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Professional liability and personal injury liability coverage.

We Are the Greatest (WAG), a talent agency, is sued by a competitor for slander. The competitor claims that the WAG made derogatory and demeaning statements about it when soliciting clients. Seems like a good example of the need for personal injury coverage provided by Coverage B Personal and Advertising Injury Liability of the CGL policy.

Unfortunately for WAG, its CGL policy had been endorsed to eliminate Coverage B. To close that gap, WAG'S broker had obtained a professional liability policy for the agency.

The pertinent parts of the professional liability policy's insuring agreement read as follows:

I. INSURING AGREEMENTS The Insurer will pay on behalf of the Insured all Damages and Claim Expenses ... that any Insured, in the performance of Professional Services, becomes legally obligated to pay because of Claims first made during the Policy Period ... and resulting from a Wrongful Act ...

II. DEFINITIONS ...

Wrongful Act means the following actual or alleged conduct by an Insured, or by any person or organization for which an Insured is legally liable, and which results from the performance of Professional Services for others: ...

1. a negligent act, error or omission;

2. false arrest, detention or imprisonment;

3. malicious prosecution;

4. the wrongful eviction from, wrongful entry into, or invasion of the right of private occupancy of premises that a person occupies, committed by or on behalf of its owner, landlord, or lessor;

5. oral or written publication of material that slanders, libels or defames a person or organization or disparages the goods, products or services of a person or organization;

6. oral or written publication or material that violates a person's right of privacy; or

7. misappropriation of name or likeness.

Professional Services means performance of services rendered to others in the conduct of the Insured's profession.

WAG points to item 5 in the list of wrongful acts (oral or written publication of material that slanders) and seeks coverage under its professional liability policy. The insurance company sees it differently. It says that for a wrongful act to be covered it must arise out of "professional services" which are defined as "services rendered to others in the conduct of the Insured's profession." Soliciting new clients, while part of the insured's business, is not, it argues, a service rendered to others.

Who's right? This type of problem is common. The classic version concerns a patient who falls off an examining table in a doctor's office. Was the fall caused by a failure of care on the doctor's part in positioning

the patient onto the table (probably professional liability) or was it caused by a defective table (probably a CGL matter).

The potential for overlap between profession liability and CGL coverages is the reason for recommending that both coverages be placed with the same insurance company. (That's often not possible as insurers that write professional liability are usually not a source for CGL coverage and vice versa.) WAG, however, couldn't present the claim to both its insurers; its CGL doesn't provide coverage for slander, period. It is left with just the professional liability policy as a source of coverage.

This problem, which was discussed as part of an interactive-seminar on commercial coverage conundrums at the October, 2011 CPCU annual meeting, doesn't come from a court case so we don't have any court's opinion about it. One of the attorneys on the panel of speakers at the meeting opined: "... WAG is seeking to expand its business rather than performing its services for its clients or others. This is an administrative or business function that the talent agent is engaged in rather than work done on behalf of one of the clients." The consensus was: no coverage under the professional liability policy, although there was a heated discussion of the issue.

The moral of this story is clear: Clients need personal injury liability coverage in addition to professional liability insurance. Insurers that want to avoid professional claims should use a professional liability exclusion. The ISO version of that exclusion reads as follows:
   With respect to any professional
   services shown in the Schedule,
   the following exclusion is added
   to Paragraph 2., Exclusions of
   Section I--Coverage A--Bodily
   Injury And Property Damage
   Liability and Paragraph 2.,
   Exclusions of Section I Coverage
   B--Personal And
   Advertising Injury Liability:
   This insurance does not apply to
   "bodily injury", "property damage"
   or "personal and advertising
   injury" due to the rendering
   of or failure to render any professional
   service (1).


With that endorsement, personal injury claims, such as slander, that arise out of professional activities would be excluded from the CGL policy, which should satisfy the insurance company. At the same time, the insured would have coverage for personal injuries claims from business activities under its CGL policy and under its professional liability policy for those that are due to its professional functions.

Nigerian Oil Money, Anyone?

New York courts sometimes take a more expansive view of professional liability coverage.

An example is a case involving a law firm that was contacted via e-mail by an individual claiming to be the chief executive officer of a Taiwanese corporation. He wrote that he was seeking assistance in collecting debts in North America. The supposed CEO signed a retainer and later sent the law firm, Lombardi, Walsh, Wakeman, Harrison, Amodeo & Davenport, RC. (LWWHAD) a $384,700 check from a purported debtor of the corporation. LWWHAD opened an account at Berkshire Bank and deposited the check. At the request of the purported chief executive officer, LWWHAD instructed Berkshire Bank to wire the value of the check, minus its legal fee, to a South Korean entity in the U.S. that was allegedly a supplier of the Taiwanese corporation.

Soon after the funds were transferred, Berkshire Bank notified LWWHAD that the check was counterfeit and that its account, therefore was overdrawn. The bank commenced an action against LWWHAD to collect the overdraft.

The attorneys were victims of an all too common phony-check scheme. We often think that a cashier's check or a certified check is as good as cash. That's not true. If the check is not paid by the issuing bank, the bank where it was deposited can reverse the credit to its customer's account. The best advice: Don't send any goods or money until you find that the bank on which the check is drawn has actually paid the funds.

LWWHAD asked its professional liability policy insurer, American Guarantee, to defend the action. The insurer disclaimed coverage. LWWHAD settled with the bank and sued American Guarantee seeking indemnification. (2)

The court's decision notes that the insurance policy provided coverage for any claim based on an act or omission in insured's rendering or failing to render "Legal Services" for others. "Legal Services" is defined by the policy as those services performed by an Insured as a licensed lawyer in good standing ... or in any other fiduciary capacity but only where the act or omission was in the rendition of services ordinarily performed as a lawyer.

An attorney in possession of client's funds is a fiduciary. Because the rules of professional conduct require that the attorney promptly pay such funds to the client or to those that the client directs, the court held that when LWWHAD paid the funds as directed, it was providing services as an attorney and was entitled to coverage under American Guarantee's policy. (3)

Learning Points

1. Personal and Advertising Liability (Coverage B in the CGL policy) is an important coverage and should be included if at all possible.

2. When possible, CGL and professional liability coverage should be placed with the same insurer.

3. A professional liability exclusion is the way a CGL insurer can avoid professional liability claims.

4. Think outside the box when looking for coverage. Submit claims to insurance companies and let them make the coverage determination. Decoding the legal nuances in insurance coverage can be tricky. It's a job for claims people and then for attorneys and experts specializing in insurance matters.

5. Finally, shouldn't there be a law-school course teaching attorneys to beware of emails offering get-rich-quick schemes?

(1) Exclusion--Designated Professional Services (CG 21 16 07 98) Copyright, Insurance Services Office, Inc., 1997

(2) This is not a new problem. On January 27, 1893, the New York Times ran a story about a fraudulent certified check for $80,000--a huge sum of money at that time. See: http://query.nytimes.com/mem/archive-free/pdf?res=F00C11 FF3C5515738DDDAEOA94D9405B8385FOD3

(3) Lombardi, Walsh, Wakeman, Harrison, Amodeo & Davenport, RC. v Lombardi, Walsh, Wakeman, Harrison, Amodeo & Davenport, RC. Supreme Court, Appellate Division Third Judicial Department, 511623 June 2,201 ]

(4) Another factor that weighed in the law firm's favor was the use of the term "based on" in the insuring agreement. The court noted that New York courts have held that the phrase "based on" requires only that there be some causal relationship between the injury and the risk for which coverage is provided"

Jerry Trupin, CPCU,, CLU, ChFC, is a partner in Trupin Insurance Services located in Briarcliff Manor, NY. He provides property/casualty insurance consulting advice to commercial, non-profit and governmental entities. He is, in effect, an outsourced risk manager. Jerry has been an expert witness in numerous cases involving insurance policy coverage disputes and has taught many CPCU and IM courses.

Jerry has spoken across the country on insurance topics and is the co-author of over ten insurance texts used in CPCU and IIA programs including Commercial Property Risk Management and Insurance and Commercial Liability Management and Insurance. He regularly contributes articles to CPCU Interest Group Newsletters, the Insurance Advocate, and other publications. He can be reached at cpcuwest@aol.com.

Thanks to Jerry Trupin for this article and to the CPCU Society's Risk Management Interest Group newsletter for letting us reprint it.
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Title Annotation:EXPOSURES AND COVERAGES
Author:Trupin, Jerry
Publication:Insurance Advocate
Date:Dec 19, 2011
Words:1622
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