Directors & officers (D&O) liability insurance policies do not typically cover liability from professional services, and D&O policies are normally issued to professional organizations with a professional services exclusion. We had a recent request from a client for D&O insurance for a financial firm but without mention of professional liability insurance, and we pointed out the firm would need a professional liability (E&O) policy as well, or a combined E&O/D&O policy, to fully cover the directors & officers. D&O underwriters do not intend to pick up the professional liability (E&O) exposure on the D&O policy, and therefore exclude it through the use of a professional services exclusion. (Note that there are a few exceptions to this practice).
A real-life example is noted in a case summary by Wiley Rein & Fielding LLP (see here). A non-profit D&O policy was issued to an insured providing advertising and public relations services. A claim for fraudulent misrepresentation, unfair competition and trademark infringement arising from the insured’s services was denied by the insurer based on the professional services exclusion, and the denial was upheld in coverage litigation between the insured and insurer.
Many directors will assume, wrongly, that a D&O policy will provide the protection they need as a board member of a professional services company. In the example cited above a non-profit firm was providing professional services and did not have coverage for the services provided. In our request noted above the financial organization was looking for D&O coverage at the request of an outside director who did not understand the distinction, and therefore asked only for D&O coverage. Both a professional liability (errors and omissions or E&O) and directors and officers (D&O) policy, or a policy combining both D&O and E&O, will do the trick, but D&O on its own will not.