Designed to Deny: The Cruelest Clause in Professional Liability
They can’t keep getting away with this. Or can they?
I recently reviewed another policy with the “absolute exclusion” language. As I’ve written about here and here, absolute exclusions within insurance policies are very, very problematic for the policyholder. These exclusions carve out coverage the insured often assumes is there. Unfortunately the policyholder doesn’t find out they’re not covered until they pick up a nasty claim, when it’s way too late.
Fortunately for this recent policyholder I was able to find and flag the absolute exclusion contained in their professional liability policy and set them on a path to find better quality coverage. Let me show you what I found.
This particular policyholder is a life coach. They advise people on how to manage their lives and accomplish their goals. Thankfully this life coach had the foresight to find and purchase a professional liability policy. As a life coach, they of course bear risks from clients who might feel that the advice and coaching they received was financially damaging.
Through some friendship connections they asked me about their policy and some business changes they were thinking of making. They were not expecting me to find a glaring carveout in their policy, one that struck at the very heart of the policy’s supposed intent.
The Cruelty of the Absolute Bodily Injury Exclusion
To give a little background; exclusions are a very important part of every policy. They explain what the carrier is NOT covering. I always recommend policyholders review their exclusions to make sure they don’t have any lofty expectations of what the policy is covering. And in some cases, to see the coverage you are counting on carved completely out.
Check out this exclusion I found:
“Based upon or arising out of any actual or alleged Bodily Injury or Property Damage”.
As my previous articles explain, “Based upon or arising out of” is a very arduous, heavy-lifting phrase. If a claim happens, and that claim arose from these exposures, Bodily Injury or Property Damage, then there’s no coverage at all, period, end of story. Do not pass go. Do not collect $200.
And how does this policy define Bodily Injury?
“Bodily Injury means physical injury to or sickness, disease or death of a person, or mental injury, mental anguish, emotional distress, pain or suffering, or shock sustained by a person.”
Remember, this is a professional liability policy for a life coach. Now you tell me; what sort of claim might a life coach receive from an aggrieved client that WON’T assert mental injury, emotional distress, etc? If the claim arises from these exposures, then there’s no coverage.
Think about what the potential claim actually looks like: a client alleges your coaching worsened their anxiety, deepened their depression, and derailed a major life decision. That is not a Bodily Injury lawsuit in any ordinary sense. But under this definition, it is, and the exclusion swallows it whole. If the claim arises from these exposures, there’s no coverage.
Essentially this life coach has a professional liability policy that will most likely NOT respond to a claim.
They Can’t Keep Getting Away With This (They Do 🙁)
How does this keep happening? When I first started writing about the egregious absolute exclusions I was finding, I naively thought that the problem was contained to certain classes of business and certain carriers. But I was dead wrong. I continue to find these exclusions all across the industry.
What’s especially infuriating; this policy was purchased directly from the carrier. The policyholder did not have an intermediary to help them out like a well informed insurance agent. They could go directly to the carrier, and the carrier did NOT have to point out the exclusions. They can simply say, “Sorry, but it was right there under your nose the whole time. Why didn’t you read the fine print?”
What’s the answer to the absolute exclusion problem?
Read your policy, find absolute exclusions, and push back on your carrier
If the carrier refuses to budge, move your coverage to a better carrier
Find an insurance agent that knows your industry, knows how to transfer your risk properly
If you need help finding an agent, definitely let me know.
Until next time agents, stay bindin and grindin 🫡
Disclaimer: This analysis is provided for educational purposes only. The policy language examples contained herein are composites of standard E&O policy architecture and are not attributed to any specific carrier. The facts and case law referenced are drawn from publicly available court filings and legal precedent. This article does not constitute legal advice. Readers should not rely on this analysis as a definitive statement of applicable law in their jurisdiction or as coverage guidance specific to their policies. For coverage questions specific to your policy, consult qualified coverage counsel.