Your commercial general liability (CGL) insurance policy is the foundation for your company’s insurance program. Most businesses need a CGL policy, which provides broad coverage if you cause bodily injury or property damage, and, in some cases, personal injury, to a third party. But while CGL insurance protects you from many hazards, it does not safeguard against injury or property damage arising out of your rendering of or failure to render professional services. That category of liability is the domain of professional liability insurance, which is also known as errors and omissions (E&O) insurance.
CGL Insurance
A CGL policy will cover all sums, up to your policy limit, that your company becomes obligated to pay to a third party for claims of bodily injury, property damage and, in some policies, personal injury, that arise out of an occurrence or accident. The insurer will cover the cost to defend against any lawsuits along with any settlements or judgments up to your policy limit.
Your CGL policy will safeguard you against a broad range of claims. If a customer is injured after slipping and falling on your business property, you will be covered under the policy. If a third party sustains bodily injury or property damage from using one of your company’s products, your CGL policy will cover that too. Some CGL policies also cover personal injury, which is also called advertising injury. Common examples of personal injury claims include allegations of infringement on a competitor’s copyright or trade dress, or claims that you slandered, libeled or violated the right to privacy of a third party.
CGL policies typically have many exclusions, such as injury or damage caused by intentional or wrongful acts, pollution liability, workers’ compensation, vehicle liability and others. Professional liability, too, is almost universally excluded from CGL policies.
E&O Insurance
An E&O policy is an essential insurance product for providers of professional services, including law firms, architectural/engineering firms, financial services providers, real estate brokerages and others. This type of insurance protects both your firm and its licensed professionals against claims arising out of the provision of professional services, such as allegations that your errors, oversights, negligence, missed deadlines, inaccurate advice or underdelivered services caused harm to a third party. As one court noted, E&O coverage is “intended to insure a member of a designated calling against liability arising out of the mistakes inherent in the practice of that particular profession or business.”1
Even top-rated professional service providers are at risk of a lawsuit from a disgruntled client claiming the provider’s service caused them harm. An E&O policy will pay for all defense costs as well as settlements and judgments that your firm and/or its professionals become obligated to pay, for covered hazards up to the policy limit. But be award that, like all insurance policies, E&O policies have notable exclusions.
The Scope of the E&O Exclusion in a CGL Policy
When determining when a CGL policy’s E&O exclusion applies, courts typically look to the definition of “professional services” that was provided by the Nebraska Supreme Court: “Something more than an act flowing from mere employment or vocation is essential. The act or service must be such as exacts the use or application of special learning or attainments of some kind. The term ‘professional’…means something more than mere proficiency in the performance of a task and implies intellectual skill as contrasted with that used in an occupation for production or sale of commodities. 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.”2
Some courts have interpreted the professional services exclusion more broadly than others. For instance, one court held that the exclusion applied to claims arising out of unskilled, mundane tasks – tasks that do not require specialized skill, training or knowledge – as long as these acts are an integral part of the operations of the policyholder’s profession.3 Others have interpreted the definition more narrowly, finding the exclusion does not apply to acts that do not require the particularized knowledge or skill of the policyholder’s field.4
If you are involved in a dispute with your business insurance company, contact Schwartz Conroy & Hack. We have the expertise, experience and tenacity to make sure insurance companies keep their promises to you and your business.
1 Albert J. Schiff Assocs., Inc. v. Flack, 51 N.Y.2d 692, 700, 417 N.E.2d 84, 88, 435 N.Y.S.2d 972, 976 (1980)
2 Nebraska Supreme Court in Marx v. Hartford Accident & Indemnity Co., 183 Neb. 12, 157 N.W.2d 870 (1968)
3 Golden Eagle Ins. Corp. v. Lemoore Real Estate and Prop. Mgmt., Inc., No. F061735 (Cal. Ct. App. 5th Dist. May 14, 2012)
4 Camp Dresser & McKee, Inc. v. Home Ins. Co., 30 Mass. App. Ct. 318, 322-25, 568 N.E.2d 631, 634-35 (1991)
