New York Takes Broad View of Professional Services Coverage

In Westport Ins. Corp. v. Hamilton Wharton Group, Inc., 2012 WL 1739759 (2d Cir. May 17, 2012), the United States Court of Appeals for the Second Circuit was willing to broaden the term “professional services” contained within an insurance policy.

The case stemmed from several underlying lawsuits brought in state court by former members of the New York Healthcare Facilities Workers’ Compensation Trust against Hamilton Wharton Group, Inc. relating toHamilton’s (mis)management of the trust.  The causes of action alleged againstHamiltonwere for negligence, breach of fiduciary duty, breach of contract, and fraud relating toHamilton’s alleged failure to exercise due diligence and its mismanagement of the trust.

Hamilton’s professional liability carrier, Westport Insurance Corp., contended that the lawsuits did not triggerHamilton’s insurance coverage because the lawsuits did not arise out ofHamilton’s “professional services.”  The term “professional services” was defined asHamilton’s “activities for others as a managing general insurance agent, general insurance agent, insurance agent, or insurance broker.”  Westport argued that the insurance policy’s coverage was limited to Hamilton’s professional services involving issuing, procuring, renewing, or processing of insurance products to third-party clients, and therefore, did not include Hamilton’s administration of the trust.

Although Westport agreed to defendHamiltonin connection with the underlying state lawsuits,Westportbrought suit againstHamiltonin federal district court seeking a declaration that it had no duty to defend or indemnifyHamilton.  The Southern District of New York held thatHamiltonwas entitled to a defense since there was a reasonable possibility that the underlying lawsuit implicated the insured’s professional services, as that term was defined.

Despite the Hamilton’s role as a general agent and administrator of various workers’ compensation programs, the Second Circuit affirmed the Southern District’s decision finding the term “professional services” could encompass the allegations in the state court lawsuits that Hamilton was negligent in handling the trust’s funds by continuing to sign up new participants to join the trust, failing to hire an accountant, offering unwarranted discounts to trust members, failing to implement safety audits, and failing to conduct payroll audits.

The Hamilton Wharton Group decision demonstrates the court’s predisposition to find in favor of coverage. It does not provide any in depth analysis of the rationale for its conclusion that the allegations fell within the “professional services” coverage section,  Instead, the court summarily concludes that the underlying claims “may rationally be said to fall within the Policy’s coverage.”

Thanks to Joe Fusco for this post.  If you have any questions or comments, please email Paul at pclark@wcmlaw.com