage banker. Bank of California v. Opie, 663 F.2d 977 (9th Cir. 1981).
The professional services coverage grant is particularly important when the insured is being sued for alleged improper non-professional conduct, such as abuse. See e.g., R.W. v. Schrein, 642 N.W.2d 505 (Neb. 2002) (finding claims based upon physicians' sexual conduct with multiple patients were not based on the provision or failure to provide professional services). But see, Woo v. Fireman's Fund Ins. Co., 164 P.3d 464 (Wash. 2007) (Oral surgeon's placement of boar tusks in employee-patient's mouth while patient under anesthesia in order to take prank photograph was within professional services definition of policy).
Woo is a good illustration of the practical challenges presented when analyzing whether under the policy language the conduct at issue constitutes a covered professional service. Dr. Woo's policy defined the scope of professional services as "all services which are performed in the practice of the dentistry profession as defined in the business and professional codes of the state where you are licensed." Dr. Woo was performing oral surgery on his employee. But, Dr. Woo chose to do something while he had the employee-patient under anesthesia that had no therapeutic purpose. Placing boar tusks in a patient's mouth so they can be photographed simply isn't comparable to a surgeon who leaves a sponge in a patient, an engineer who miscalculates the strength of a building component or an attorney who misses the statute of limitations. Nevertheless, from the perspective of the Washington Supreme Court, the temporal and physical context of Dr. Woo's conduct brought it within the scope of professional services: "The acts that comprised the practical joke were integrated into and inseparable from the overall procedure." 164 P.3d at 461.
One of the fundamental dictates of insurance coverage practice is "Read the policy." That rule is doubly applicable here. There is significant policy to policy variation in language, particularly in the professional services definition, so reliance upon general rules and statements is dangerous.