DEFENSE OF NON-TRADITIONAL PROFESSIONALS

W. Barry Montgomery, Esq.

Kalbaugh, Pfund & Messersmith

Edmund G. “Chip” Ferrell

Murchison & Cumming, LLP

• 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

Non-Traditional/”Miscellaneous” Professional Liability Claims

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 “pre-approved” 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 TRAINERLayden 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