From the June 2012 issue of the PLUS Journal – Author Christopher P Ferragamo (Jackson & Campbell, P.C.) looks at recent case-law affecting professional liability coverages.From the article:

Clerical, Ministerial and Administrative Tasks Performed by Professionals

 

In determining whether activities of professionals constitute “professional services,” courts have been reluctant to conclude that activities are “professional” in nature merely because they were performed by a professional. [iii]   Instead, courts carefully analyze the underlying allegations to determine whether all of the activity undertaken by the professional required specialized skill, knowledge, or expertise. [iv] Common examples where courts have refused to stretch the application of the term “professional services” involve cases where the claims at issue involve clerical, ministerial, administrative or support functions performed by professionals. To the extent some part of the conduct giving rise to the claim is of a general, rather than a professional nature, or if the conduct alleged is merely “incidental to” the work as a professional, then the claim may fall outside of the scope of coverage of the professional liability policy. [v]

 

By way of example, Courts in a number of states have concluded that claims involving billing and fee practices of professionals do not constitute “professional services.”  In this regard, when not specifically excluded from coverage, Courts view billing and fee practices of professionals as ministerial or professional tasks inherent in all businesses and, thus, falling outside of coverage. [vi]   Interestingly, at least one Court has reached a different conclusion when addressing a bid proposal prepared by a professional. [vii]   When addressing claims involving the handling of client funds which, at first blush, also appear ministerial and/or administrative in nature, Courts have likewise concluded that such claims involve the rendering of “professional services.”

 

The Supreme Court of New York, County of New York recently addressed this issue in a coverage lawsuit involving a claim asserted by a bank against a law firm for breach of contract, breach of warranty and negligence when the law firm deposited a fraudulent check from a Korean entity. [viii]   The law firm’s professional liability insurer denied coverage for the bank’s claim on the grounds that the suit did not “arise out of” the “rendering or failure to render professional legal services.” [ix]   In relying on a similar case decided by the Third Department of the New York Supreme Court’s Appellate Division, the Court concluded that the insurer was obligated to defend the lawsuit because an overdraft claim is “based on” and “arises out of” the provision of legal services because those terms “require only that there be some causal relationship between the injury and the risk for which coverage is provided.” [x]

 

The United States Court of Appeals for the Eleventh Circuit, applying Florida law, reached the same conclusion in a case decided in May, 2011 involving a suit brought by the firm’s clients to recover funds lost in a similar fraudulent check scheme. [xi] The appellate court concluded that the deposit of clients’ funds into a trust account creates a fiduciary relationship between the clients and the law firm. [xii]   The court further explained that the management of funds held in trust constitutes a “professional services” as defined in the policy. [xiii]

Read the full article on the PLUS website. (until August 15, 2012)