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Malpractice Insurance – Contractual Liability the contract that is not binding

Occasionally we get a client that attempts to tie the insurance company to a contract that the client has signed, in hopes that the insurance carrier will be bound to the contract. Or there is a misunderstanding of the Contractual Liability Exclusion.  A client cannot bind an insurance carrier to the terms of a 3rd party contract.  Hence the question and exchange from this client.

From Client:

“Is the coverage provided under H.2 for “….executor, guardian, trustee or in any other fiduciary capacity” removed or limited by Exclusions D. by virtue of the language “… alleged liability under any oral or written contract agreement,”?

We are seeking coverage for attorneys in the private practice of law in the fields of estate planning and probate involving written wills, and written private trust agreement for individuals and families.  Generally, all private trust agreements are written agreements, so does Exclusion D. cause a loss of coverage for the practice of law in trusts and estates area?”


Response to Client:

The short answer to your question is “No”.   

Contractual Liability is a common insurance term and exclusion found in almost all insurance policies.  In general, contractual liability is where the insured has a contract that obligates the insured to pay damages.  The insurance company is not bound by the contract that the insured has with a 3rd party.  The insurance company is only bound by the terms of the insurance policy.

In other words, if the insurance policy covers the matter in question, then there is coverage under the policy.  If the insurance policy does not cover the matter in question then it does not matter what the 3rd party contract states.  The insurance company is not bound by the 3rd party contract.

The Berkley policy is designed to cover the private practice of law for attorneys that are doing trust and estate work.

The National Liability Insurance policy that you are currently insured under has a similar exclusion:

(n) arising out of, based upon, attributable to, or alleging any liability assumed by the Insured under any contract or agreement whereby the  Insured haagreed to  participate in  the payment of a loss including lawyers fees, court costs, and expenses payable under a title insurance policy.

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