Professional Services Exclusion

Privately-held companies, on the one hand, and companies whose shares are public traded, on the other hand, face very different liability exposures. Because of these differences in liability exposures, the directors and officers liability insurance available for these types of entities varies – the D&O insurance form available for private companies is quite a bit different from the D&O insurance form available for public companies. A recent law firm memo took a brief look at the differences between the two forms of coverage. There some important additional considerations, that I discuss below.
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As I have noted in a prior post, 2018 was a very eventful year in the world of directors and officers liability. In the following guest post, written by Kelly S. Johnson, Esq., Claims Counsel, Hiscox USA; Elan Kandel, Esq., Bailey Cavalieri; and Jennifer Lewis, Esq., Bailey Cavalieri, the authors make it clear that 2018 was also a very eventful year for important D&O insurance coverage decisions. I would like to thank the authors for allowing me to publish their article. I welcome guest post submissions from responsible authors on topics of interest to this blog’s readers. Please contact me directly if you would like to submit a guest post. Here is the authors’ guest post.
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A recurring D&O insurance issue is the question of whether or not coverage for a particular claim is precluded under the relevant policy’s professional services exclusion. A recent decision by the Second Circuit addressed questions concerning the applicability of a professional services exclusion in a D&O insurance coverage dispute arising out of the mistake-plagued Facebook IPO. In a January 22, 2018 opinion (here), the appellate court affirmed the district court’s ruling that coverage for the settlement of Facebook IPO investors’ claims against NASDAQ was precluded by the NASDAQ’s D&O insurance policy’s professional services exclusion. The opinion includes some interesting discussion of considerations relevant to the exclusion’s applicability.
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Over the last few days, I have published several posts looking back at 2017. In addition to looking back, this is also the time of year for looking forward as well. Among other things to watch out for this year is a series of D&O insurance coverage cases that are now pending in the appellate courts. In a January 9, 2018 article (here, subscription required), Law 360 author Jeff Sistrunk identifies three of these cases to watch this year. As discussed below, these cases not only are worth watching but could have important ramifications as well.
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In the following guest post, Jennifer Bergstrom, Esq., Senior Claim Counsel, Hiscox USA, Elan Kandel, Esq. and Jennifer Lewis, Esq. of Bailey Cavalieri take a look at the key D&O insurance coverage decisions of 2017. I would like to thank the authors for allowing me to publish their article. I welcome guest post submissions from responsible authors on topics of interest to this site’s readers. Please contact me directly if you would like to submit a guest post. Here is the authors’ guest post.
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Over the course of several years in which the marketplace for D&O insurance has been highly competitive, the scope of coverage available has continued to evolve and expand.  Terms and conditions are available today that were not available even a short time ago, as carriers attempt to distinguish themselves in a crowded marketplace. The marketplace is a buyer’s market, but in order to ensure that corporate insurance buyers obtain the best coverage available, it is important for them to understand the options available. In an interesting December 6, 2017 Law 360 column entitled “D&O Insurance Coverage Tips for Financial Institutions” (here) Robert Long and Nanci Weissgold of the Alston & Bird law firm examined the issues and options involving several key areas of D&O liability insurance coverage.
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If a D&O insurance policy exclusion precludes coverage for loss arising out of the performance of professional services, does the exclusion preclude coverage for all insureds or just the insureds who performed the services? In a July 5, 2017 opinion (here), the Eleventh Circuit, applying Florida law in a case related to the Rothstein law firm Ponzi scheme scandal, held that a bank’s D&O insurance policy’s professional services exclusion’s preclusive effect applied jointly and therefore precluded coverage for all insureds, not just for the individuals delivering the services. The decision raises some interesting issues, as discussed below.
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Ninth CircuitRegular readers know that one of my hobby-horse issues is what I perceive as insurers’ overbroad application of the professional services exclusion typically found in private company D&O insurance policies, particularly with respect to policyholders in services businesses. Because of this long-standing concern, I was interested to see that a policyholders’ rights group has filed an amicus brief in the Ninth Circuit in support of a policyholder’s appeal of a district court ruling that coverage under a D&O insurance policy for the underlying claim was precluded by the professional services exclusion. While the amicus brief may help focus the appellate court on the problems involved in what is a recurring situation, the larger point may be that as an industry we need to address a problem that affects all industry participants.
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rehana box
Rehana Box
marie vlassis
Marie Vlassis

As I have noted in several posts on this site (most recently here), one of the recurring D&O insurance coverage questions is the extent of the preclusive effect of the professional services exclusion. In the following guest post, Rehana Box and Marie Vlassis of the Ashurst law firm take a look at judicial developments in Australia regarding this issue. This article previously appeared in the LexisNexis Australian Insurance Law Bulletin. I would like to thank Rehanna and Marie for their willingness to publish their article on this site. I welcome guest post submissions from responsible authors on topics of interest to this blog’s readers. Please contact me directly if you would like to publish a guest post on this site. Here is Rehana and Marie’s guest post.
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marylandRegular readers know that one of my recurring  private company D&O insurance coverage concerns has to do with the professional services exclusion and the way many carriers seek to phrase, interpret, and apply the exclusion, particularly with respect to insured companies engaged in service businesses. My concern is that all too often the exclusion is written over-broadly and applied over-broadly in a way that threatens to entirely swallow up coverage under the policy. A July 28, 2016 coverage decision by District of Maryland Judge J. Frederick Motz expressly addresses several of my recurring concerns about the professional services exclusion, as I discuss further below. A copy of the July 28, 2016 opinion can be found here.
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