Hot Issues in Professional Liability Coverage:

Transcription

1 Hot Issues in Professional Liability Coverage: Lessons from the DRI Compendium Mark E. Cohen Zelle McDonough & Cohen LLP 101 Federal St 14th Fl Boston, MA (617)

2 In March 2008, after almost 30 years as head of the Insurance Coverage Department at another Boston based firm, Mark E. Cohen joined with Tony Zelle and Brian McDonough to form Zelle McDonough & Cohen. Mr. Cohen concentrates his practice in the areas of insurance coverage and bad faith. During his career as an insurance coverage specialist, Mr. Cohen has represented insurers in thousands of coverage matters in every jurisdiction in America and in numerous foreign countries. He has provided coverage advice concerning virtually every type of insurance policy imaginable, including general liability, excess, and a wide variety of professional liability policies, including employment practices liability, directors and officers liability, architects and engineers professional liability, and malpractice/errors or omissions policies for numerous other professions. Mr. Cohen has also drafted many insurance policies and endorsements for his insurance clients. He has litigated, arbitrated and mediated cases throughout the country and has been admitted to practice pro hac vice in numerous jurisdictions.

3 Hot Issues in Professional Liability Coverage: Lessons from the DRI Compendium Table of Contents I. Professional Liability Insurance Coverage: A Compendium of State Law...99 A. Introduction...99 B. Arizona Chapter C. Florida Chapter D. Massachusetts Chapter Hot Issues in Professional Liability Coverage: Lessons from the DRI Compendium Cohen 97

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5 Hot Issues in Professional Liability Coverage: Lessons from the DRI Compendium I. Professional Liability Insurance Coverage: A Compendium of State Law A. Introduction Goal and Overview Professional Liability Insurance Coverage: A Compendium of State Law surveys the law in all 50 states, the District of Columbia, the United States Virgin Islands, Guam and Canada, except for Quebec, concerning 25 major issues, arranged into 10 general topics relating to professional liability and claims-made insurance coverage. The Compendium focuses on case law and statutes that are unique to professional liability and claims-made policies and also discusses professional services exclusions commonly found in general liability and homeowners policies. Issues that relate to insurance law generally, such as when there is a duty to defend and whether an insurer is entitled to allocation of defense costs attributable to non-covered matters, are not within the scope of the Compendium even if these cases happen to involve claims-made or professional liability policies. The purpose of the Compendium is to provide a guide for attorneys and claims professionals presented with issues unique to professional liability and claims-made policies. The Compendium seeks to set forth relevant case law and statutes in a straightforward manner, rather than presenting commentary on any wrongly decided cases or discussing how the law might evolve in the future. The Compendium discusses federal and state decisions, both published and unpublished, from official reporters, LEXIS and Westlaw. Before citing an unpublished case mentioned in the Compendium in a pleading, practitioners should, of course, make sure that citing unpublished cases accords with the pleading jurisdiction s rules. The Compendium includes cases decided through August Types of Policies Discussed Professional liability policies are available for virtually all professions imaginable. The cases cited in the Compendium involve a wide variety of professional liability policies, including those issued to real estate brokers and other real estate professionals; medical, mental health and dental professionals; design professionals, such as architects, engineers and surveyors; attorneys and law firms; accountants and accounting firms; clerics and religious organizations; governmental entities, law enforcement officers and other public officials; insurance brokers or agents; and insurers. Directors and officers liability insurance policies, including D&O policies that provide entity coverage to an insured company or organization, and employment practices liability policies are also within the professional liability category, and numerous decisions involving these types of policies are discussed in the Compendium. Most but not all professional liability policies are written on a claims-made basis, and most but not all claims-made policies are professional liability policies. The Compendium discusses significant issues involving claims-made policies and cites cases discussing claims-made issues regardless of whether these cases involve professional liability policies. Policy Language and Facts Unlike general liability policies, which are usually written on ISO forms or other standardized forms, standard professional liability forms or policies do not exist. Policy language varies from insurer to insurer Hot Issues in Professional Liability Coverage: Lessons from the DRI Compendium Cohen 99

6 and from policy to policy. The particular policy language is often crucial to a court s holding. Therefore, when a policy s language is important to a court s decision, the authors have indicated the relevant policy language. Likewise, professional liability coverage cases often are highly fact-dependent, so the authors have noted the relevant facts that were important to a decision. When appropriate, the authors have discussed the courts rationales for their holdings. Style and Citations The Compendium follows The Bluebook: A Uniform System of Citation (19th ed. 2010) citation style even when states may have their own citation styles. For uniformity, and in an effort to facilitate word searches, we have hyphenated claims-made but not claims made and reported unless we have quoted from a case or a statute that does otherwise. For the sake of consistency, we have used the following language: Claimant means the third-party claimant or the plaintiff in the underlying action Insured means the policyholder Specific Topics Addressed in the Compendium The remainder of this Introduction explicates the topics addressed for each jurisdiction, in the same outline format as the state chapters. The cases discussed in this Introduction are discussed in greater detail in the state chapters. I. Insuring Agreement A. Is the phrase negligent act, error or omission ambiguous? Can it apply to intentional errors or omissions? Some professional liability policies apply only to negligent acts, errors or omissions. When a policy includes this language, insureds sometimes argue that it is ambiguous whether negligent modifies only acts, or whether negligent also modifies errors and omissions. In other words, the question is whether the policy only covers negligent acts, or whether it also covers intentional errors or omissions. This section of the state chapters explores these questions. Most jurisdictions that have decided the issue have found this language to be unambiguous, holding that a policy containing this language does not cover intentional wrongdoing. One leading case on this issue is Golf Course Superintendents Ass n of America v. Underwriters at Lloyds of London, 761 F. Supp. 1485, 1490 (D. Kan. 1991). In that case, the court explained: We believe it makes better sense and captures the intent of the parties to construe the definition of wrongful act so that the word negligent modifies every relevant term of the definition. It would be self-defeating to limit the definition of wrongful act to negligent acts, but at the same time cover intentional errors or omissions. B. What is the standard for determining whether an act, error or omission involves a professional service? This question seeks to elicit and explain how courts generally interpret the requirement of most professional liability coverage that a covered claim involve an insured s professional services, in contrast to how courts generally interpret exclusions for damages arising from the insured s professional services, which are commonly found in general liability and homeowners policies. Cases involving both the meaning of profes- 100 Insurance Coverage and Practice Symposium December 2012

7 sional services when used in professional liability policies and in professional services exclusions are cited in the Compendium. Most courts that have discussed the meaning of professional services have followed the standard first set forth in the leading case on the issue, Marx v. Hartford Accident & Indemnity Co., 183 Neb. 12, 13 14, 157 N.W.2d 870, (Neb. 1968) (internal citations omitted), or some variation of this standard. In Marx, the court explained that to constitute a professional service [S]omething 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 in the context used in the policy provision 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. Therefore, under the Marx test, not all services performed by a professional are professional services, and nonprofessional employees can be said to engage in professional services. Whether a particular claim involves a professional service depends on the circumstances and, in some cases, on the policy language. Courts have drawn a distinction between professional services and administrative, business, clerical or ministerial acts by a professional. The latter types of acts or omissions generally do not involve professional services. E.g., Inglewood Radiology Med. Grp., Inc. v. Hospital Shared Servs., Inc., 217 Cal. App. 3d 1366, 266 Cal. Rptr. 501 (Cal. Ct. App. 1989) (construing alleged wrongful termination and defamation of employee physician as not constituting professional service, defined in physicians errors and omissions policy as services performed in the practice of the profession of a physician, because the decision to terminate employment is a business or administrative decision. In making such a decision, the physician acts as an employer and not as a physician rendering services. ). But see Estate of Tinervin v. Nationwide Mut. Ins. Co., 23 So. 3d 1232, 1237 (Fla. Dist. Ct. App. 2009) (holding employee s failure to provide doctor with lab report, which led to patient s death, an intricate part of professional service provided by doctor). Similarly, some courts have held that acts that merely set the stage for the performance of professional services are not themselves professional services. E.g., Albert J. Schiff Assocs., Inc. v. Flack, 51 N.Y.2d 692, 700, 435 N.Y.S.2d 972, 976, 417 N.E.2d 84, 88 (N.Y. 1980) (finding circumstances that merely set stage for performance of business or professional services are not professional activities contemplated by special professional service coverage and noting that [a]n errors and omissions policy 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. ). C. Under what circumstances have courts found that an act, error or omission involves / does not involve a professional service? In this section, the authors have cited cases in which the courts discussed whether a claim made against an insured involved the insured s professional services. Cases discussing whether a claim involves professional services for purposes of either a professional liability policy or a professional services exclusion have arisen in a wide variety of contexts. The resolution of whether a particular matter involves professional services is highly dependent on the facts and sometimes on the policy language. Hot Issues in Professional Liability Coverage: Lessons from the DRI Compendium Cohen 101

8 Sometimes both a professional liability insurer and a general liability insurer will have a duty to defend and/or indemnify an insured. This may be because the same claim contains allegations that involve professional services, as well as allegations that do not involve professional services. In addition, because courts generally typically construe exclusions against an insurer, and the insurer bears the burden of proving that an exclusion applies while the insured bears the burden of proving that a claim falls within an insuring agreement, it is possible that both a professional liability insurer and a general liability insurer will have a duty to defend the same allegations against an insured when it is not clear whether the allegations involve professional services. For example, in Duke University v. St. Paul Fire & Marine Insurance Co., 96 N.C. App. 635, 386 S.E.2d 762 (N.C. Ct. App. 1990), the North Carolina Court of Appeals held that the professional services exclusion did not apply to the acts of a medical assistant in failing to secure casters on a dialysis chair before moving a patient, finding that such acts were manual rather than mental and did not require any special skill or training. The court noted that although the case before it involved coverage under the insured s general liability policy, the insured s professional liability policy also could cover the matter since courts strictly construe exclusions and liberally construe provisions that provide coverage. 96 N.C. App. at 640, 386 S.E.2d at 765. Claims against health care professionals and medical or mental health facilities have generated a great deal of litigation regarding whether the claims involve professional services. These cases often arise in one of two situations: (1) a health care professional is accused of sexual misconduct; or (2) a patient falls and suffers a personal injury. Most courts have been unwilling to find that claims of sexual misconduct by a medical professional involve professional services. The relatively few cases that have held otherwise have often involved sexual misconduct allegedly committed during the course of a medical examination that was so intertwined with allegations of professional negligence that the court found that there was a duty to defend and/or indemnify the insured. For example, in St. Paul Fire & Marine Insurance Co. v. Shernow, 222 Conn. 823, 610 A.2d 1281 (Conn. 1992), a professional liability policy was found to cover a claim against a dentist when allegations of a sexual assault of a patient were so inextricably intertwined and inseparable from the intentional conduct that serves as the basis for the separate claim of a sexual assault. 222 Conn. at 830, 610 A.2d at The dentist had been treating the patient for 10 years and had consistently advised her that nitrous oxide was the appropriate means of sedation for her. He had never previously assaulted her, and she had always been aware of her surroundings. This time, the patient was scheduled to have a molar filled when the dentist administered nitrous oxide. The dentist sexually assaulted the patient while she was rendered helpless from the anesthesia, and the dentist increased the dosage twice when the patient began to come around. She allegedly sustained permanent injuries based on his administration of the anesthesia including asthma and permanent partial loss of lung capacity. Other cases have held that claims against mental health professionals who were accused of failing to manage the transference or counter-transference phenomena properly can involve the insured s professional services. E.g., St. Paul Fire & Marine Ins. Co. v. Love, 459 N.W.2d 698 (Minn. 1990); St. Paul Fire & Marine Ins. Co. v. Mitchell, 164 Ga. App. 215, 217, 296 S.E.2d 126, 127 (Ga. Ct. App. 1982) (involving allegation that insured induced claimant to engage in sexual relations as part of her prescribed therapy and holding this type of departure from profession s standard of care indistinguishable from other types of malpractice such as improper administration of a drug or a defective operation. ). When a patient falls and is injured during the course of medical treatment, whether the claim involves professional services frequently depends on whether the accident involves improper maintenance or whether it implicates the insured s specialized knowledge and training. For example, in Harris v. Sternberg, , p. 7 (La. App. 4 Cir. 5/22/02); , p. 7 (La. App. 4 Cir. 5/22/02); 819 So. 2d 1134, 1139, the insured physician was sued when the physician s nursing assistant allowed an obese patient to fall off a 102 Insurance Coverage and Practice Symposium December 2012

9 scale while the patient was being weighed. The underlying claim was deemed to involve the insured s professional services for purposes of the insured physician s professional liability policy and the professional services exclusion in the physician s general liability policy. The court reasoned that the underlying claim involved professional services because weighing the patient was necessary for the patient s treatment; the scale was not intended to be used by obese patients; and the assistant did nothing to prevent the wheels on the scale from rolling. The court found it significant that the plaintiff did not allege that the scale itself was defective. In another case, Western World Insurance Co. v. Empire Fire & Marine Insurance Co., C.A. No. 7: RBH, 2006 WL , at *6 (D.S.C. Nov. 16, 2006), the court found that a claim against an ambulance company alleging that due to its negligence a patient had fallen off a rolling stretcher involved the ambulance company s professional services. The court reasoned that securing and transporting an individual on a rolling stretcher requires specialized knowledge and is part of the professional services provided by an ambulance service. Id. Whether a claim involves professional services also frequently arises in connection with construction site accidents. In such claims, the question often is whether the claim whether brought against an architect, engineer or other design professional, or a contractor involves allegations of general negligence, i.e., duties owed by everyone on a construction site, or whether the claim instead involves professional negligence. For example, in S.T. Hudson Engineers, Inc. v. Pennsylvania National Mutual Insurance Co., 388 N.J. Super. 592, 909 A.2d 1156 (N.J. Super. Ct. App. Div. 2006), the insured was retained to perform an underwater survey of a pier and set up mechanisms to detect any movement in the pier. It was alleged that the insured became aware that the pier was about to collapse and failed to provide an adequate warning. The pier collapsed, causing several deaths and numerous injuries. The court concluded that liability resulting from the failure to warn or give instructions was not excluded by the professional services exclusion in the CGL policy. 388 N.J. Super. at 605, 909 A.2d at The court noted, however, that allegations respecting an insured s failure to provide adequate engineering, supervisory or inspection services or to discover or to remedy a condition for which the professional services were engaged would necessarily involve professional services. See also, e.g., Chemstress Consultant Co., Inc. v. Cincinnati Ins. Co., 128 Ohio App. 3d 396, 715 N.E.2d 208 (Ohio Ct. App. 1998) (holding that professional services exclusion did not preclude coverage for allegation that insured engineering firm breached its duty to ensure safety at construction project site). In another frequent fact pattern an attorney or another professional is accused of wrongdoing in connection with billing matters. Most courts have found that such claims do not involve professional services. E.g., Reliance Nat l Ins. Co. v. Sears, Roebuck & Co., 58 Mass. App. Ct. 645, 792 N.E.2d 145 (Mass. App. Ct. 2003) (holding that insured attorney s fraudulent billing did not involve professional services); Cohen v. Empire Cas. Co., 771 P.2d 29, 31 (Colo. App. 1989) (regarding lawyer s refusal to pay for legal services of cocounsel a billing practice, holding that it did constitute professional service and stating that [e]xpenses incurred by a lawyer for maintaining his office, hiring secretaries, investigators, consultants, expert witnesses, and associates are incidental to a lawyer s business. His failure to pay either the cost of, or the reasonable value for, such business expenses cannot rationally be deemed a failure to provide legal advice or assistance to others in his professional capacity as a lawyer. ) (emphasis in original). II. Meaning of Claim Unlike commercial general liability policies, which are usually written on an occurrence basis, meaning that a policy may apply whenever damage occurs during the policy period, most professional liability policies are written on a claims-made basis. Therefore, for an underlying action to be covered by a claims-made policy, the claim must be first made against the insured during the policy period or, in some cases, during an extended reporting period. Many professional liability policies define claim, but others do Hot Issues in Professional Liability Coverage: Lessons from the DRI Compendium Cohen 103

10 not. Determining what constitutes a claim, however, is often not an easy task. A claim is typically made when a communication is received by the insured, not when it is sent. Some claims-made policies require that a claim be made in writing, while other policies indicate that a claim can be made by verbal communications as well. While it is obvious that receipt of a summons and complaint constitutes the making of a claim, it can be less clear whether a claim is made when an insured receives a letter or other written communication from a claimant or the claimant s attorney, a request for a tolling agreement or an administrative charge or notice. If an insured receives correspondence sent by or on behalf of a claimant, whether the receipt of that correspondence constitutes the making of a claim may depend on several factors such as (1) whether the policy defines claim; (2) how the policy defines claim if it does; (3) what the correspondence sent by or on behalf of the claimant to the insured said; and (4) the context in which the claim was written. For example, Herron v. Schutz Foss Architects, 282 Mont. 94, 935 P.2d 1104 (Mont. 1997), involved whether a claim had been made under an architect s professional liability policy. The policy defined claim to mean a demand for money or services... alleging a wrongful act. A letter from an attorney indicating that he was representing the claimant and asking the insured to contact its insurance carrier to discuss this claim was found to be a claim. The court stated that it would be anomalous to hold that a claim is... not made until a suit is actually filed. To do so would encourage litigation as opposed to negotiation and settlement. And, to the extent that the tortfeasor had a claims-made policy in force when he was notified, but did not have such insurance in force when the lawsuit was filed-perhaps a year or more later-then coverage would be frustrated altogether. 282 Mont. at 101, 935 P.2d at Moreover, the court explained that even though there was no request for a specific dollar amount in the July 12th letter, the text on its face indicates that the [claimants] were seeking compensatory payment, otherwise, there would be no reason for [the insured] to contact his insurance carrier. Id. A. What is a claim (when not defined in the policy)? This topic is geared to situations involving a policy that does not define the term claim. Some courts have found that the undefined term claim, as used in a claims-made policy, is ambiguous, and these courts have construed that ambiguity against the insurer. Many other cases, however, have found the term unambiguous, even when the term was not defined in the policy. These courts have often looked to dictionary definitions to determine what claim means. For example, when not otherwise defined in a policy, Illinois courts define a claim as a demand for something due or believed to be due, meaning a demand by a third party that [the insured] do something. Central Ill. Pub. Serv. Co. v. American Empire Surplus Lines Ins. Co., 267 Ill. App. 3d 1043, 1047, 642 N.E.2d 723, (Ill. App. Ct. 1994) (quoting Webster s Fifth New Collegiate Dictionary 205). See also National Union Fire Ins. Co. of Pittsburgh, Pa. v. Cary Cmty. Consol. Sch. Dist. No. 26, No. 93 C 6526, 1995 WL 66303, at *3 (N.D. Ill. Feb. 15, 1995) (stating the common definition of a claim is a demand for money and quoting Black s Law Dictionary 247 (6th ed. 1990) for its definition as a [d]emand for money or property as of right, e.g. insurance claim. ). In Williamson & Vollmer Engineering, Inc. v. Sequoia Insurance Co., 64 Cal. App. 3d 261, 134 Cal. Rptr. 427 (Cal. Ct. App. 1976), overruling on other grounds recognized, National Steel Corp. v. Golden Eagle Insurance Co., 121 F.3d 496 (9th Cir. 1997), the court of appeal noted that the word claim was not limited to a formal lawsuit. 64 Cal. App. at 270, 134 Cal. Rptr. at 432. As the policy application at issue did not define the term claim, the court reviewed the following definitions: 104 Insurance Coverage and Practice Symposium December 2012

11 A claim has been defined in ordinary English as a demand for something due or believed to be due. (Merriam, Webster s 7th New Collegiate Dict. (1972) p. 152.) [An earlier case collected the following definitions:] The word (claim) is derived from the Latin clamor, meaning a call, a demand. In its ordinary sense the term imports the assertion, demand or challenge of something as a right; the assertion of a liability to the party making it to do some service or pay a sum of money. A claim refers to a debt due the claimant. It is a money demand. Claim means To ask for, or seek to obtain, by... right, or supposed right; to demand as due. A claim connotes an assertion of a legal right, as distinguished from a recognition of that right. 64 Cal. App. at 269, 134 Cal. Rptr. 2d at 431 (some citations and punctuation omitted). B. When do courts find a claim is made / not made? What circumstances do courts find important in determining whether a communication from the third-party claimant constitutes a claim? This section focuses on examples of cases in which a court discussed whether a claim was made during the policy period. Cases summarized in this section include cases involving policies that defined claim, as well as cases involving policies that did not define claim. The authors have discussed the relevant policy language and the circumstances relevant to the court s decision. Among the issues addressed in this section are (1) whether a mere complaint about an insured s work or services can be a claim, and (2) the factors that courts consider when determining whether a communication is a claim. Some factors that courts have found significant when determining whether a communication constitutes the making of a claim include, did the communication assert that the insured would or could be held liable for its conduct? Did the communication indicate that the claimant had suffered damages for which the insured was responsible? Did the letter ask the insured to turn the letter over to its insurer? Did the letter ask the insured to enter into a tolling agreement? For example, in an unpublished decision, the Eleventh Circuit Court of Appeals, interpreting Georgia law, held that a claimant s letter notifying the insured of her concerns over actions undertaken as her lawyer, which included a demand for repayment, constituted a claim made prior to the policy period. Simpson & Creasy, P.C. v. Continental Cas. Co., 453 F. App x 868, 871 (11th Cir. 2011) (unpublished) (affirming district court s ruling that four events established that claim had been made prior to policy period: (1) claimant s request for her file; (2) investigation and correspondence from claimant s counsel; (3) executing a tolling agreement; and (4) claimant s request that insured notify his insurer). The lawyer s professional liability policy at issue in Carosella & Ferry, P.C. v. TIG Insurance Co., 189 F. Supp. 2d 249, 253 (E.D. Pa. 2001) defined Claim to mean, in relevant part, a demand received by the Insured for money or services. The court determined that a claim was made when the insured law firm received a letter from its former clients, the claimants, new attorney. This letter stated that the claimants intended to file a malpractice action against the insured and that the claimants had suffered damages due to the insured s conduct. This letter also asked the insured to put its errors and omissions insurer on notice and have its insurer contact the claimants new attorney. III. Related/Interrelated Acts Provisions Most claims-made policies include related acts or interrelated acts provisions. These provisions may determine whether related or interrelated claims are treated as a single claim for purposes of the applicable deductible or self-insured retention amount, or for purposes of determining the applicable limit of liability. Related or interrelated acts provisions may also govern which policy applies when related or interrelated Hot Issues in Professional Liability Coverage: Lessons from the DRI Compendium Cohen 105

12 claims are made in multiple policy periods. There may be some overlap between this section and other sections. For example, a pending or prior litigation exclusion may preclude coverage if a related claim was made before the pending or prior litigation date included in the policy. A. For claims to be related, can they be logically related, causally related, or either? Courts have differed over whether multiple claims must be causally related to be deemed related for purposes of a related or interrelated act provision, or whether, instead, claims can be either logically related or causally related. The cases requiring a causal relationship were mostly earlier cases. Arizona Prop. & Cas. Ins. Guar. Fund v. Helme, 153 Ariz. 129, 134, 735 P.2d 451, 456 (Ariz. 1987). The Helme court stated: We do not believe that the word related as used in the policy can be equated with the phrase logical connection. Logic, like beauty, is in the eye of the beholder and greatly depends upon the subjective mental process of the reviewer. Incidents may be logically related for a wide variety of indefinable reasons. Causal connection depends, to a much greater extent, on objective facts in the record. Id. The clear majority rule now, however, is that matters can be either logically or causally related to be deemed as related or interrelated. Some leading cases applying the majority rule are Gregory v. Home Insurance Co., 876 F.2d 602 (7th Cir. 1989) (applying Indiana law) (holding that common understanding of term related is that it encompasses broad range of connections, both causal and logical), and Bay Cities Paving & Grading, Inc. v. Lawyers Mutual Insurance Co., 5 Cal. 4th 854, 21 Cal. Rptr. 2d 691, 855 P.2d 1263 (Cal. 1993). This topic asks whether courts in each jurisdiction permit claims to be either logically or causally related to satisfy the jurisdictional relatedness requirement, or whether a causal relationship is required. Because the answer to this question may depend on the policy language, the Compendium authors have included the relevant policy language in their discussions when the policy language was important to the decisions. B. Under what circumstances have courts found multiple claims are / are not related? This topic discusses specific situations in which claims either have or have not been found related for purposes of a claims-made policy. Because the outcome of this issue is fact dependent, the authors have described the relevant factual background, including the policy language when it was important to the decision. Some policies specifically state that claims that are casually related, logically related, temporally related or a combination of these can satisfy the related acts requirement. Courts have differently identified circumstances that they viewed as making multiple claims sufficiently related to deem the claims logically or causally related. For example, the court in Professional Solutions Insurance Co. v. Mohrlang, Civ. A. No. 07-CV PAB-KLM, 2009 U.S. Dist. LEXIS (D. Colo. Feb. 10, 2009), expressly defined logically related and causally related in construing a policy that deemed claims to be related if they were temporally, logically or causally connected. Id. at *26. The court held that logically connected means connected by an inevitable or predictable interrelation or sequence of events. Id. at *31 (citation omitted). Elaborating, the court wrote, Therefore, for two things to be logically connected, one must attend or flow from the other in an inevitable or predictable way. Id. Events are causally connected when one person or thing brings about the 106 Insurance Coverage and Practice Symposium December 2012

13 other. Id. at * Finding causation requires more than a but-for relationship between two things.... Id. at *33. To be causally connected, the first thing leads to the second in a direct and traceable way,... where no independent significant thing interrupts the causal chain between the two. Id. at *33. IV. Enforcement of Reporting and Notice Provisions Claims made and reported policies require claims to be reported within a specific time, either during the policy period, or more often today, within 30 or 60 days after the policy s expiration. Many cases revolve around insureds efforts to circumvent these reporting requirements. Under Wisconsin law, reporting provisions in claims-made policies are trumped by Wisconsin s statutory notice requirements, which allow an insured to have one year after a policy expires to provide notice of a claim under a policy. Lexington Ins. Co. v. Rugg & Knopp, Inc., 1 F. Supp. 2d 937, 939 (E.D. Wis. 1998), aff d, 165 F.3d 1087 (7th Cir. 1999). These notice requirements are incorporated by law into all insurance policies... delivered or issued for delivery in [Wisconsin], with a few stated exceptions that do not include claims-made policies. 1 F. Supp. 2d at 939 (quoting Wis. Stat ). In most jurisdictions, however, courts have strictly construed reporting provisions in claims-made policies and have held that an insurer does not have to show that it was prejudiced by the insured s failure to report the claim timely. Moreover, courts have virtually universally held that a claims-made policy does not offend public policy, and the claim must be first made during the policy period to afford coverage. Courts often refer to both pure claims-made policies (i.e., claims-made policies that do not include any reporting requirement but merely require that notice be given as soon as practicable ), and claims made and reported policies as claims-made policies. This can cause some confusion. Courts generally have held that when a claims-made policy does not contain any reporting provision but includes an as soon as practicable notice condition, the insurer must prove that it was prejudiced by the late notice. Likewise, when an insured reports a claim within the time set by the reporting requirement but had notice of the claim early in the policy period and did not report the claim until late in the policy period, the insurer must prove that it was prejudiced by the insured s breach of the as soon as practicable notice condition. For example, in Prodigy Communications Corp. v. Agricultural Excess & Surplus Insurance Co., 288 S.W.3d 374, (Tex. 2009), the court explained: Claims made or discovery policies are essentially reporting policies. If the claim is reported to the insurer during the policy period, then the carrier is legally obligated to pay; if the claim is not reported during the policy period, no liability attaches. Claims made policies require notification to the insurer to be within a reasonable time. Critically, however, claims made policies require that that notice be given during the policy period itself. Because the requirement that a claim be reported to the insurer during the policy period or within a specific number of days thereafter is considered essential to coverage under a claimsmade-and-reported policy, most courts have found that an insurer need not demonstrate prejudice to deny coverage when an insured does not give notice of a claim within the policy s specified time frame. Id. (internal citation omitted). In Prodigy, however, the Texas Supreme Court distinguished a claims made and reported policy from a claims-made policy that merely requires notice as soon as practicable and does not require that the insured report the claim to the insurer during the policy period or within a specified number of days thereafter. The Texas Supreme Court concluded that the insurer in Prodigy was not denied the benefit of the claims- Hot Issues in Professional Liability Coverage: Lessons from the DRI Compendium Cohen 107

14 made nature of its policy because the claim was reported before the 90-day grace period for reporting claims expired, even though the parties stipulated that the insured did not provide notice as soon as practicable as required by a separate condition precedent. Because the insurer admitted that it was not prejudiced by the delay in receiving notice, it could not deny coverage based on the insured s failure to give notice as soon as practicable. Id. at 382. See also Financial Indus. Corp. v. XL Specialty Ins. Co., 285 S.W.3d 877 (Tex. 2009) (holding that insurer must show that it was prejudiced by late notice given during the policy period). A. Are reporting provisions in claims made and reported policies strictly construed, even when the insurer cannot prove it was prejudiced? This topic discusses cases that have held that a reporting provision in a claims-made policy should be construed strictly and that the insurer need not prove that it was prejudiced by a late notice. As explained above, the overwhelming majority of courts have found that a reporting requirement is an essential element of coverage under a claims made and reported policy. These courts have construed such reporting requirements strictly, and they have not required claims made and reported insurers to prove that they were prejudiced by an insured s failure to provide timely notice. B. If a claim is reported late, is there coverage if the policy was renewed, and the claim was reported during the renewal policy period? Some insureds have argued that even when a claim is not timely reported, if the claim is made during one policy period, the policy is renewed, and the claim is reported during the same insurer s later policy period, there still should be coverage. This is sometimes referred to as the continuous coverage theory. This theory has been rejected in most jurisdictions that have considered it. For example, in Ehrgood v. Coregis Insurance Co., 59 F. Supp. 2d 438, (M.D. Pa. 1998), the insureds contended that renewal of the policy, in effect, operates as an extended reporting period under that policy. They [the insureds] argue that because an insured who cancels or does not renew a policy can extend the reporting period, surely an insured who does renew must be given the same extension. They maintain that denial of the extending [sic] reporting period violates their reasonable expectations as well as public policy. Id. at 446. The court rejected this argument, explaining: At first blush, this argument has some intuitive appeal. It seems only logical that an insured who renews receive greater, or at least not less, protection than one who cancels or fails to renew. This approach, however, ignores the nature of the policy at issue. Each of the three policies issued by Coregis is a claims-made policy.... [A] claims-made policy insures against the claim itself, regardless of when the event occurred, subject to relevant policy language. [T]he notice, or reporting period, in a claims made policy defines coverage: if the claim is reported to the insurer during the policy period, then the carrier is legally obligated to pay; if the claim is not reported during the policy period, no liability attaches. Thus, an extension of the notice period in a claims-made policy constitutes an unbargained-for expansion of coverage, gratis, resulting in the insurance company s exposure to a risk substantially broader than that expressly insured against in the policy. Coregis s failure to make the extended reporting period option available to policy renewals neither violates public policy nor the Ehrgood Plaintiffs reasonable expectations. An optional extended reporting period for those who cancel or fail to renew a policy protects those insureds against the gaps in coverage that can result from switching to an occurrence policy or to another claims-made policy. This insured can only protect himself against the possibility of such claims 108 Insurance Coverage and Practice Symposium December 2012

15 by extending the period in which to report claims arising out of the claims-made policy period. An insured who changes claims-made policy carriers may also face a similar problem, in the event that the subsequent carrier places a retroactive date that limits coverage for prior acts. By contrast, insureds who renew their policies face no such problem. The Coregis policies do not contain a retroactive date. Thus, the policy offers unlimited prior acts coverage for the claims that were unforeseeable at the time the policy incepted. Assuming arguendo that Pennsylvania has a public policy which requires insurers to offer protection against gaps in coverage to insureds changing carriers or policy types, such public policy is simply inapplicable to insureds who remain with the same carrier and the same type of insurance policy. Furthermore, the Ehrgood Plaintiffs policy provided them sixty days after the end of the policy period in which to report any claims or potential claims, thereby protecting them against eleventh-hour claims filed toward the end of the policy period. They point to nothing in the insurance policy or in the course of their dealings with Coregis which would have lead them to believe they had a longer period of time. Thus, their failure to disclose a foreseeable claim within the prescribed time limits does not frustrate any of their reasonable expectations. The court finds, therefore, that coverage of the [underlying] claim is precluded under the policy. The court will grant summary judgment in favor of Coregis with respect to this claim. Id. at (citations, footnotes and some punctuation omitted). Those courts that have adopted the continuous coverage theory have often based their holdings on particular policy language. E.g., Helberg v. National Union Fire Ins. Co., 102 Ohio App. 3d 679, 682, 657 N.E.2d 832, 834 (Ohio Ct. App. 1995) (opining about the phrase continuously renewed thereafter in a policy s exclusions section: [t]his language indicates that the parties expected the coverage to be continuous if the policy was renewed at each successive policy expiration. ). C. Can there be coverage if the claim is made very late during one policy period and is reported soon after the reporting period expires? Nearly all courts that have confronted this issue have held that they need to construe reporting provisions in claims made and reported policies strictly, and the insurer is not required to prove that it was prejudiced by an insured s failure to timely report the claim, even when the claim is first made near the end of the policy period and is reported soon after the expiration of the policy period or the grace period. For example, the New Hampshire Supreme Court strictly enforced a notice of circumstance requirement that notice be given during the policy period when notice was sent by overnight mail the day before the policy s 12:01 a.m. expiration but was not received before the policy expired. Catholic Med. Ctr. v. Executive Risk Indem., Inc., 151 N.H. 699, , 867 A.2d 453, (N.H. 2005). One example of one of the very rare cases excusing compliance with a reporting requirement in a claims made and reported policy due to highly unusual circumstances is Root v. American Equity Specialty Insurance Co., 130 Cal. App. 4th 926, 30 Cal. Rptr. 3d 361 (Cal. Ct. App. 2005). In that case, the court of appeal allowed a very narrow exception to the general rule of strict compliance with the notice requirement based on equitable grounds. The insured was an attorney whose former client filed a malpractice action against him only three days before his malpractice insurance expired. The insured was not served with the malpractice action until after the insured s policy had expired. On the day that the action was filed, the insured received a telephone call from someone who identified herself as an employee of a legal journal seeking the insured s reaction to the action in question. The insured believed that the telephone call was a prank and did not report the claim to his insurance company. The insured read about the action a few days later in the legal journal and Hot Issues in Professional Liability Coverage: Lessons from the DRI Compendium Cohen 109

16 immediately notified the insurer of the claim. This was two days after the insured s policy had expired. The court of appeal reversed the trial court s entry of summary judgment in favor of the insurer by finding it appropriate to excuse the insured s failure to report the claim before the policy expired. The court of appeal further noted that when the term functions as a condition precedent rather than as an element of the fundamental risk insured, equitable excusal of conditions precedent may be applicable when a condition otherwise would work a forfeiture. 130 Cal. App. 4th at 936, 941, 30 Cal. Rptr. 3d at 639, 642 (emphasis in original). The Root court emphasized the narrowness of [its] decision, noting the fact that the insurer presumably had not offered its insured the opportunity to buy an extended reporting endorsement, which would have given the insured an extra 60 days to report a claim, as significant to its decision. 130 Cal. App. 4th at 929, , 30 Cal. Rptr. 3d at 632, The Root court wrote, Had [the insured] been given that opportunity... equity might not require excuse of the condition, because its excuse would, in effect, be to give [the insured] the benefit of something that he had the opportunity to buy and passed up. 130 Cal. App. 4th at 948, 30 Cal. Rptr. 3d at 647 (citation omitted). In the early days of claims made and reported policies, many policies required an insured to report a claim to the insurer during the policy period and did not provide a grace period, which would leave the insured with very little time to report a claim if a claimant made a claim against the insured at the very end of the policy period. Most insurers issuing claims made and reported policies have now dealt with this perceived potential unfairness by giving an insured a 30- or 60-day grace period after the policy period expires in which to report claims. If an insured is given such a grace period to report a claim, it should not have any basis to assert that it could not timely report a claim. D. When do courts find reporting of a claim (or a notice of circumstance that could lead to a claim) is adequate / not adequate? Most claims-made policies permit an insured to preserve coverage for claims that are first made after the policy period by sending the insurer during the policy period a notice of circumstances that could lead to a claim. Courts and insurance policies may refer to this concept by different terms; it may be called a notice of circumstance provision, a circumstance reporting provision, or a notice of a potential claim or a possible claim provision. Claims-made policies typically list specific information that must be included in a notice of circumstance or a notice of claim. This section of the Compendium addresses cases involving whether a notice of a circumstance or a notice of a claim provides sufficient information to the insurer. Some courts have required strict compliance with the policy provisions governing content of the notice, while other courts have found that only substantial compliance is necessary. Compare Farm Bureau Life Ins. Co. v. Chubb Custom Ins. Co., 780 N.W.2d 735 (Iowa 2010) (concluding that strict compliance with policy s notice provision was condition precedent to coverage). with Greenburgh Eleven Union Free School Dist. v. National Union Fire Ins. Co. of Pittsburgh, Pa., 304 A.D.2d 334, 758 N.Y.S.2d 291 (N.Y. App. Div. 2003) (concluding that substantial, rather than strict, compliance with notice requirements is all that is required; although insured did not give express written notice of disciplinary proceedings that formed basis for underlying claim, insurer had been given notice of incident giving rise to disciplinary proceedings and was involved in seeking global settlement of claim). Some cases have dealt with laundry lists, an informal term for lists of many potential claims sent to an insurer with little or no explanatory information. Insureds sometimes submit laundry lists in an effort to preserve coverage when a policy is about to expire, especially when the insured is about to switch its coverage to another insurer. Courts have usually rejected insureds attempts to preserve coverage by sending a laundry list unless the insurer was given sufficient background information about the claim at issue. For example, in 110 Insurance Coverage and Practice Symposium December 2012

17 American Casualty Co. of Reading, Pennsylvania v. Sentry Federal Savings Bank, 867 F. Supp. 50, 60 (D. Mass. 1994), the court indicated that a laundry list would not serve as a proper notice of circumstances. The court, however, found that the information that was submitted by the insured in connection with the notice of circumstance in this case was more than a laundry list because it described the potential plaintiffs and defendants and the circumstances from which a claim could arise. Therefore, the notice was sufficient to preserve coverage for claims later made against the insured. V. Extended Reporting Period Provisions Claims-made policies usually contain automatic or optional extended reporting provisions or both, sometimes referred to as discovery or tail provisions. This topic addresses these provisions. An automatic extended reporting provision commonly extends, for a very short time period, usually 30 or 60 days, either (1) the time for a claim to be made (based on occurrences that take place during the policy period; or (2) the time for the insured to report a claim that was first made during the policy period. An insured does not have to pay an extra premium for an automatic extended reporting period. An optional extended reporting period provision fills the same function as an automatic extended reporting period provision, but it gives the insured the option to purchase, usually for a fixed percentage of the original premium amount, a longer extended reporting period of typically one, two or three years. One issue raised by extended reporting period provisions is whether a claim can be made during the extended reporting period, or whether the provision merely gives the insured extra time to report a claim that was made during the policy period. The answer to this question usually depends on the policy language. Another issue related to extended reporting periods is whether an insured is entitled to coverage under an extended reporting period when it has obtained subsequent, similar claims-made coverage. For example, in Employers Reinsurance Corp. v. Karussos, No FR, 1993 WL (D. Or. May 6, 1993), vacated on technical grounds due to lack of federal jurisdiction, 65 F.3d 796 (9th Cir. 1995), the district court held that the issuance of a subsequent, similar policy can extinguish the prior policy s extended reporting provision. The prior policy provided no right to purchase an extended reporting period endorsement if the insured was issued the same or similar policy with this Company, or any other company. Id. at *2. The court concluded that the word similar was not ambiguous and that the policy that the insured obtained after the expiration of the prior policy was similar because both policies provided claims-made coverage. The fact that the later policy contained a prior knowledge provision did not render the policies dissimilar. Therefore, the insured did not have the right to an extended reporting period under the earlier policy. Id. at *3. Additionally, claims-made policies often provide an insured with a right to purchase an optional extended reporting period only if the policy was cancelled or non-renewed. This language has resulted in cases involving whether a policy was non-renewed when an insurer offered a new policy with significantly different terms than the expiring policy to an insured. For example, in American Casualty Co. of Reading, Pennsylvania v. Continisio, 17 F.3d 62 (3d Cir. 1994), applying New Jersey law, involved a directors and officers liability policy issued to a savings and loan association that gave the insured the right to purchase an extended reporting period if the policy was not renewed. Under the terms of the policy, the insurer also was required to give notice of the right to purchase an extended reporting period endorsement if there was a non-renewal. Id. at 67. The insured argued that because the insurer had added a regulatory exclusion to the new policy, this constituted a non-renewal that should have required the insurer to give the association notice that it had a right to purchase an extended reporting period. The court, however, determined that this was not a nonrenewal, and therefore, the insurer did not have to give notice to the insured that it had the right to purchase an extended reporting period. Id. Hot Issues in Professional Liability Coverage: Lessons from the DRI Compendium Cohen 111

18 VI. Prior Knowledge Provisions Most claims-made policies include prior knowledge provisions, which may be referred to as a prior notice provision, a discovery provision or an awareness provision. These provisions state that if an insured had the requisite knowledge of circumstances before the policy s effective date, or sometimes an earlier date specified in a policy, coverage will not be provided. These provisions vary; they can require that an insured have had knowledge of circumstances that could, may, might or likely would give rise to a claim. Prior knowledge provisions may appear in an insuring agreement or in a policy exclusion. Many cases discuss under which circumstances prior knowledge provisions preclude coverage. The language used in the provisions varies widely from policy to policy. A. How do courts interpret prior knowledge provisions? What standard do courts apply in determining whether the insured had sufficient prior knowledge subjective, objective, or a mixed subjective/objective standard? In this section, the authors have discussed cases addressing the general standard that courts have applied to determine whether a prior knowledge provision precludes coverage under a claims-made policy. Which standard applies to a prior knowledge provision may depend on the policy language. The authors have also included any policy language that was relevant to the decisions. A few courts have applied a subjective standard: Did the insured actually believe, before the policy s effective date, that the circumstances might lead to a claim? Most recent decisions, however, have applied a mixed subjective/objective standard. Under this standard, a court first asks what information an insured actually knew about before the policy s effective date, the subjective part of the test, and then the court asks what a reasonable insured would have believed, based on the information actually known to the insured, the objective part of the test. An example of a case applying the mixed subjective-objective standard is Selko v. Home Ins. Co., 139 F.3d 146, (3d Cir. 1998) (applying Pennsylvania law). First, the insurer has the burden of proving which facts or information were actually known to the insured. Id. at 152. Second, the import of these known facts and information must be measured by applying an objective standard: what a reasonable professional in the insured s field of expertise in possession of such facts and circumstances would recognize, believe and understand. Id. B. When do courts find the prior knowledge provision bars / does not bar coverage? This topic addresses whether a prior knowledge provision precluded coverage in particular situations. Because the outcome of a prior knowledge issue highly depends on the circumstances, the authors have described the relevant facts, the policy language and the court s rationale, as appropriate. VII. Retroactive Date Provisions A retroactive date provision precludes coverage if the events that gave rise to a claim occurred before a certain date, which may or may not be the policy s effective date. One of the biggest issues related to retroactive date provisions is whether there is coverage when the events in question began before the retroactive date and continued after the retroactive date, or when an insured had the opportunity to mitigate a claimant s damages after the retroactive date. For example, in Schultze v. Continental Insurance Co., 2000 N.D. 209, 619 N.W.2d 510 (N.D. 2000), the court considered the applicability of a retroactive date to continuing conduct that began before the retroactive date. The insured was a dentist who allegedly had an affair with his hygienist beginning in He 112 Insurance Coverage and Practice Symposium December 2012

19 terminated her employment and allegedly falsely accused her of embezzlement. She sued for sexual harassment and defamation. The court found that a duty to defend existed. The sexual harassment began before the policy s prior act date of January 23, 1998, and the claims arose from a continuous pattern of conduct that began before that date N.D. 209 at 10, 619 N.W.2d at 514. Thus, coverage did not apply to those claims. In contrast, the defamation claim occurred when the insured accused the claimant of embezzlement on November 17, 1998, after the prior acts date. These claims were distinct from, and not necessarily a continuation of the alleged harassment N.D. 209 at 13, 619 N.W.2d at 515. Accordingly, the insurer had a duty to defend the defamation claims, and by extension, the entire lawsuit. A. When do courts find a retroactive date provision bars coverage / does not bar coverage? In this section, the authors discuss cases in which a retroactive date provision has been found to preclude coverage and cases in which a retroactive date provision has been found not to preclude coverage. VIII. How Do Courts Interpret Common Professional Liability Policy Exclusions? Although professional liability policies contain a wide range of exclusions, we selected the following exclusions because they have been heavily litigated. In the final section of the state chapters, discussed below, the authors have discussed cases involving less frequently litigated exclusions. A. Intentional or Dishonest Acts exclusion A dishonest acts exclusion typically bars coverage for claims arising out of dishonest, criminal, malicious, fraudulent and/or knowingly wrongful acts or omissions. Some cases discussing these exclusions have focused on whether the insured acted in a dishonest manner. For example, In re Estate of Corriea, 719 A.2d 1234 (D.C. 1998), involved a breach of fiduciary duty claim brought by a client against an attorney who was insured under a lawyer s professional liability policy. It was alleged that the insured attorney failed to disclose to the client certain conflicts of interest that the attorney had and that the insured did not obtain his client s consent to the conflicts of interest. The policy excluded coverage for any act, omission or Personal Injury committed by the insured with actual dishonest, fraudulent, criminal or malicious purpose or intent. Id. at While calling this a close question and agreeing that the insured s conduct involved dishonesty, the court held that whether the dishonest acts provision precluded coverage could not be determined as a matter of law. The court explained that although the insured had been found to have patently breached the fiduciary duties that he owed to his client, whether he did so with intent to deceive raised a fact question. Id. at Quoting Black s Law Dictionary 468 (1990), the court stated that dishonesty means a [d]isposition to lie, cheat, deceive or defraud. Id. The court held that to justify refusal of coverage under the policy s dishonest acts exclusion, the insurer had to prove that in failing to disclose his conflicting roles, [the insured] intended to keep [his client] in the dark about facts that he knew, or reasonably could not help but know, might affect its business judgment if known to it. Id. at Whether the insured had that intent could not be determined on summary judgment. Id. Some policies also contain innocent insured language stating that the exclusion does not preclude coverage for insureds that did not know about, participate in, or acquiesce in the wrongful conduct. Some cases have discussed whether the insured against whom the claim was made was innocent, and whether a knowingly wrongful act by an individual insured should be imputed to the insured company or firm, or to other individual insureds. For example, a dishonest acts exclusion in a legal professional liability policy was found to preclude coverage for a claim based on a law firm s fraudulent billing practices in St. Paul Fire & Hot Issues in Professional Liability Coverage: Lessons from the DRI Compendium Cohen 113

20 Marine Insurance Co. v. Dresser Industries, Inc., No , 972 F.2d 341, 1992 WL (4th Cir. Aug. 10, 1992) (unpublished table disposition) (applying Maryland law). The exclusion contained an innocent insured exception that indicated that the exclusion did not apply to insureds that did not personally participate in the wrongful acts and did not remain passive after having knowledge of any such act or omission. 972 F.2d at 341, 1992 WL , at *2. The court found that there was sufficient evidence that firm partners who were named as defendants in the underlying action brought by the firm client, but who did not themselves work on matters for that client, at the least remained passive after learning about the wrongful acts, so that the exclusion precluded coverage for the claims against them. Id. Some policies require that an insured in fact commit the wrongful act or omission, or that there be a final adjudication that the excluded conduct occurred. For example, in Atlantic Permanent Federal Savings & Loan Ass n v. American Casualty Co. of Reading, Pennsylvania, 839 F.2d 212, 216 (4th Cir. 1988) (per curiam) (applying Virginia law), cert. denied (U.S. 1988), the policy s dishonest acts exclusion stated that it applied only if there was a judgment or other final adjudication adverse to the insured directors or officers. The Fourth Circuit found that this exclusion was ambiguous because, according to the court, it was not clear if the final adjudication had to be determined in the underlying matter, which had settled, so it did not involve a final adjudication, or whether the insured s dishonesty could be adjudicated in a subsequent coverage action. In contrast, in First National Bank Holding Co. v. Fidelity & Deposit Co. of Maryland, 885 F. Supp (N.D. Fla. 1995), the court held that a dishonest acts exclusion in a bank s directors and officers liability insurance policy precluded coverage. The court rejected as frivolous the insured s contentions that (1) even though the individual insured, who was the bank s president, CEO and controlling shareholder, had pleaded guilty to bank fraud, making a false statement on a bank document, and violating currency reporting requirements, these crimes did not all necessarily involve crimes of dishonesty; and (2) there had been no final adjudication, as required by the policy for the exclusion to preclude coverage, because there was a guilty plea, rather than a jury verdict. Id. at A dishonest acts exclusion in a directors and officers liability policy was construed in United States Liability Insurance Co. v. Goldin Metals, Inc., Civil Action No. 1:10cv175 LG RHW, 2011 WL (S.D. Miss. Nov. 30, 2011). The underlying matter alleged that the insureds paid kickbacks to employees of a company that supplied metal coils to the insured company so that the insured could obtain below-market pricing. The exclusion required that the insureds in fact commit the dishonest acts for the exclusion to preclude coverage. The court held that this language required a determination that the insureds actually had committed a dishonest act. According to the court it was unclear whether a final adjudication would be required or whether allegations in a complaint are sufficient to exclude coverage. Id. at *4. Therefore, the court denied the insurer s motion for summary judgment. But in National Union Fire Insurance Co. of Pittsburgh, Pa. v. Continental Illinois Corp., 666 F. Supp. 1180, (N.D. Ill. 1987) (applying D&O policy), the court distinguished a personal profit exclusion from a dishonest acts exclusion in the same policy, finding that a final adjudication was not necessarily required for the application of the personal profit exclusion when the personal profit exclusion precluded coverage for conduct that was illegal in fact, and the dishonest acts exclusion explicitly called for a final adjudication. The policy excluded coverage for any claim based upon or attributable to their gaining in fact any personal profit or advantage to which [the insureds] were not legally entitled. Id. at B. Insured vs. Insured exclusion Insured vs. insured exclusions are commonly found in directors and officers policies, but they can be found in other types of professional liability policies as well. The wording of insured vs. insured exclusions 114 Insurance Coverage and Practice Symposium December 2012