What are Professional Services and Why it Matters

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Clearly, it is the specific terms of an insurance contract that dictate whether certain claims are covered or denied. In an interesting decision out of Illinois, the court faced the question: when is an attorney practicing law “in the service of another” and how does that impact coverage. This distinction was critical to whether a claim against an attorney would be covered by a commercial general liability (“CGL”) policy.

Sentinel Insurance Co. v. Cogan, et al., No. 15 C 8612 (N.D. Ill. 2014) arose from an underlying lawsuit in which a non-party law firm (“Plaintiff Firm”) sued some former attorneys who had broken away from Plaintiff Firm and started “Defendant Firm.” Prior to responding to the Complaint, counsel for Defendant Firm sent an email to a judicial law clerk before whom the case was pending. The email alleged serious ethical issues and professional misconduct by the Plaintiff Firm, which the court ultimately read to Plaintiff Firm in open court. Plaintiff Firm amended the Complaint to include charges of defamation.

Defendant Firm tendered the defense of all claims to their insurer. Insurer denied the claims concluding that they were barred under the CGL policy in question by the “professional services” exclusion. Insurer then filed the declaratory judgment action in question, and moved for summary judgment based on the exclusion, which applied to any “personal or advertising injury arising out of the rendering of or failure to render professional services as a lawyer.”

Although the court granted summary judgment in Insurer’s favor on the basis of the policy’s notice provision, it was how it dealt with the professional services exclusion which is of particular interest to PLM. Insurer argued that the professional services exclusion applied because the attorney “spoke as a lawyer” in e-mailing his professional opinion to the Court.  While conceding that their attorney was acting as an officer of the Court when he wrote the email, Defendant Firm argued that since he was not representing a client when he wrote the email, he was “not rendering a professional service” within the meaning of the exclusion.

Noting the difference between a CGL policy covering commercial liability and E&O policies covering malpractice, the Court opined that the plain meaning of “professional services” was “the practice of law” which included representing clients in litigation, but also encompassed a much broader range of services including preparing papers necessary for transactions, trust and will drafting, and compliance advice to clients. The Court noted that the email contained information obtained by practicing law and the attorney in question used his “specialized knowledge and training” in drafting the e-mail but found that this was of no consequence.

The Court found that despite the professional duty to report suspected misconduct which is a “service to the profession,” it was not the same as a “professional service” to clients, and therefore found that coverage was not precluded under this policy exclusion.

This holding represents a narrow read of the type of conduct which may be excluded under CGL policies. Query why an E&O policy was not in play. We’ll continue to monitor similar decisions to see whether this is an anomalous finding or one which is more illustrative of a trend in Court holdings.