Commercial general liability (CGL) insurance protects businesses against a broad range of third-party lawsuits, but it has important limitations. One of these is the professional services exclusion, which may leave businesses exposed to claims arising from negligence, errors, or omissions in performing professional services. Understanding this exclusion can help you identify potentially costly coverage gaps before a claim arises.
What Does a CGL Policy Cover?
A CGL policy generally covers liability for bodily injury and property damage caused by an occurrence, subject to the policy’s terms, conditions, and exclusions. Many policies also cover certain personal and advertising injuries, such as defamation or specified forms of intellectual property infringement. CGL insurance, which generally covers defense costs as well as judgments or settlements up to the policy limits, is commonly purchased either as a stand-alone policy or bundled with commercial property insurance in a business owner’s policy (BOP). While CGL insurance can provide a lifeline when a customer, vendor, or other third party alleges that your business caused them physical harm or damaged their property, it is not designed to cover every mistake a business can make. When a claim arises from the professional services your company provides, coverage will likely be barred by the professional services exclusion.
Lawsuits Involving Professional Services
Insurance policies generally define professional services as specialized services that a business or individual provides using professional knowledge, training, skill, or expertise. The precise definition depends on the policy. Professional service providers span many industries, including law, accounting, finance, engineering, architecture, design, real estate, insurance, and marketing, among others.
Lawsuits have arisen from a broad range of allegations of negligence, inaccurate advice, mistakes, omissions, or missed deadlines in the provision of professional services. For instance, an engineer may miscalculate a load-bearing component in a building project, resulting in structural damage, costly repairs, or injuries. An accountant may make a significant error in preparing a client’s tax returns, causing the client to incur substantial tax penalties or other financial losses. An attorney may miss a court filing deadline, causing a client to suffer financial harm. Errors and omissions such as these would typically fall within the professional services exclusion in a CGL policy.
The Professional Services Exclusion
In evaluating the scope of the professional services exclusion, many courts have referred to a 1968 decision by the Nebraska Supreme Court, in which the Court stated, “The act or service must be such as exacts the use or application of special learning or attainments of some kind… A ‘professional’ act or service is one arising out of a vocation, calling, occupation, or employment involving specialized knowledge, labor, or skill, and the labor or skill involved is predominantly mental or intellectual, rather than physical or manual. In determining whether a particular act is… a ‘professional service’ we must look not to the title or character of the party performing the act, but to the act itself.” 1
The professional services exclusion has been interpreted inconsistently across different jurisdictions. Some courts interpret the exclusion more broadly, extending it to routine or administrative activities that are integral to a professional firm’s operations but that do not require specialized skill or judgment in and of themselves. Other courts narrowly interpret the exclusion to encompass only those tasks that require specialized expertise.
Errors and Omissions (O&E) Insurance
For many businesses, errors and omissions (E&O) insurance, also known as professional liability insurance, is an important complement to CGL coverage. E&O insurance generally addresses claims alleging that a company’s professional services caused financial or other covered harm. Depending on the policy, these may include allegations of negligence, inaccurate advice, mistakes, omissions, missed deadlines, or failure to deliver services as promised.
E&O coverage is not automatic protection against every professional dispute. Like all insurance policies, E&O policies have their own limitations; for instance, they typically exclude claims arising out of intentional wrongdoing. Further, there may be coverage gaps between a company’s CGL and E&O policies if the policies define professional services differently and their respective exclusions do not align.
The Takeaway
While your CGL insurance provides important protection against many third-party claims, it may not cover liability arising from the professional services your business provides. If your company relies on specialized knowledge or expertise to serve your clients, a professional liability claim could leave you facing substantial defense costs, settlements, or judgments without adequate insurance coverage. The key is to understand the scope of your CGL policy’s professional services exclusion and ensure that your insurance program addresses the risks your business actually faces. Working with an experienced insurance professional to review your CGL and E&O policies as a coordinated program can help identify potential coverage gaps and provide greater confidence that your business is protected when a claim arises.
If your business insurance company has denied or is challenging your claim, contact Schwartz, Conroy and Hack, PC for assistance. We have the expertise and tenacity to make insurance companies keep the promises they make to you and your business.