It may sound obvious that where conduct is excluded from coverage, it is still excluded when you rename the conduct with a different legal label. However, this isn’t always so obvious when one reads the allegations of a complaint containing multiple counts. Often, the plaintiff’s attorney throws in some sort of negligence claim in an attempt to create coverage. Sometimes the negligence claim is actually different from other excluded claims, but a lot of the time it is merely excluded conduct trying to get into an invitation-only ball by wearing a disguise.
In Rayborn v. State Farm Fire & Casualty Co., 2006 WL 162646 (W.D. Wash. January 20, 2006), U.S. District Court Judge Ronald Leighton decided, under Washington law, that the insurer had no duty to defend or indemnify in a professional malpractice lawsuit that also contained a claim of negligent hiring because the insured would not have been subject to a negligence claim save for the existence of malpractice, which was excluded from coverage.
In underlying litigation, the Rayborns, a husband and wife, sued a clinic over treatment Mrs. Rayborn received from someone who fraudulently claimed to be a doctor licensed in psychology.
The clinic had a Commercial General Liability policy. The Rayborns claimed they notified the insurer of the lawsuit, but State Farm said it never received any notice. In any event, the insured does not appear to have asked for a defense, and the Rayborns received a judgment on claims of medical malpractice, fraudulent misrepresentation, Consumer Protection Act violations, emotional distress and negligent hiring. They then sued State Farm on the judgment.
While there are insurance policies that cover malpractice, a CGL is not one of them, because a CGL almost almost always contains an exclusion for the providing of professional services. Judge Leighton found State Farm had no duty to indemnify because all the claims were excluded by either the professional services exclusion or the willful and malicious acts exclusion. Because the clinic could not have been liable for negligent hiring were it not for the malpractice claim, the negligence claim was also excluded. Judge Leighton also found no duty to defend because, where there is no possibility of indemnity, the duty to defend does not arise.