A commercial general liability (CGL) insurance policy will protect your business against a broad range of lawsuits brought by third parties. However, CGL policies will not protect your business against every type of liability. Like all insurance policies, CGL policies have exclusions, and one of the most universal of these is the professional services exclusion.
What does a CGL policy cover?
A CGL policy typically covers all sums that the insured becomes obligated to pay due to bodily injury or property damage, which was caused by an occurrence, to a third party. Many CGL policies also provide coverage for personal or advertising injury, which may range from defamation to infringement on another’s intellectual property rights. A CGL policy will cover your costs for covered events up to the policy limits, including legal costs to defend against lawsuits and any settlements or judgments against you. But a CGL policy will not shield you from all potential liability.
What is the professional services exclusion?
The professional services exclusion refers to property damage or personal injury that arises out of the insured’s rendering of or failure to render professional services. Many courts interpret the scope of the professional services exclusion based on 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 of a professional nature or a ‘professional service’ we must look not to the title or character of the party performing the act, but to the act itself.” 1
Some courts have applied the professional services exclusion more broadly to also include claims arising out of unskilled tasks – which do not require specialized skill, training, or knowledge – as long as the acts were integral to the operations of the insured’s profession.
Which industries incur professional services liability?
The professional services exclusion has been broadly enforced to encompass professional services in many industries, including law, accounting, financial, engineering, architectural, design, real estate, insurance, and marketing services, among others. Therefore, professional service firms in these and other industries should carefully weigh their exposure and consider purchasing a separate errors and omissions (O&E) policy to shield themselves from professional liability claims.
What does E & O insurance cover?
E&O insurance, which is also called professional liability insurance, typically provides coverage for work errors and oversights, negligence, missed deadlines, underdelivered services, and inaccurate advice. These policies protect against liability not only for the business but for the professionals who work there. Like CGL policies, E&O policies cover court costs, including any settlements or judgments, for covered claims up to the policy limits.
E&O policies also have exclusions, including claims arising out of an illegal activity or intentional wrongdoing, and the language varies from policy to policy. It is important to note that an E&O policy may define professional services differently from your CGL policy. Therefore, the policies should be carefully compared to ensure your D&O insurance will sufficiently fill in the gaps to cover what your CGL policy excludes.
If you are involved in a dispute with your insurance company, contact us. We have the expertise, experience and tenacity to make insurance companies keep their promises to you and your business.
1 Marx v. Hartford Accident & Indemnity Co., 183 Neb. 12, 157 N.W.2d 870 (1968):