Scope of Professional Liability Insurance

As a leader in Professional Licensing Law, Health Care Law, and Malpractice Defense Law, most of our clients come to us with professional liability insurance. Professional liability insurance, which is also called Errors and Omissions insurance (E&O) or Malpractice insurance, is type of insurance which provides insurance coverage for liability caused by acts, errors, or omissions of a professional in rendering services within the context of the insured’s profession. When triggered, it helps the professional retain and pay for expenses – including the legal defense and the resulting damages – from liability arising from professional services rendered.
However, professional liability insurance does not always apply to professional licensing defense cases. That is because many licensing defense cases do not arise out of professional negligence. Rather, many of these cases arise out of other forms of misconduct by the individual licensee, outside of their professional function. This could be from driving while under the influence, fraudulent acts, theft, assault and battery, possession of controlled substances, or other acts that paint you and – as a result – the profession in a poor light. This misconduct and resulting license discipline is not considered to have arisen from acts of the profession. And, thus, are typically considered outside of the coverage of one’s malpractice insurance policy.
Rather, to be covered, the liability and damages must arise from performance of the insured’s professional services. And even then there are further limits – one’s policy may restrict coverage to the insured’s accidental acts versus negligence, may not cover bad professional advice, and may not provide coverage for liability caused by the acts of an employee or subordinate, such as a nurse or a paralegal. Professional liability policies typically exclude liability for damages caused by willful, dishonest or malicious conduct by the professional. And even if it doesn’t explicitly do so, all applicable California statutes are considered impliedly a part of the liability insurance policy even if the policy makes no mention of them. (Wildman v. Government Employees’ Ins. Co. (1957) 48 Cal.2d 31, 40.) Thus, depending upon the context, sexual misconduct, discrimination, and wrongful termination, as well as punitive damages, fines, penalties, forfeitures, and restitution may not be covered even when it arises in the course of professional conduct. (See Insurance Code sections 533, 533.5.)
Therefore, determining the scope of one’s professional liability insurance often involves not just reading the insurance policy, but conducting a complete analysis of the facts of the case, as well as researching judicial interpretations of various policy clauses. These factors are of equal importance and neither can be neglected without potential harm to the insured by failing to find existing insurance coverage.