DEFENSE OF NONTRADITIONAL
PROFESSIONALS
W. Barry Montgomery, Esq.
Kalbaugh, Pfund & Messersmith
Edmund G. “Chip” Ferrell
Murchison & Cumming, LLP
Non-Traditional/”Miscellaneous”
Professional Liability Claims
• Involves providers of services for a fee, often non-
licensed, where a reasonable standard of care is
expected by the client.
• The standard of care to be applied to these professionals
can be a moving target as they are often not subject to
well defined regulation or legal precedent.
• Can involve claims not only by the professional’s clients
but by third parties
DEFINITION OF “PROFESSIONAL”
ACCORDNG TO THE OXFORD DICTIONARY:
• A person engaged in a specified activity, especially a sport or
branch of the performing arts, as a main paid occupation rather
than as a pastime. A person competent or skilled in a particular
activity
• ACCORDING TO MIRIAM’S DICTIONARY A PROFESSION IS
DEFINED AS:
• A calling requiring specialized knowledge and often long and
intensive academic preparation or a service that conforms to
technical or ethical standards of a profession.
OTHER USES OF THE TERM
“PROFESSIONAL”– Dept. of Labor
• The Professional, Scientific, and Technical Services
sector comprises establishments that specialize in
performing professional, scientific, and technical activities
for others. These activities require a high degree of
expertise and training.
(U.S. Dept. of Labor, Bureau of Labor Statistics--North
American Industry Classification System)
“Professional” – Dept. of Labor
• The establishments in this sector specialize according to
expertise and provide these services to clients in a variety
of industries and, in some cases, to households. Activities
performed include: legal advice and representation;
accounting, bookkeeping, and payroll services;
architectural, engineering, and specialized design
services; computer services; consulting services;
research services; advertising services; photographic
services; translation and interpretation services;
veterinary services; and other professional, scientific, and
technical services.
EXAMPLES OF NON-TRADITIONAL
PROFESSIONALS
• business consultants;
• public relations firms;
• credit bureaus;
• advertising agencies;
• marketing consulting firms;
• travel agents;
• personal trainers
• Home Inspectors
Example 1: Marketing Firm
• A marketing consulting firm is hired by a regional bank to
send “pre-approved” credit card applications to two
groups.
• One group had good credit and was to be offered low
interest high credit limit cards.
• The other group had poor credit and was to be offered
high interest low credit limit cards.
• The marketing firm mistakenly switched the mailings so
that the poor credit groups received the low interest/high
credit limits card offers!
Example 1: Marketing Firm (continued)
• Not surprisingly, there was a great response to the
mailings and the bank was exposed to hundreds of “preapproved” high risk loans.
• The settlement and defense costs exceeded $725,000.00
EXAMPLE 2: PROPERTY MANAGER
• A property management company is hired by a
commercial building owner to manage a small shopping
mall
• A small leak in a water supply line went unnoticed by the
management company and caused extensive damage to
the property
• As a result of the property damage, several commercial
tenants legally terminated their leases.
EXAMPLE 2: PROPERTY MANAGER
(continued)
• Building owner sued management company for
negligence in failing to maintain facility and timely make
repairs
• Case settled for nearly $325,000.00 in damages and
$60,000.00 in defense costs
EXAMPLE 3: PRIVATE MINE
INSPECTOR
• Case of Estate of Bragg v. United States of America, 2013 U.S.
App. LEXIS 11736(4th Cir. 2013)
• Two coal miners died in a fire and their estates sued the U.S.
Government for negligently inspecting the mines and failing to
find several violations of mine safety regulations;
• Under the Federal Tort Claims Act, plaintiff can sue government
“if a private individual, under the circumstances would be liable
to the plaintiff.”
EXAMPLE 3: PRIVATE MINE
INSPECTOR (continued)
• The federal court certified the liability question to the West
Virginia Supreme Court
• The West Virginia Supreme Court held that a private party
conducting inspections of a mine and mine operator for
compliance with mine safety regulations is liable for the
wrongful death/injury of a miner resulting from the private
party’s negligent inspection.
EXAMPLE 4: PERSONAL TRAINER
Layden v. Plante, 101 A.D.3d 1340 (N.Y. App.2012)
• Plaintiff participated in a training session with defendant, a certified
personal trainer. Plaintiff advised the trainer before the session that
she had a history of back problems and a herniated disc. The trainer
then instructed plaintiff in a program of weight-lifting moves, including
the “Smith Squat” that plaintiff performed under her supervision.
• Two days later, plaintiff used the trainer's written instructions to repeat
the program without supervision. While performing the program
unsupervised (at the gym facility), plaintiff experienced lower back
pain and ultimately thereafter underwent surgery to correct two
herniated discs. Plaintiff sued alleging that the injury to her back was
caused by the trainer's improper supervision and instruction, by the
facility’s negligence in failing to provide a safe place and properly
trained staff.
EXAMPLE 4: PERSONAL TRAINER
(continued)
• Plaintiff admitted that she had participated in weight
programs before and knew that back injury was an
inherent risk.
• While the court noted that the “assumption of the risk”
doctrine applied to the use of exercise equipment, they
reversed the trial court’s order of summary judgment in
favor of the personal trainer noting that issues of fact
existed as to whether trainer’s actions “unreasonably
heightened the risks to which [plaintiff] was exposed"
beyond those usually inherent in weight-lifting.”
EXAMPLE 4: PERSONAL TRAINER
(continued)
• Plaintiffs presented the affidavits of two personal training experts
who opined that the trainer should not have advises the plaintiff to
perform the “Smith Squat” given her prior back injury. The experts
further opined that the trainer erred in instructing plaintiff to "stick her
butt out" during the exercise.
• The trainer explained that she meant that plaintiff should move her
body backward while keeping her back straight. The trainer further
testified that whether the Smith squat is dangerous for a person with a
back injury "depends on the form" used by the exerciser and
acknowledged that, although she knew plaintiff had a herniated disc,
she did not warn plaintiff that the exercise posed any risk to her back.
• Based on this testimony, plaintiffs raised triable issues of fact as to
whether the trainer's direction to perform the Smith squat, her
allegedly improper instructions, or both, served to unreasonably
increase the risk to which plaintiff was exposed
EXAMPLE 5: HOME INSPECTOR
• A Florida litigation arising out of home inspection services performed by the Insured in
connection with the Claimants’ purchase of property in Ft. Lauderdale, Florida. The
Claimants contacted the Insured by telephone, alleging that active roof leaks were observed
during the course of renovating the property. The Claimants’ contractor then sent the Insured
a letter alleging that the ‘integrity of the roof’ had been comprised, contrary to what was
written in the inspection report. The Insured proceeded to conduct a re-inspection of the
property and, the next day, the Insured conducted a visit to the property with two roofing
contractors, both of which assessed the alleged roof damages in the $15,000 to $20,000
range.
• The Insured issued a letter to the Claimants disclaiming liability. The Claimants did not
contact the Insured for approximately five months, at which time, they filed the instant
litigation. After a prolonged period of unresponsiveness, the Claimants’ counsel responded
to defense counsel’s numerous requests for a settlement demand by providing a damages
breakdown of $250,000, an amount significantly higher than any earlier estimates. As the
Claimants replaced the roof, defense counsel arranged for an inspection of the property
performed prior to same. Discovery also went forward in an effort to position this matter for a
cost-effective resolution, despite the Claimants’ general unwillingness to engage in
reasonable settlement negotiations. The matter ultimately settled at mediation for $25,000.
EXAMPLE 6: COLLECTION AGENT
• A California class action, which was originally comprised of both state
and federal suits, arose from collection agent services rendered by the
Insured. The lead plaintiff purportedly owed a $126.18 debt to AT&T,
which AT&T assigned to the Insured for collection. The federal action,
which involved allegations that the Insured violated the Fair Debt
Collection Practices Act (the “FDCPA”), was resolved via an $8,500
payment by the Insured to the Claimant. This payment fell within the
Insured’s $25,000 Deductible. The lawsuit pending in state court sought
to certify a class of plaintiffs who were improperly contacted by the
Insured
• on their cell phones, in violation of the Telephone Consumer Practices
Act (the “TCPA”).
• Defense counsel conducted a review of voluminous data regarding the
number of cell phones called and discovered 13,404 potential violations
of the TCPA. As a result there was the potential for liability to
Underwriters on excess of the Policy’s $2 million limits. At mediation, the
matter was resolved for $445,000.
EXAMPLE 7: GUARDIAN
• Washington State litigation arising out of trustee services provided by the Insured
in connection with two separate trusts created for the benefit of the Claimants,
who are brothers. It was alleged that the Insured, in its role as trustee of the
subject trusts, breached fiduciary duties to the Claimants and negligently failed to
properly manage the trusts and administer the trust assets, causing in excess of
$1 million in damages to each trust (for a total of over $2 million in alleged
losses). Given the Insured’s unfavorable liability and the realistic possibility of trial
exposure in excess of the Policy’s $2 million limits, Underwriters attended
mediation to resolve this matter on the best terms possible.
• The Claimant originally demanded $1.8 million, a reduction from their previous
damages breakdown in excess of the Policy’s $2 million limits. After numerous
additional rounds of negotiations, the mediator provided a non-binding,
recommended settlement figure of $900,000. At that time, the Insured demanded
that Underwriters settle “within limits” for this figure. Considering the alternative of
possibly “opening” the Policy as a result thereof and in light of the potential trial
exposure upwards, if not in excess of the Policy’s $2 million limits, as well as
defense costs, which would have continued to significantly escalate, Underwriters
agreed to resolve the matter for $900,000.
EXAMPLE 8: 1031 EXCHANGE
ACCOMODATOR
• Colorado claims arising out of 1031 exchange accommodator services provided
by the Insured for the Claimants. According to the Claimants, the Insured failed
to deliver funds to the Claimants that were deposited with the Insured for real
estate closings for replacement property. Based on Underwriters investigation, it
appeared as if the funds held by the Insured were either taken by the Insured’s
principal, spent on overhead for the Insured’s business, or invested improperly.
Some of the Claimants were forced to secure alternate financing to effectuate the
closings at issue. Following an initial demand upon the Insured, one of the
Claimants filed suit against the Insured, but did not effectuate service of process.
Instead, that Claimant forwarded a courtesy copy of the complaint to the Insured’s
counsel. That Claimant also reported the alleged theft to the authorities, who
opened an investigation and ultimately issued a warrant for the Insured’s
principal’s arrest. The Claimants sought civil damages totaling $753,745 plus
interest and consequential damages. Given the Insured’ unfavorable liability,
Underwriters agreed to resolve all claims for $200,000. The Insured’s fidelity
insurer ultimately agreed to contribute $475,000.
•
An exchange accommodator deals primarily in real estate transactions designed
to defer capital gains taxes pursuant to the Internal Revenue Code Section 1031.
The exchange accommodator holds the proceeds from the sale of a client's
property in escrow and assists the client in purchasing a new property with those
funds.
Miscellaneous Professional Liability
Insurance (MPL)
• MPL policies usually covers claims for economic damages
not typically covered by general liability policies;
• MPL Insurance typically covers errors and omissions
exposures for negligence in the performance of services
where a reasonable standard of care is expected;
• Some policies can be tailored to a specific profession (i.e.
home inspectors)
• Some policies specifically described the acts/services to
be insured in the declarations.
SAMPLE MPL POLICY
HISCOX.MPL.POLICY.pdf