by Christopher Graham and Joseph Kelly

You may think it’s just big law firms carrying D&O insurance. Kevin LaCroix of the D&O Diary reported here, for example, about Dewey LeBoeuf’s supposed $50 million in D&O insurance from three insurers. But out of Rhode Island, we have a case addressing D&O insurance for a small firm focused on personal injury and disability claims. That case, Rob Levine & Associates, Ltd. v. Travelers Casualty and Surety Company of America, C.A. No. 13-560-M (D. R.I. Feb. 3, 2014), addressed the policy’s professional services exclusion.

For the D&O underwriter of professional services firms, a goal is to assure your policy doesn’t insure risk you’d expect the professional liability insurer to insure. So your policy includes a professional services exclusion. For an insurance buyer, you’d expect some coordination between policies. But where’s the line between professional services and business risks for a professional services firms? How about advertising for professional services?

There are a lot of lawyers doing TV ads. Ever watch day time TV? First it’s auto wrecks. Then it’s nursing homes. Then it’s asbestos. Then it’s divorce. We will get you the money you deserve! Now, back to Maury Povich! Banner ads on the internet. Same things. Ever drive from Chicago to Detroit. Got to love lawyer billboards near the Indiana line and approaching the City of Detroit! We live in a great country!

One day you issue a duty-to-defend D&O policy to a law firm advertising heavily on the TV and internet. The firm’s catch phrase is “Call a Heavy Hitter® Today!”” Two former clients hit the firm with a multi-count complaint. One count is labeled “Class Action Deceptive Trade Practices.” The former clients allege the lawyers “‘deceptively advertise in all media in Rhode Island'” and “‘gave the false impression to [clients] and presently give the false impression to future clients that [they] have special expertise in personal injury cases and disability cases and will recover more money than other Rhode Island lawyers.'”

Lawyers deny wrongdoing and say defend us. You say, “Sorry. Our ‘Legal Services Exclusion’ applies to ‘Loss for any Claim based upon or arising out of any Wrongful Act related to the rendering of, or failure to render, professional services.'” You cite Rhode Island cases applying “arising out of” broadly. You cite non-Rhode Island cases construing “professional services” broadly. Allegations of misleading advertising are “inextricably intertwined with the rendering of professional services.”

Lawyers say the deceptive practices count alleges misleading statements “‘related to advertising, not the actual rendering of legal services.'” “‘[R]elated to the rendering of, or failure to render, professional services,'” for the D&O Policy, means “‘the actual performance of acts incident to particular professional services[,] [f]or example, . . . gathering medical records, negotiation of a settlement, filing complaints, and preparing discovery responses.'” The Wrongful Act was the “making misleading statements in advertisements.'” It wasn’t rendering legal services.

What does the court say? Lawyers win! Summary judgment! Insurer must defend. The count was about deceptive advertising, not about providing professional legal services. Further:

What seems clear from the plain language of the exclusion is that it was meant to exclude claims commonly referred to as malpractice claims, as opposed to claims arising from the business side of running a legal business. The policy in question here was a Directors and Officers’ policy, not a legal malpractice policy

Applying the exclusion to allegations about future clients, moreover, would ignore the word “render” in the exclusion. The lawyers didn’t render any services to future clients. Applying the exclusion here also would render the D&O policy meaningless. The firm’s business is “related to the rendering of … professional services.”

The opinion doesn’t address the multiple other counts in the complaint, including whether the lawyers malpractice insurer defended them. Nor is the firm’s commercial general liability advertising injury coverage addressed. That coverage generally is limited to “Offenses” including “misappropriation of advertising ideas,” “disparagement,” and “infringing upon another’s slogan.” So it’s not for consumer claims about buying a product or service based on an allegedly deceptive ad.

The opinion also doesn’t address whether the firm purchased D&O and professional liability insurance from the same insurer. Coverage presumably would be coordinated most effectively were that true. And there’s also presumably less risk of insurers claiming a coverage gap and pointing fingers at each other.

Comments on what insurers market this product for small law firms and frequency of purchases are encouraged.

Tags: Rhode Island, D&O, directors and officers liability insurance, management liability insurance, professional services exclusion, legal service exclusion, advertising, lawyers professional liability, lawyers malpractice, advertising injury