Eleventh Circuit Defers to Insurer’s Definition of Professional Services
Does an Errors & Omissions (E&O) insurer have a duty to defend its insured mental healthcare provider when the policyholder was not licensed to provide such mental health counseling services? The Eleventh Circuit recently held that there was no such duty, as explained below.
On May 21, 2019, in Chapman et al v. Ace American Insurance Company, the United States Court of Appeals for the Eleventh Circuit considered whether the district court (M.D. Fla.) erred when it upheld a professional liability insurer’s denial of coverage based on the policy’s definition of “professional services.” The Eleventh Circuit ultimately agreed with the district court’s holding that the insurer had no duty to defend or indemnify the insured because the conduct alleged in the underlying action did not arise out of the insured’s “professional services,” as that term was defined in the E&O policy at issue.
Background of the Underlying Action
In the underlying action, the plaintiffs alleged that the treatment provided by the insured, an unlicensed mental health counselor, to the plaintiffs’ son, contributed to the plaintiffs’ son’s suicide. The operative complaint contained causes of action for wrongful death, unjust enrichment, unfair and deceptive trade practices and infliction of severe emotional distress. In the operative complaint, the plaintiffs cited to, among other things, the fact that the insured had pled guilty in a separate criminal action to engaging in a fraudulent scheme to provide mental health counseling services without a license.
The Insurer’s Denial of Coverage and the District Court Ruling
The insurer refused to defend the insured in the underlying action, reasoning that there was no coverage available under the policy where the injuries did not arise out of the insured’s “professional services.” The policy defined “professional services” as “those services [the insured] is licensed, trained or being trained to provide within the health field specified in the [the insured’s] application and approved by [the insurer] for coverage.” The plaintiffs and the insured defendant in the underlying action ultimately entered into a consent judgment for over $5 million against the insured to be paid by insurance proceeds. The insured then assigned his rights to recover from his E&O insurance policy to the plaintiffs, and the plaintiffs commenced the instant declaratory judgment action to recover from the insurer.
In its motion for summary judgment at the district court level, the insurer argued that the profession “specified in the [insured’s] application” for which he was allegedly licensed and trained was as a “Drug & Alcohol Abuse Counselor.” The plaintiffs argued that coverage was implicated because the underlying services by the insured nevertheless constituted “professional services” within the meaning of the policy. However, the district court granted the insurer’s motion for summary judgment and held that the insured’s alleged acts did not arise from the insured’s provision of “professional services” because the mental health services at issue were rendered by the insured without a license, and therefore did not constitute “professional services” as the term is defined in the policy. The plaintiffs appealed the decision to the Eleventh Circuit.
Eleventh Circuit Ruling
On appeal, the Eleventh Circuit, citing Florida law, noted that “[i]f the language of an insurance policy is clear, it must be construed to mean what it says and nothing more” and that “[c]ourts have no power to create insurance coverage, if it does not otherwise exist by the terms of the policy.” Against this backdrop, the Eleventh Circuit disagreed with the plaintiffs and declined to read a broader definition of “professional services” into the policy, affirming the district court’s grant of summary judgment in favor of the insurer.
As interpreted by the court, the definition of “professional services” in the policy means “the occupation stated in the insurance application for which the insured is licensed, trained, or being trained to provide.” According to the Eleventh Circuit, the plain meaning of the policy’s terms support the conclusion that the policy only provides coverage for injuries and/or damages caused by a medical incident arising out of “Drug & Alcohol Abuse Counseling Services.” In the underlying action, the plaintiffs alleged that the insured provided mental health counseling services, not substance abuse counseling services. Moreover, the plaintiffs alleged that the insured was not licensed to provide mental health counseling services, which the Eleventh Circuit noted “compels a conclusion that [the insured’s] complained-of counseling services were not ‘professional services’ under the policy.”
The definition of “professional services” is an often-controversial topic in the realm of E&O and directors and officers liability (D&O) insurance policies. That is because the way a court interprets “professional services” in a given jurisdiction can be instructive for future claims where an insurer is grappling with whether such claims trigger professional liability coverage under an E&O policy, or a professional services exclusion under a D&O policy, where both situations require the existence of allegations that the insured rendered “professional services.”
A practical takeaway from this decision is that courts interpreting Florida law appear to defer to the policy’s plain language definition of “professional services” and will not broaden that definition to provide coverage even if the insured holds itself out as lawfully providing such services.
Additionally, Florida courts will look to state statutes governing particular professions to assist them in the discussion of what actually constitutes “professional services.” Insurers should engage in a similar exercise in this context, especially when deciding whether or not to disclaim defense obligations under duty to defend policies.
If you have questions or would like additional information, please contact Andrew Lipton (firstname.lastname@example.org; 212.631.1252) or Katie Zacharias (email@example.com; 646.766.1353)
 The plaintiffs also argued that a Florida statute that governs substance abuse services, which requires a substance abuse counselor to be insured to practice, imposes a statutorily-mandated duty to defend. The Eleventh Circuit court rejected this contention.