The professional services exclusion has been a clause of concern for many directors. However the specifics of its application has been somewhat confusing. A recent case sheds some additional clarity on how such exclusions may be interpreted by the courts. The eleventh circuit court recently ruled on the “professional services exclusion” to dismiss a bad faith claim against National Union Fire Insurance. Wiley’s Executive Summary Blog does a good job of summarizing the case. In short, the recent ruling interpreted the exclusion to apply jointly to all the insureds under the policy.  This interpretation considerably broadened the scope of the exclusion.  As opposed to solely applying the exclusion to those that performed professional services (in this case, a lawyer that had engaged in a Ponzi Scheme), it was found to extend jointly to the trustees of the failed law firms’ bankruptcy estate who were seeking to recover losses from the D&O insurer. It’s important to note a few characteristics of the underlying policy:

• The policy contained broad lead in language, excluding claims “alleging, based upon or arising out of”
• The policy precluded coverage for “claims made against ANY insured”
• The policy contained no severability clause

The court reasoned that the policy’s language which precluded coverage for “claims made against ANY insured”, “unambiguously expresses a contractual intent to create joint obligations”, quoting the ruling in Sales Vs State Farm. In response, the trustees claimed that the courts had misinterpreted the policy language by applying joint liability, relying on “Premier Vs Adams”. However as highlighted in the article above, the policy in that particular case did contain a severability clause.  

It would have been interesting to see if the ruling would have been at all different should the policy’s language had substituted “claims mage against ANY insured” for “claims made against THE insured” but the basis of the decision does lead to a presumption that such a substitution may have changed the ruling.

This case serves as an important reminder of the problematic nature of the “professional services exclusion” and should be a reminder to all companies and their directors to perform careful reviews of the policy’s professional services exclusion, while ensuring that the policy contains appropriate severability clauses. Additionally companies should take note of policy language that precludes coverage for claims made against “ANY insured”.