October 19, 2017

The Evolution of coverage for non-traditional professions

As the insurance industry expands its product offerings to provide coverage for a growing list of non-traditional "professional" services, insurers, policyholders and the courts are faced with the task of defining the specific scope of the risks covered.

In short, the social, legal and technological changes have shaken our world like a snow globe, and the courts and society have not settled on exactly how to define these new professions.

Unlike general liability policies or auto policies, professional liability policies are designed to cover the insured's liability for purely economic loss. The intent, however, is not to cover all financial obligations that the professional may incur, but limit coverage to those liabilities that are somehow unique or inherent in the particular profession. For example, a legal malpractice policy would cover the liability for a lawyer's failure to file a complaint within the statute of limitations, but it would not cover errors in providing the client investment advice. In the context of a "traditional" profession—such as law, medicine, engineering or accountancy—this distinction is fairly easily drawn. Courts impose specific duties on these professionals separate and apart from any contractual relationship, and society has a general agreement of what is and is not the job of these professionals.

Non-traditional professions, on the other hand, are not so well defined. In large part, this is the result of the rapid development of the service economy. More and more, consumers and businesses need services, as opposed to goods, and individuals and corporations are making a living through intellectual, as opposed to physical, endeavors. For example, the demand for software applications has driven the growth of the technology industry. The increasing complexity of corporations' human resources obligations has spurred the development of the staffing industry and other outsourcing providers. The availability of massive amounts of consumer data has led to the emergence of industries focused on mining and using this data, such as consumer reporting agencies and analytics companies. And, even the increasing complexity of traditional professions fuels the growth of appurtenant industries, such as e-discovery vendors, construction managers and allied health. In short, the social, legal and technological changes have shaken our world like a snow globe, and the courts and society have not settled on exactly how to define these new professions.

Nonetheless, certain boundaries around the scope of coverage remain even for non-traditional professions. Many of these boundaries are based on the fundamental concept of insurance as a means to transfer the risk of a fortuitous occurrence. In the liability context, this translates to liability for an unforeseen or unexpected event. Thus, a professional liability policy should not provide coverage for the insured's pre-existing contractual obligation to pay for goods and services necessary for the running of its business. For example, the obligation to pay rent for office space or wages to employees should not be covered because that obligation is not the result of any errors in the performance of professional services, however those services might be defined. Similarly, a professional liability policy should not pay for the professional's simple failure to perform the services, as opposed to consequential damages flowing from that failure. Again, the liability is based on the contractual obligation existing prior to any wrongful act, instead of liability for negligence in the defined profession.

While the legal and social definition of these new professions will take time, insurers and policyholders can work toward defining and clarifying those lines that can be drawn so that there is a common understanding of the bounds of coverage.