14.4 Other Professionals

• Library: Insurance Law in Virginia (Virginia CLE) (2020 Ed.)

14.4 OTHER PROFESSIONALS

14.401 In General. Many nonmedical and nonlegal professionals are either required to or should choose to carry professional liability policies. They include accountants, financial advisors, realtors, insurance agents and brokers, ¹⁴⁹ title and settlement agents, clergy, ¹⁵⁰ architects, engineers, salon and spa professionals, ¹⁵¹ law enforcement personnel, ¹⁵² and any others providing

[Page 630]

professional services. ¹⁵³ Professionals typically require specific education, training, and licensing to perform their services. They are likely to need professional liability policies because most general liability policies exclude coverage for professional services, which produce a separate risk. ¹⁵⁴ On the other hand, professionals should also carry general liability insurance policies or business insurance policies covering services they render that may not fall under the category of "professional" services. ¹⁵⁵ Additionally, employers should consider obtaining insurance covering employment practices, which may be excluded under other policies. Employment practices liability insurance (EPLI) policies generally may be considered a type of professional liability policy, and EPLI policies typically tend to cover discrimination, harassment, and wrongful termination claims, among other claims related to employment practices. (Of course, the policy itself must be closely examined to determine the scope of coverage.) Employment-related discrimination claims have risen since the economic downturn starting in 2008. ¹⁵⁶

14.402 The Insurable Event.

A. In General. The insurable event is typically an act or omission that arises out of the provision of, or the failure to provide, professional

[Page 631]

services by the insured. For example, a policy may provide that there will be coverage for "damages arising only out of the negligent act(s), error(s) or omission(s) in the performance of the Insureds' normal professional business operations." ¹⁵⁷

"Occurrence" or "incident" is usually defined in the policy. Virginia law tends to interpret ambiguous language in a policy broadly, leaning toward providing coverage to the insured. ¹⁵⁸ Thus, while what constitutes an occurrence may be defined narrowly by the insurer, the court may broaden the language to provide coverage. For example, an occurrence may be defined by the court simply as an event causing damage to the claimant, or any act or omission in rendering or failing to render professional services. Whether a policy is an "occurrence" policy or a "claims made" policy will further delineate the relevant period for the event triggering coverage.

B. The "Occurrence" Policy. An "occurrence" policy provides coverage for an incident that occurs during the effective policy period. For example, an escrow agent with an occurrence policy negligently misuses funds given to the agent by a buyer for the purchase of a home in Year 1. The buyer asserts a claim against the escrow agent in Year 3. Regardless of whether the escrow agent renewed the occurrence policy in Years 2 and 3, the policy purchased in Year 1 applies to the claim.

C. The "Claims Made" Policy. A "claims made" policy provides coverage for a claim that is made during the effective dates of the policy. To illustrate, an escrow agent with a claims made policy negligently misuses funds given to the agent by a buyer for the purchase of a home in Year 1. The buyer asserts a claim against the escrow agent in Year 3. The claims made policy purchased by the escrow agent in Year 3 would apply.

14.403 Who Is Covered. The persons covered under the policy are the named insureds, or if the named insured is a firm, company, or other entity, usually those performing the professional services on behalf of the company. The policy language likely will define who is insured under the policy. With a claims made policy, the policy should be examined to determine whether a policy was purchased to cover any gaps in time between the

[Page 632]

policy periods and whether a new employee will be covered if the occurrence in which the new employee was involved happened while the employee worked for another company with a professional liability policy.

For example, a real estate agent sells a house in Year 1 while employed with Agency A, which has a claims made policy. When selling the house, the agent negligently fails to disclose a material defect to the buyer. In Year 2, the agent changes employers and now works with Agency B, which also has a claims made policy. In Year 2, the buyer asserts a claim against the agent. The policies should be reviewed to determine whether the agent is covered under Agency B's policy or as a former employee under Agency A's policy.

14.404 What Is Covered. Only claims arising out of the rendering of professional services will typically be covered under a professional liability policy. ¹⁵⁹ If there is a dispute over coverage of a claim, the insurer (or the insured) may file a declaratory judgment action to determine coverage. ¹⁶⁰ In determining whether there is coverage under the policy, the attorney should first review the insuring agreement in which the scope of coverage is defined. ¹⁶¹ Indeed, it is not uncommon for some professionals to obtain professional liability insurance policies for a particular project or undertaking. ¹⁶² Because the insurer has the burden of clearly drafting its language, particularly any exclusionary language, Virginia courts will interpret confusing or ambiguous policy language in favor of the insured. ¹⁶³

[Page 633]

There is often a fine line between professional and nonprofessional services, and the issue is fact-specific. ¹⁶⁴ The policy may specifically define the covered professional services or may merely state that the services covered are "professional services." Counsel should look at the contract used by the professional to determine what particular services were to be performed. Often, as a practical consideration, professionals will disclaim in the contract any responsibility for acts that fall outside the scope of professional liability insurance. Contracts for services or engagement letters are generally used by accountants, architects, and engineers to define the scope of their services and, critically, to limit their liability. ¹⁶⁵

Some lawsuits against professionals may contain multiple claims, not all of which concern professional services. When even one of the claims is covered under the policy, the insurer must provide a defense to all. ¹⁶⁶ In Virginia, as elsewhere, the duty to defend is broader than the duty to indemnify. Thus, the insurer may be required to provide a defense but may only have to indemnify the insured for that portion of the damages arising from the provision of "professional services." Courts have re-emphasized the "eight corners rule" that "only the allegations in the complaint and the provisions of

[Page 634]

the insurance policy are to be considered in deciding whether there is a duty on the part of the insurer to defend and indemnify the insured." ¹⁶⁷

14.405 Policy Exclusions. The policy should be reviewed for its specific exclusions. Typical exclusions include fraud, criminal acts, intentional acts, sexual acts, and punitive damages. ¹⁶⁸ For example, in a professional liability policy where services as an escrow agent were covered, there was also an exclusion for "handling of funds," which the court determined excluded coverage for a claim involving allegations of unauthorized transfer of funds. ¹⁶⁹ Some professional liability policies may exclude coverage when a general liability policy applies or may state that the professional liability policy is to be "excess" coverage only. A policy may also exclude fee disputes between the professional and the client. Many policies also exclude pollution and environmental liability, which may be most pertinent for engineers, architects, and real estate, title, and settlement agents. ¹⁷⁰ However, even when it appears that an exclusion applies, the insurer has the burden of proving that the exclusion actually does apply.

Certain acts or omissions may be outside the scope of coverage simply based...