Chapter Thirty-Four
| Jurisdiction | New York |
Chapter Thirty-four
Professional Liability Insurance
A. Michael Furman, Esq. Andrew R. Jones, Esq.*
* The authors are grateful to Ashley Glazewski and Safiya Cooper for assistance with updating this chapter.
I. Introduction
Professional liability insurance, otherwise known as “errors and omissions” insurance, is specialty insurance coverage that protects physicians, lawyers, accountants, architects, engineers and other professionals for amounts that they may become liable to pay to third parties due to malpractice claims arising from the negligent rendering of or failure to render professional services.
Professional liability insurance is typically afforded on a “claims-made” or “claims-made-and-reported” basis, meaning that the claim must be made (and under some policies, reported) during the policy period. The coverage under an errors and omissions policy must arise from professional services either rendered during the policy period or subsequent to a specified “retroactive” date. Most professional liability policies are conditioned on the representation that the insured professional does not have knowledge of a claim or “circumstances that could give rise to a claim” prior to the inception of the policy period.
The scope of coverage under a professional liability errors and omissions policy is limited to third-party liability arising out of the insured professional’s “professional services.”4681 Professional liability policies do not cover the insured’s own contractual liability, or losses caused by one insured professional to another insured professional. Professional liability insurance covers financial losses caused by an insured in providing or failing to provide professional services and does not typically provide coverage for claims of bodily injury, property damage, fidelity, workers’ compensation, or for the reimbursement of professional fees.
II. Who is a Professional?
The term “professional” has a myriad of applications. Generally, a “professional” is a person who is formally trained and possesses the specialized skills, knowledge and training to render a professional service for a fee. Typically, a “professional” must meet certain minimum technical licensing requirements, and be subject to ethical and disciplinary regulation.
Not all professionals are treated equally under New York law. Beginning with the New York Court of Appeals in Chase Scientific Research, Inc. v. NIA Group, Inc.,4682 the New York courts have held that insurance brokers and agents are not considered “professionals” entitled to protection under N.Y. Civil Practice Law & Rules 214(6) (CPLR), the three-year statute of limitations applicable to non-medical professional malpractice actions.4683 In Chase Scientific, the Court of Appeals adopted a narrow interpretation of CPLR 214(6), reasoning that the Legislature intended to benefit only a discrete group of “learned professions,” including lawyers, accountants, architects and engineers, who share common qualities including “extensive formal learning and training, licensure and regulation indicating a qualification to practice, a code of conduct imposing standards beyond those accepted in the marketplace and a system of discipline for violation of those standards.”4684 The Chase Scientific Court held that these “learned professions” enter into relationships of trust and confidence, carrying a duty to counsel and advise clients, and thus entitling them to the protection of the shortened statute of limitations.
The Chase Scientific Court explained that the continued rise in the number of “semi-professionals” in the marketplace meant that any broader interpretation would make it difficult to draw distinctions between groups entitled to the protection of CPLR 214(6). Had the Legislature meant otherwise, the Court stated, it would have shortened the six-year statute of limitations for breach of contract to three years for all contracts for services.4685 Applying this narrow interpretation, the Court in Chase Scientific held that insurance agents and brokers are not “professionals” within the meaning of CPLR 214(6), reasoning that while insurance agents and brokers must be licensed, they are not required to undergo extensive formal training and are not bound by a code of conduct similar to those of lawyers, accountants, architects and engineers.4686
Regarding professional liability insurance, whether the services provided by the insured “professional” are covered depends on the particular policy language, and whether the services at issue fit within the ambit of the term “professional services” as defined in the policy’s Insuring Agreement. The criteria established by the Court in Chase Scientific and its progeny relate to statutory protections that exist for certain professions (such as physicians and lawyers). Nevertheless, errors and omissions coverage is available for a wide spectrum of professionals, including real estate brokers, business consultants, appraisers, property managers, mortgage brokers, municipal managers, marketing consultants, public adjusters, residential inspectors and title agents and abstractors, who may not enjoy the same statutory protections as other professionals as set forth in Chase Scientific.
III. Scope of “Professional Services” COVERAGE
Professional liability policies provide insurance coverage for liability claims arising out of negligent acts, errors or omissions committed by the insured professional in the course of rendering “professional services.” Professional liability insurance does not cover exposures which necessarily flow from the commercial operation of the professional business, such as contractual disputes or claims of bodily injury arising from a trip and fall on the premises, for which general liability policies are traditionally purchased. Conversely, the typical commercial general liability policy will specifically exclude professional liability coverage for claims arising from errors and omissions that occur in the course of rendering professional services.4687
Most error and omissions policies either define the term “professional services” or list the type of profession (i.e., accountant, architect, lawyer) in the policy declarations. Thus, whether or not the alleged negligent act, error or omission arises from the rendering of “professional services” (and thus constitutes a covered claim) is a matter of contractual interpretation of the particular professional liability policy at issue.
Under New York law, insurance policies are interpreted as contracts.4688 In the first instance, “the initial interpretation of a contract is a matter of law for the court to decide.”4689 If a contract’s language is unambiguous, the court is required to give effect to the contract as written.4690 A contract is unambiguous if it has a definite and precise meaning, without a danger of misconception, and for whose interpretation there is no reasonable basis for a difference of opinion.4691 Where an insurance contract is complete, clear and unambiguous on its face, it must be enforced according to the plain meaning of its terms, and extrinsic evidence of the parties’ intent may not be considered.4692 However, where the parties have introduced conflicting extrinsic evidence regarding their understanding and intent of provisions at the time they entered into the contract, it is for the trier of fact to resolve the ambiguities in the agreement.4693
Therefore, whether a particular claim arises from covered “professional services” under a professional liability insurance policy depends upon an analysis of the alleged negligent act, error or omission and whether such conduct constitutes “professional services” pursuant to a plain reading of the Insuring Agreement.
A. Overlap Between Professional and Commercial General Liability Policies
In most claim scenarios, it is clear whether the claim arises from negligent acts, errors or omissions of the insured in the course of rendering such insured “professional services.” However, sometimes there are potential overlaps between an insured’s professional liability and commercial general liability insurance policies.
For example, in Harad v. Aetna Casualty and Surety Co.,4694 a claim was made for “malicious prosecution” against the insured law firm arising from the insured’s representation of an insurance company in an underlying coverage dispute with a policyholder. In Harad, the policyholder brought a malicious prosecution suit against its auto liability insurer and the insured law firm (counsel for the auto liability insurer) on the grounds that the insured law firm verified an answer and counterclaim in the underlying coverage dispute which alleged that the policyholder “conspired and/or contrived to defraud [the auto liability insurer] by concealing and/or misrepresenting” the fact that the insured vehicles were for personal rather than business use.4695
The insured law firm in Harad was covered by two insurance policies—a lawyers’ professional liability policy and a “business owners” commercial general liability policy. The insured law firm tendered the malicious prosecution suit to its insurers for defense and indemnification. While the professional liability insurer agreed to defend the claim, the commercial general liability insurer denied coverage, asserting that the claim was excluded pursuant to the “professional service” exclusion.4696
Although the title of the commercial general liability policy at issue (“Business Owners Policy (Deluxe)”) implied that the policy was intended to cover liability arising from the operation of a business, the Harad court found that the malicious prosecution claim arose from the insured law firm’s professional services, and thus was covered only under the professional liability policy, and not the commercial general liability policy. In so holding, the Harad court distinguished business liability from professional liability, finding that:
...[T]he practice of law, as other
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