Why it matters
In a recent decision from a Rhode Island federal court, a law firm and two of its lawyers won defense coverage from an insurer for an underlying complaint alleging false advertising. The insurer asserted a policy exclusion for the rendering of professional services, arguing that the false advertising claims arose out of and were inextricably intertwined with the lawyers’ legal services. But the court’s decision turned on the language of the underlying complaint, which alleged false advertising, not the provision of legal services. Although a trial court dismissed the deceptive trade practices count of the suit, the federal court said the insurer was still required to defend the suit because the false advertising injury alleged was within the coverage of the policy. Further, the court emphasized that a contrary holding would exclude almost all conduct on the part of the law firm, as its entire business is related to the rendering of professional services – leaving the D&O policy essentially meaningless.
This decision shows that exclusions must be read in context to avoid rendering coverage illusory. Here a malpractice (E&O) policy was in place to cover alleged wrongdoing in the rendering of professional services. The separate D&O policy therefore excluded coverage for claims concerning the rendering of professional services, but provided coverage for other alleged wrongful acts. The insurer’s position – that anything a law firm does necessarily “arises out of” and “relates to” the rendering of professional services – was rejected because it would have rendered the coverage the insurer sold illusory.
Robert Levine and Benjamin Pushner made up the Rhode Island-based law firm of Levine & Associates. The firm advertised on television and the Internet with the tag line “Call A Heavy Hitter Today!”
Two former clients of the firm filed suit in state court alleging, in their third count, that the lawyers violated Rhode Island’s deceptive trade practices statute. According to the plaintiffs, “[t]he Defendants deceptively advertise in all media in Rhode Island” and “[t]he Defendants gave the false impression to Plaintiffs and presently give the false impression to future clients that [they] have special expertise in personal injury cases and disability cases and will recover more money than other Rhode Island lawyers.”
Levine and Pushner requested a defense pursuant to a directors and officers liability policy issued by Travelers Casualty and Surety Company of America. Travelers denied coverage, citing an exclusion for legal services: “Loss for any Claim based upon or arising out of any Wrongful Act related to the rendering of, or failure to render, professional services.”
The law firm sued Travelers. The parties agreed to limit the issues before the court on summary judgment to whether the law firm is entitled to a defense in connection with the deceptive practices claim in view of the legal services exclusion.
Travelers argued that the alleged false and deceptive advertisements were “inextricably intertwined” with the law firm’s rendering of professional services, and that the phrases “arising out of” and “professional services” should both be interpreted broadly.
The law firm argued that the issue is controlled by the language used in the complaint. Count three focused on the firm’s advertising, not on the legal services the firm rendered.
On cross-motions for summary judgment, the court sided with the policyholder.
“The plain meaning of the word ‘render’ is ‘to do; perform; to render a service’; ‘to do (a service) for another,’” U.S. District Court Judge John J. McConnell, Jr., wrote. “The plain and ordinary language in the legal services exclusion therefore eliminates from coverage only conduct that relates to Levine & Associates providing legal services.”
Count three was limited to advertising and not the rendering of legal services, the judge said, as “the advertisements were made to the general public before legal services are performed to market services,” and allegedly gave a false impression not only to the plaintiffs but other future clients as well.
The court further held that Travelers’ argument would render the coverage it sold illusory. “Applying the legal practices exclusion to this alleged deceptive advertising would ignore the meaning of the word ‘rendering,’” the court explained. “If the court were to adopt the expansive reading of the legal practices exclusion advocated by Travelers, then any conduct by Levine & Associates would be excluded from coverage since Levine & Associates’ business is ‘related to the rendering of . . . professional services.’ If this were the case, then the D&O policy would be meaningless and provide no coverage. The court will not construe the contract to create such an absurd result.”
To read the order in Levine & Associates v. Travelers Casualty and Surety Company of America, click here.