Alert: Do You Know What Your D&O Policy Doesn't Cover?

The Broad Scope of the Professional Services Exclusion

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April 18, 2014

D&O policies typically include an exclusion for claims arising from the provision of, or failure to provide, “professional services.” The scope of the professional services exclusion can vary from policy to policy, and often times it is added or amended by endorsement.

The professional services exclusion may sound relatively innocuous to a typical insured, who logically assumes that it excludes “professional” conduct – that of a lawyer or doctor, perhaps. In reality, however, the professional services exclusion is a wolf in sheep’s clothing.

Carriers have asserted the exclusion to deny coverage for essentially any claims relating to insureds’ businesses. Often, courts uphold the insurers’ interpretation, applying the traditional test – whether a service involves specialized knowledge, labor or skill1 – more broadly than an insured may expect. As one court noted, “[a] professional services exclusion…may exclude a broader range of activities than are included within the basic coverage of a malpractice policy in the first instance.”2 This court noted that in the context of the professional services exclusion, as opposed to a professional liability policy, “a generic definition of 'professional services' is applied to a far broader range of activities….”3 Thus, a decision to foreclose a customer’s loan, the performance of due diligence in real estate transactions, the management of trust accounts, and the sale of bonds at a new accounts desk or from a teller window have all been held to be “professional services” – and claims arising from such conduct excluded from coverage.  

To manage this potential claims sinkhole, it is critically important to make sure that the type of professional services excluded are specified in the policy. The most effective list will be precise and indisputably finite. An indefinite list “includ[ing] but not limited to” certain services was recently held by a federal district court in Minnesota to be no limitation at all. Rather, the court simply applied the standard test – whether a service requires specialized knowledge, labor or skill – in concluding that providing credentialing services to radiology technicians constitutes a professional service.4

Limitations and specifications about the type of conduct excluded, and requirements that the conduct must be for a customer for a fee, are likewise helpful. It is also important to consider the extent to which the scope of conduct excluded by the professional services exclusion is encompassed in your errors and omissions coverage. 

[1] Assurance Co. of Amer. v. The Amer. Registry of Radiology Technologists, 13-cv-1136, p. 13 (D. Minn. Dec. 1, 2014).
[2] Aetna Cas. & Sur. Co. v. Dannenfeldt, 778 F. Supp. 484, 496 (D. Ariz. 1991).
[3] Id.
[4] Assurance Co., 13-cv-1136, pp. 10-12