As we continue to move forward as a service-based economy, the definition of “professional” and the risk of being caught up in a professional liability claim are expanding beyond what we traditionally have considered.

Today we're seeing more and more miscellaneous professions that exhibit some, although not all, of the attributes of a profession. These include what some might categorize as quasi-professions—computer consultants, security specialists, and property managers.

In some instances the services they tout may rise to the level of professions; in others, they may not.

Unlike a company's traditional exposure for bodily injury and property damage losses, the firm that begins to dabble in professional services may encounter the need to pay purely economic damages because the service they offered just wasn't up to the standard the client expected from a “professional.”

But what makes a professional?

Courts typically have held that five elements are required before an individual is considered to be a professional:

-Extensive learning and training, often including a degree or professional designation,

-A code of ethics that is higher than that seen in general occupations,

-An emphasis within the occupation of a high level of responsibility that often is supported by a law or regulation,

-Governmental licensing, and

-A system to discipline those who break professional standards or fail to adhere to licensing requirements.

           Fran O'Connell, an underwriter with Shand Morahan & Co., Inc., which specializes in professional liability insurance, said during a recent seminar I attended that professionals have special skills and experience, are held to a higher standard of care than non-professionals, and perform services for others for a fee.

           Although these two definitions differ somewhat, it's fair to say that a professional is a person who is well-trained, often possesses a professional license, and provides a service to another for a fee.

           And the “provides a service to another for a fee” is critical when assessing the risk of professional exposures. A staff accountant who provides accounting services solely for her employer does not constitute a professional risk for her employer because she's restricted to her company's business. If her employer decides to offer accounting services to other companies, however, the risk for professional liability damages develops.

           This professional not only offers a specialized service to others for a fee but also runs the risk of causing a customer to incur a purely financial loss.

           For insurance purposes, these types of professionals may be insured through a miscellaneous professional liability coverage form, which often is used in particular to cover the economic damages that a company owes as a result of performing a non-medical professional service.

           Instead of the insurance addressing a specific type of professional liability—such as medical or legal malpractice—the form is written to apply to the profession that is specified in the policy.

           From a risk management perspective, I think there are two big differences that should be considered in the context of non-medical professional exposures:

-A professional is held to a higher standard than a non-professional, and

-As a result, it may be easier for a claimant to recover financially from a professional than from a non-professional.

           For example, a general contractor may contractually agree to construct a structurally sound building for a client. If the contractor doesn't meet contract requirements, he may be held liable for a breach of contract, and damages likely would be limited by the contract.

           This breach of contract and purely financial damages are not considered traditionally insurable risks.

           The standard for judging his negligence in the situation would be the reasonable person rule: the contractor must exercise the standard of care that a “reasonable” person would exercise in similar circumstances.

           On the other hand, an individual who is considered a professional is held to a higher standard of care. She must operate at the level of other professionals in her field.

           For example, the real estate professional who manages a commercial building may fail to keep the building in good physical shape. As a result, tenants leave and rental rates are below average. Although no one is physically harmed, the property manager may be responsible for the financial loss the building owner incurs because of the poor rentals.

           If the property manager is considered a professional, the court may hold her to a standard higher than that of the “reasonable person.” As a result, the building owner will find it easier to recover economic damages.

Professional liability insurance is one way to finance that economic exposure. It responds to purely economic damages, which are excluded on general liability coverage.

The danger is that a miscellaneous professional exposure easily may develop from a non-professional activity without anyone realizing the potential for damages.

So, the construction firm that expands into building management or the company that begins to offer accounting services for other firms may open themselves up to not only greater potential to cause economic loss, but also a legal yardstick that will require a professional standard of performance.

This is not to say that the only way to handle an emerging professional liability exposure is through insurance. But it does point out the need to at least be aware of the risks involved and protect the corporation from the results of the exposure.

The higher standard of care and the potential for purely economic damages may add up to serious financial consequences for a company that begins to offer even quasi-professional services to others.