In this Cyber Insurance column, Mike Rossi looks at the question of whether
standard "professional liability" coverage applies to claims arising
out of business-to-business "B2B" and business-to-consumer
"B2C" activities.
When we first started writing articles for this column 2 years ago, we made
the observation that it appeared that all of the coverages being offered by
stand-alone e-business insurance policies at the time could be obtained by
using and/or amending traditional insurance policies. Obviously, given the
reaction by the insurance industry since then, we have had to change our
observations and conclusions. This article discusses another issue where
we've had to change our tune from earlier opinions expressed based on the
work we've been doing—advising companies on e-business insurance
issues.
This article attempts to answer the question: Does standard
"professional liability" coverage apply to claims arising out of
business-to-business "B2B" and business-to-consumer "B2C"
activities? You know the song that goes, "You say tomayto, I say tomawto .
. . you say potayto, I say potawto"? That's what went through our
minds when we were first posed this question.
Unfortunately, that's not how insurers are reacting to the question.
Many see a very big difference between "professional services" and
B2B/B2C activities. Simply put, those insurers do not see this as a
"tomayto versus tomawto" issue at all.
Some Insurers Believe "B2B Activities" Are Not
"Professional Services"
Many insurers, by their policy forms, their conduct at claim time, and in
discussions with them express the belief that their professional liability
insurance policies absolutely do not cover claims arising from B2B and B2C
activities, unless expressly worded or endorsed to do so. They say that such
"activities" are not the provision of services to others for
a fee, which they say is the intent of professional liability coverage. (For a
variety of reasons, we are not identifying by name these insurers. We
would rather focus on the issue at hand, rather than on the insurers at
issue.)
And, indeed, the answer to the question posed above depends on at least two
issues that must be addressed whenever reviewing a professional liability
insurance policy to see if it covers claims arising from B2B and B2C
activities. First, how broadly is "professional services" defined in
the insurance policy? Second, is there an exclusion in the policy that could
bar coverage for claims arising from B2B and/or B2C activities (whether
expressly labeled as such or not)?
Definitions of "Professional Services" Vary Greatly
For the first issue, what we are seeing in policies sold in North America,
Europe, and Australia is that there are many ways to define the
"professional services" that are covered by a professional liability
policy. Some policies contain a "wide open" definition, such as
"professional services covered: all activities undertaken by the
insured." Other policies contain a very narrow definition by listing only
specifically defined services provided to others for a fee. Some policies
contain a definition somewhere in-between these two extremes.
There really is a continuum of variations from one extreme to the other in
the definition of covered "professional services" in professional
liability insurance policies, especially when reviewing policies sold in
different parts of the world. The key point to keep in mind is that, while
broader definitions should encompass B2B and B2C activities, narrower
definitions might not.
Some Insurers Intend To Expressly Exclude B2B Activities
We have seen newer professional liability policies that appear to intend to
exclude B2B and B2C activities. For example, they expressly bar
coverage for, among other things, claims arising out of another's inability
to access the insured's computer, network, intranet, etc. And when asked
about such exclusions, insurers explain them as B2B and B2C activities
exclusions.
Insurers Are Offering B2B Activities Extensions to Professional Liability
Policies
Insurers are increasingly addressing the "professional services"
definition and exclusion issues discussed herein as follows.
- Some confirm they do not intend to provide such coverage, and will not
under any circumstances provide such coverage.
- Some say that if you want coverage for B2B and B2C activities, you need
to buy this or that endorsement and pay an additional premium (more and more
insurers have endorsements in-the-ready to offer insureds for additional
premium when asked).
- Some insurers that sell e-business insurance for liability risks have
amended their forms to expressly differentiate between coverage for
professional services and B2B/B2C activities by breaking the coverages into
separate coverage grants, and charging additional premium for each.
How Do Insureds Respond?
So, what should insureds do about this issue? There does not appear to be a
clear or best answer. However, for those insureds that rely on standard
professional liability insurance to cover the liability risks for their B2B and
B2C activities, they should review their insurance policy wording to see
whether coverage applies and seek advice from a qualified insurance broker and
insurance lawyer if they have any questions or concerns.
Coming Up Next in the Cyber Insurance Column
Have you seen the computer virus exclusion coming out of Europe that is
being used on property programs which goes by the name NMA 2914? Without
pulling any punches, it's brutal for policyholders. Given such exclusions
and the shrinking capacity for first-party property insurance policies, what
are insureds to do? Our next article will explore this and other related
issues.