A

What you need to be aware of is the distinction courts have made between actual fraud and constructive fraud. Actual fraud is an act or omission that is excluded from coverage under the professional liability policy, while constructive fraud is not. This may seem like a legal splitting of hairs, but if you understand the reasoning behind the distinction, it does make sense.

Actual fraud is defined as a trick or some direct and active operation of the mind with the intentional and successful employment of any deception or artifice used to cheat another; it is something said or done with the intent to deceive. Constructive fraud, on the other hand, is the breach of some legal or equitable duty which the law declares fraudulent because of its tendency to deceive others or violate a confidence; it is a breach of a fiduciary relationship without an actually fraudulent intent wherein the person at fault gains or might gain an advantage. The key word in distinguishing between actual and constructive fraud is “intent”; actual fraud requires intent and constructive fraud does not.

It is appropriate for a court to distinguish between the two types of fraud based on “intent” for several reasons. First, the ordinary dictionary meaning and the legal dictionary meaning of “fraud” manifest the idea that fraud carries with it wrongful intent. Second, the exclusion on the professional liability policy uses the words “dishonest”, “criminal”, and “malicious” in describing acts or omissions that will not be covered; these words connote intentional conduct and incorporate intent into their legal definitions. So it follows that “fraudulent”, used as it is by the writers of the policy in connection with “dishonest”, “criminal”, and “malicious” should also be interpreted as a term encompassing intent. Third, liability insurance is not generally meant to apply to intentional acts of the insured. It is in keeping with this idea that a professional liability policy would exclude coverage for fraudulent acts that include wrongful intent but would otherwise apply coverage.

For more information on the fraudulent acts exclusion and lawyers professional coverage, see Lawyers Liability Insurance.