Oregon Court Holds Fee Dispute Does Not Trigger E&O Policy

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In its recent decision in Bennett v. United States Liab. Ins. Group, 2014 U.S. Dist. LEXIS 57873 (D. Ore. Apr. 25, 2104), the United States District Court for the District of Oregon had occasion to consider whether a dispute concerning an insured’s billing practices triggered coverage under a professional liability policy.

USLI insured Janet Bennett under a claims made professional liability policy. Ms. Bennett was a training specialist and seminar conductor, as well as a director and officer of the non-profit Intercultural Communications Institute (“ICI”). USLI’s policy insured Ms. Bennett for “claims” arising out of “wrongful acts.” Notably, the policy defined “wrongful act” as “any actual alleged error or omission or negligent act of any Insured . . . in the rendering of Professional Services,” a term defined as “services rendered to others for a fee solely in the conduct of the Insured’s profession . . . .” (Emphasis supplied.) The policy further specified that coverage was available for claims arising “solely in the performance of Professional Services as a Training Specialist/Seminar Conductor for others for a fee.” Finally, the policy contained exclusions for claims for non-pecuniary relief and for fee disputes.

During the policy period, Ms. Bennett was sued by her former husband, who sought her removal from the ICI board based on allegations that she improperly used ICI as a tax shelter for income she derived from her outside business pursuits. The suit also sought a declaration regarding Ms. Bennett’s right to deferred compensation from ICI since the disputed amounts were a result of her fraudulent scheme. USLI disclaimed coverage to Ms. Bennett basis that the suit did not implicate a “wrongful act,” but instead a fee dispute, and that in any event, the claim was excluded from coverage on the basis that plaintiff sought only non-pecuniary relief.

The court agreed that the underlying dispute concerning Ms. Bennett’s bookkeeping practices did not come within the policy’s definition of “professional services” since it did not pertain to her services as a training specialist or seminar conductor for others for a fee. While the court reached its decision based on the policy definitions alone, it noted the long line of cases holding that professional services do not include billing practices. In so concluding, the court considered and rejected Ms. Bennett’s argument that the policy exclusion for fee disputes indicated that such matters otherwise came within the definition of professional services, agreeing that the exclusion was “instructional in nature” and merely emphasized what was not covered under the policy in the first instance. The court also found persuasive USLI’s argument that the exclusion:

… was intended to cover the circumstances where the insured sues a client for a billing dispute and the client counter sues for malpractice. Exclusion Q is intended to exclude this type of “don’t poke the hornet’s nest” scenario. In other words, when an insured sues a client for fees and the client counterclaims for negligently performed professional services, the suit is not covered by the policy, argues USLI, because the insured initiated the litigation.

Topics:  D&O Insurance, Professional Liability

Published In: General Business Updates, Insurance Updates, Professional Malpractice Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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