Recently, in Rob Levine & Associates Ltd. v. Travelers Casualty and Surety Co., No. 13-560-M, 2014 U.S. Dist. LEXIS 15807 (D.R.I. Feb. 3, 2014), the U.S. District Court for the District of Rhode Island held that a legal services exclusion in a D&O policy does not preclude coverage for defense costs associated with allegations grounded in allegedly deceptive advertising practices by a law firm. The court’s decision results in coverage for claims arguably arising from the provision of legal services despite the existence of a legal services exclusion in the implicated D&O policy.
The insured law firm advertised extensively on television and the Internet, using the type of taglines sometimes seen in attorney television advertisements: “Call A Heavy Hitter® Today!” In the underlying lawsuit, two clients sued the firm for deceptive trade practices and the firm sought coverage under its D&O policy with Travelers. Travelers denied coverage based on the professional services exclusion, which excluded “loss for any claim based upon or arising out of any wrongful act related to the rendering of, or failure to render, professional services.”
The plaintiffs sought a declaratory judgment regarding the liability of Travelers for the insureds’ defense and indemnification. Both parties moved for summary judgment. The Rhode Island Supreme Court addressed only whether the duty to pay defense costs was triggered because the trial court’s dismissal of the potentially covered claim, alleged false or deceptive trade practices, rendered analysis of the duty to indemnify moot.
Accordingly, the court cited Rhode Island’s pleading test, or “potential-for-coverage standard,” in determining whether the alleged acts trigger the duty to defend “when a complaint contains a statement of facts which bring the case within or potentially within the risk coverage of the policy, the insurer has an unequivocal duty to defend.” Rob Levine & Assocs., 2014 U.S. Dist. LEXIS 15807, at *5 (D.R.I. Feb. 3, 2014) (quoting Employers’ Fire Ins. Co. v. Beals, 240 A.2d 397, 403 (R.I. 1968) (rev’d on other grounds)).
The court specifically addressed the issue of “whether lawyers sued by clients who allege deceptive advertising are entitled to be defended by their insurer under a policy that excludes claims ‘related to the rendering of, or failure to render, professional services.’” Rob Levine & Assocs., 2014 U.S. Dist. LEXIS 15807, at *1.
Travelers argued that the phrase “arising out of” brought the law firm’s allegedly false advertising within the ambit of “professional [legal] services” because courts interpret both of these phrases broadly. Travelers relied on authority from other jurisdictions for the proposition that courts construe professional services broadly. Travelers further argued that the advertising services are inextricably intertwined with providing legal services, thus triggering the professional services exclusion.
The law firm argued that the Travelers policy covered the alleged acts because they stemmed from advertising, not the actual provision of legal services to the underlying plaintiffs.
The court held that the legal services exclusion was inapplicable to the underlying plaintiffs’ false advertising claims. Advertising, in the court’s view, is not the provision of legal services, particularly in light of the fact that this advertising occurred before the legal services were provided. Finding the legal services exclusion applicable to advertising, the court believed, would ignore the meaning of the word “rendering” as it referred to professional services in the exclusion. The court reasoned that such an expansive reading of the exclusion would bring any conduct by the law firm and its attorneys within the exclusion, thus rendering the policy one that provides no coverage. Consequently, the court held that Travelers had a duty to defend its insureds.
The Rhode Island District Court’s holding results in payment for the defense of claims that arise out of activity arguably constituting the type of legal services contemplated in the Traveler’s D&O policy’s legal services exclusion. Although advertising may not be what is classically defined as “rendering” legal services, it is an activity that law firms engage in to market and obtain clients. Further, the claims against the law firm in the Rob Levine case were asserted by current clients. The clients’ dissatisfaction with the firm’s services presumably formed the basis of their claim that the firm’s advertising was false and deceptive. Considered in that light, Travelers’ argument that under these facts, the firm’s advertising appears to be inextricably intertwined with the provision of legal services appears to have merit. However, as the court noted, under Rhode Island law, any doubt regarding whether a pleading’s allegations fall within an implicated policy’s coverage must be resolved in the insured’s favor. In this case, attorney advertising does not constitute rendering legal services, thus triggering Travelers’ duty to defend. If this coverage was not intended, as it appears in the Rob Levine case, resolving this issue may require D&O insurers to draft future policy provisions with an express exclusion for attorney advertising.