Professional liability policies — also known as errors and omissions (E&O) or malpractice policies — provide professionals and their firms with a defense and, if necessary, indemnification for claims arising out of purportedly negligent acts, errors or omissions in the performance of professional services. Coverage is typically written for a term of one year on a “claims-made” or “claims made and reported” basis, with the policies covering claims made during the policy term or any extended reporting period.

Virtually all professional liability policies, however, contain prior acts exclusions, which exclude coverage for acts that occurred before inception of the policy — even if the actual claim for malpractice arises during the claims-made policy period — if the policyholder knew or “could have foreseen” that the act would give rise to a claim. But how does a court decide whether or not a reasonable policyholder could have foreseen a claim?