Unfair Business Practices = Professional Liability?

What is a “professional liability” claim? Most definitions would include a claim involving a skilled professional – such as an attorney, accountant, doctor or broker – sued in her professional capacity, based upon allegations of negligence in the performance of professional services. The easiest example is a claim for legal malpractice: a client gets a negative or unexpected result, believes that this result is due to failings on the part of hired counsel, and subsequently brings a claim against his attorney for damages.  Pretty cut and dry, right? Nope.

In the recent decision of Utica Mutual Ins. Co. v. Herbert H. Landy Ins. Agency, the First Circuit took a decidedly different – and perhaps unique – view as to what constitutes professional liability. In upholding the decision of the district court, the First Circuit held that the defendant Insurer had a duty to defend under a professional liability policy.  What is notable and unusual about that decision, however, is that the underlying action which triggered the dispute involved a claim of unfair business practices. There was no professional relationship between the parties; rather, the parties were both in the business of providing real estate professionals with insurance. In the suit, the underlying plaintiff alleged that the defendant improperly offered professionals lower premiums than those allowed by law, which interfered with its business prospects.

The underlying defendant filed a claim under its professional liability policy, which covered losses “arising out of ‘wrongful acts’ . . . in rendering or failing to render professional services.”  Ultimately, the First District agreed that, even though the claimant had not been providing professional services to the plaintiff, it had been engaging in professional services nonetheless.  Since the underlying plaintiff alleged that the defendant was improperly offering premiums at a lower rate than was allowed, the court held that this was in fact an allegation sounding in professional liability. The court’s reasoning, in part, was that the procurement of insurance policies and premiums was an activity that could only be undertaken by a professional in the insurance business.

Additionally, though the policy mandated that the insurer had a duty to defend arising out “errors and omissions in the provision of professional services,” it did not specify to whom the claimant must be providing professional services at the time of error, nor that the error or omission must have only had an effect on the recipient of those services.

The First Circuit’s decision offers a thought provoking contrast to our usually held beliefs about professional liability.  That is, that the duty to engage in competent, righteous, and professional care does not begin and end with the client.  Rather, the “professional services” in which many of us engage has a much greater range than we may realize, and our duties may extend beyond our clients.

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