Professional organizations and practitioners rely on errors and omissions (E&O) insurance — also known as professional liability insurance or malpractice insurance — to protect against the risk that a disgruntled customer or client will bring a claim for malpractice. Purchasing E&O insurance, however, is not without its own set of risks. Malpractice policies are replete with exclusions and conditions, which insurance companies often cite in an attempt to deny coverage for malpractice claims. It is therefore crucial that all professional institutions — and their risk managers — familiarize themselves with the language of their policies and with the arguments that insurance companies most frequently raise against coverage.
The most commonly raised coverage defenses tend to fall into three broad categories. First, did the allegedly negligent or wrongful act arise out of rendering or failing to render a “professional service”? Many policyholders are stunned when their malpractice insurer denies coverage for a malpractice claim purportedly because the alleged wrongful act did not arise out of a covered professional service. Second, when did the policyholder first learn of the possibility that it could be the subject of a claim? Insurance companies frequently argue that the policyholder knew — or should have known — that it could be the subject of a lawsuit before the inception of the policy, thus vitiating coverage. Finally, is the malpractice claim in any way related to a prior claim that has already been reported? Insurance companies often argue that a current claim is somehow related to a prior claim, reported under a different insurance policy — and that, as such, any coverage for the new claim falls within the scope of the prior policy. Below, we examine decisions that come down on both sides of these questions.