Professional Liability Coverage and the Wrongful Act Requirement

Professional liability policies respond to professional risks. A common insuring agreement covers claims that result from a “wrongful act,” defined as some variation of:

Any actual or alleged act, error or omission in the course of performing “professional services” for others.

The meaning of “professional services” will vary by profession, but there are a few broad principles that you should know.

• Some policies define a “wrongful act” as a “negligent act, error or omission.” Others require only an “act, error or omission,” but later exclude coverage for liability resulting from intentional or knowing conduct. Either way, the result is the same: these policies generally cover professional negligence, not intentional misconduct.
• Not every mistake is a professional one. To be covered, the act, error or omission must be committed while performing services in a professional capacity. That means that the task must involve the insured’s exercise—or failure to exercise—her specialized knowledge or professional judgment. For example, administrative tasks like billing and fee-setting, even when done by a professional, generally are not covered.
• Professional liability policies are designed to insure members of a professional group from the special risks inherent in the practice of their profession. There is no coverage for wrongful acts that arise from ordinary business or management decisions that do not draw on the insured’s particular expertise.
  • For example, violating a contract in order to secure a commercial advantage is a business decision, not a professional one.
  • Activities that are part of almost any business—like soliciting clients, renting a building or hiring employees—are generally not “professional” in nature.
• The professional service must be rendered “for others,” and not to the exclusive benefit of the insured.
  • For example, a typical professional liability policy would not cover liability for stealing a competitor’s client list, given the lack of both a “wrongful act” and performance of services “for others,” even though the client list will ultimately further the insured’s ability to perform its professional services for others.

Professional liability policies respond to a variety of exposures, but are not meant to cover any wrongful act simply because the insured provides professional services. The wrongful act must actually take place in the course of performing those professional services.