FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

PMI MORTGAGE INSURANCE CO., 

Plaintiff-Appellant,

Nos. 03-15728 v.

03-16007

AMERICAN INTERNATIONAL  D.C. No. SPECIALTY LINES INSURANCE

CV-02-1774 PJH COMPANY, FEDERAL INSURANCE

COMPANY, and COLUMBIA CASUALTY OPINION

COMPANY,

Defendants-Appellees. 

Appeal from the United States District Court

for the Northern District of California

Phyllis J. Hamilton, District Judge, Presiding

Argued and Submitted

October 5, 2004—San Francisco, California

Filed January 14, 2005

Before: Richard D. Cudahy,* Susan P. Graber and

Raymond C. Fisher, Circuit Judges.

Opinion by Judge Cudahy

*The Honorable Richard D. Cudahy, Senior Circuit Judge for the

United States Court of Appeals for the Seventh Circuit, sitting by designation. 

683
COUNSEL

David B. Goodwin and Warrington S. Parker III, Heller Ehrman White & McAuliffe LLP, San Francisco, California, for

the plaintiff-appellant.

Mark G. Bonino, Ropers, Majeski, Kohn & Bentley, San

Francisco, California, and H. Paul Breslin, Archer Norris,

Walnut Creek, California, for the defendants-appellees. 

686 PMI MORTGAGE INSURANCE v. AMERICAN INT’L SPECIALTY
OPINION

CUDAHY, Circuit Judge:

I. BACKGROUND

PMI is a large financial institution that sells, among other

things, mortgage guaranty insurance to residential mortgage

lenders who provide loans to homebuyers considered to be at

risk of defaulting on their mortgages. This insurance covers

a lender for losses incurred when a borrower defaults on the

repayment of a mortgage loan and the collateral is not sufficient to make the lender whole. PMI also offers its lender clients underwriting services, claims services, policy

administration services, loan underwriting, loss mitigation,

pool insurance and captive reinsurance. 

In December 1999, a putative class of plaintiffs who had

obtained mortgage insurance through PMI’s lender clients

sued PMI in the Southern District of Georgia (The Baynham

action). The Third Amended Class Complaint alleged that

PMI was undercharging its lender clients for various insurance products and services in exchange for customer referrals

on mortgage insurance. Since the lender clients had not

passed these savings on to their customers, plaintiffs claimed

that this scheme violated the anti-kickback provisions of the

Real Estate Settlement Procedures Act (RESPA).

The Baynham complaint also alleged that “[n]one of the

loan documents or disclosures given to the borrower[s] disclose[s] that part of the charges paid by borrowers are compensation to the Defendant [PMI] for the discounts accorded

to the lenders on its various products and services, nor disclose the tainted nature of Defendant’s relationship with the

lender,” also in violation of RESPA.1 While PMI was for1Section 2607 of RESPA prohibits the transfer of a “fee, kickback, or

thing of value” in exchange for referrals in connection with real estate settlement services, unless the fee or “thing of value” is given for bona fide

services actually performed and this fee-for-services arrangement is fully

disclosed. 12 U.S.C. § 2607. 

PMI MORTGAGE INSURANCE v. AMERICAN INT’L SPECIALTY 687
mally charged only with violating RESPA’s anti-kickback

provisions, the complaint also asserts that PMI “acted in concert with its lenders to violate . . . [the] duty to disclose.” The

Baynham lawsuit was settled in June 2001 for $10 million.

When the Baynham action arose, PMI held a Financial

Institution Professional Liability Insurance Policy issued by

American International Specialty Lines Insurance Company

(AISLIC), which required AISLIC to pay PMI up to $10 million for any loss covered by the policy. PMI had also purchased layers of excess coverage from Columbia Casualty

Company (Columbia) and Federal Insurance Company (Federal), which obligate these insurers to cover PMI on terms

identical to those of the AISLIC policy once the limits of

AISLIC liability have been exhausted. These excess policies

provide that Columbia will pay 30% and Federal will pay

40% of any losses between $10 million and $20 million.2

The AISLIC insurance policy provides that AISLIC (and

hence Columbia and Federal as well) will indemnify PMI for

“the Loss of the Insured arising from a Claim . . . for any

actual or alleged Wrongful Act of any Insured in the rendering or failure to render Professional Services.” (Emphasis

added.) The policy defines “Wrongful Act” as “any act, error

or omission in the rendering of or failure to render Professional Services.” The policy defines “Professional Services”

as follows: 

[T]hose services of the Company permitted by law

or regulation rendered by an Insured . . . pursuant to

an agreement with the customer or client as long as

such service is rendered for or on behalf of a customer or client of the Company: (i) in return for a

2As PMI notes, a third insurer, Reliance, also issued PMI an excess coverage policy and was to cover the final 30% of all losses between $10 million and $20 million. However, Reliance has since become insolvent and

thus is not a party to this case. 

688 PMI MORTGAGE INSURANCE v. AMERICAN INT’L SPECIALTY
fee, commission or other compensation . . . or (ii)

without Compensation as long as such noncompensated services are rendered in conjunction

with services rendered for Compensation. 

On April 15, 2002, PMI filed a breach of contract and

declaratory relief action against AISLIC, Federal and Columbia (the Insurers) alleging that the losses incurred in the Baynham action were covered by the Professional Liability policy

issued by AISLIC and, thus, that the Insurers had a legal duty

to indemnify PMI for its losses.3 AISLIC denied that PMI’s

losses arose from the rendering of professional services as

required by the policy, and it made a counterclaim seeking

repayment of legal defense costs it had previously advanced

to PMI (totaling some $1.4 million). 

Both parties moved for summary judgment on the question

whether PMI’s alleged violations of RESPA in the Baynham

action were “Wrongful Acts” committed “in the rendering of

. . . Professional Services” as required by the AISLIC policy.

In its December 16, 2002 Order, the district court granted

AISLIC summary judgment, ruling that PMI’s actions giving

rise to the Baynham action were fundamentally administrative

and thus did not constitute professional malpractice or involve

the rendering of “Professional Services” as required by the

insurance policy. See PMI Mortgage Ins. Co. v. Am. Int’l Specialty Lines Ins. Co., No. C-02-1774, 2002 WL 32065867

(N.D. Cal. Dec. 16, 2002)

On March 19, 2003, the district court dismissed PMI’s

complaint with prejudice and entered judgment in favor of

AISLIC in the amount of $1.445 million. PMI timely filed a

Notice of Appeal from the judgment on April 10, 2003. 

3Since PMI’s total losses in connection with the Baynham suit exceeded

$10 million, PMI alleged that Columbia and Federal each had a duty to

indemnify PMI as well. 

PMI MORTGAGE INSURANCE v. AMERICAN INT’L SPECIALTY 689
On May 19, 2003, the district court entered summary judgment in favor of Columbia and Federal as well, dismissing

PMI’s complaint against both parties with prejudice. On May

21, 2003, PMI filed an appeal from the judgment in favor of

Columbia and Federal, as well as an appeal from the earlier

judgment in favor of AISLIC. On June 9, 2003, this Court

granted PMI’s motion to consolidate these appeals. This

Court is now called upon to review the district court’s grants

of summary judgment in favor of AISLIC, Columbia and Federal. 

II. JURISDICTION AND STANDARD OF REVIEW

We have jurisdiction over these consolidated appeals pursuant to 28 U.S.C. § 1291, which provides for appellate

review of final orders issued by the district courts, including

grants of summary judgment. Rulings on motions for summary judgment are reviewed de novo. Suzuki Motor Corp. v.

Consumers Union of the United States, Inc., 330 F.3d 1127,

1131 (9th Cir.), cert. denied, 540 U.S. 983 (2003); King Jewelry, Inc. v. Fed. Express Corp., 316 F.3d 961, 963 (9th Cir.

2003). Summary judgment should be granted when “there is

no genuine issue as to any material fact” and “the moving

party is entitled to a judgment as a matter of law.” Fed. R.

Civ. P. 56(c); see also Anderson v. Liberty Lobby, Inc., 477

U.S. 242, 255 (1986). 

III. DISCUSSION

The sole question before us is whether PMI’s alleged violations of RESPA, as presented in the Baynham action, were

“Wrongful Acts” committed “in the rendering of . . . Professional Services” under the AISLIC policy. The district court

answered this query in the negative, granting the Insurers’

motion for summary judgment. Having reviewed both the text

of the contested policy and the relevant case law, we are convinced that this disposition was erroneous. The plain language

of the PMI policy and the basic principles of insurance policy

690 PMI MORTGAGE INSURANCE v. AMERICAN INT’L SPECIALTY
interpretation under California law support a finding of coverage, and the implications of prevailing case law on professional malpractice policies — while interesting but only

indirectly relevant — do not compel a contrary result. Additionally, the fact that the Baynham claim alleges a RESPA

violation, while not determinative, bolsters this conclusion.

We therefore reverse. 

A. Interpretation of the Policy Text

[1] In resolving this constructional dispute, the lodestar of

our analysis must be the mutual intent of the parties as

expressed in the provisions of the insurance policy itself.

Under California law, which governs this diversity action,

courts must construe insurance policy terms so as to give

effect to the “mutual intention” of the parties at the time the

policy was issued, and this intent should be inferred, to the

extent possible, “solely from the written provisions of the

[policy] contract.” MacKinnon v. Truck Ins. Exch., 73 P.3d

1205, 1212-13 (Cal. 2003) (emphasis added) (internal quotation marks omitted); see also Bank of the W. v. Superior

Court, 833 P.2d 545, 551-52 (Cal. 1992) (same); AIU Ins. Co.

v. Superior Court, 799 P.2d 1253, 1264 (Cal. 1990) (same).

Neither party disputes the applicability of this basic directive

to the instant case. Accordingly, we begin our inquiry with a

consideration of the policy text itself, mindful that the insured

party generally bears the initial burden of demonstrating that

the claim is “within the basic scope of coverage.” Waller v.

Truck Ins. Exch., Inc., 900 P.2d 619, 625 (Cal. 1995) (internal

quotation marks omitted). 

[2] Turning then to the policy language at issue, the PMI

policy defines “Professional Services” simply as “those services of the Company permitted by law or regulation rendered

by an Insured . . . pursuant to an agreement with the customer

or client.” (Emphasis added.) From a strictly textualist perspective, PMI’s alleged kickback scheme and the resulting

Baynham action clearly fall within this broad provision, as

PMI MORTGAGE INSURANCE v. AMERICAN INT’L SPECIALTY 691
they resulted directly from PMI’s provision of mortgage

insurance “services” under various (allegedly improper)

“agreements” with lender “clients.” The plain meaning of the

policy language thus does encompass PMI’s alleged misconduct.4

[3] Of course, one could argue that it may not be appropriate to take this broad policy language at face value. While the

bare text of the policy ostensibly covers all “services” rendered “pursuant to an agreement” with a customer or client,

the policy’s use of the term “Professional Services” (as

opposed to merely “services”) does invoke a traditional professional malpractice vocabulary, and the policy is actually

titled “Financial Institution Professional Liability Insurance

Policy.” (Emphasis added.) But even assuming, arguendo,

that these considerations bear on this case, California law

instructs that such interpretive quandaries be resolved in favor

of the insured and against the insurer. The California Supreme

Court has consistently held that insurance policies are to be

“interpreted broadly so as to afford the greatest possible protection to the insured.”

5 MacKinnon, 73 P.3d at 1213 (internal

4

Insurers note that “ambiguous language is construed against the party

who caused the uncertainty to exist.” See AIU Ins. Co. v. Superior Court,

799 P.2d 1253, 1264 (Cal. 1990). Yet even conceding that this principle

applies here, it actually cuts against the Insurers. The Insurers drafted the

policy, and so to the extent that it is found to be ambiguous, responsibility

for the ambiguity lies with them, not with PMI. 

5PMI cites another passage from MacKinnon which states the rule governing exclusionary terms: 

[W]e are not required . . . to select one “correct” interpretation

from the variety of suggested readings. . . . [W]e need not determine that the two interpretations proposed by the insurer are not

possible, or even reasonable, interpretations of the clause in question. . . . Instead, even assuming that the insurer’s suggestions are

reasonable interpretations which would bar recovery by the

claimants, we must nonetheless . . . find[ ] . . . coverage so long

as there is any other reasonable interpretation under which recovery would be permitted in the instant cases. 

692 PMI MORTGAGE INSURANCE v. AMERICAN INT’L SPECIALTY
quotation marks omitted); see also White v. W. Title Ins. Co.,

710 P.2d 309, 313 (Cal. 1985) (“Any ambiguity or uncertainty

in an insurance policy is to be resolved against the insurer

. . . .” ) (internal quotation marks omitted). The California

Supreme Court has explained this constructional policy as follows: “The purpose of this canon of construction is to protect

the insured’s reasonable expectation of coverage in a situation

in which the insurer-draftsman controls the language of the

policy.” Id. at 313.6

[4] The plain meaning of the policy text and the applicable

canons of construction under California law thus point us in

the same direction — they both militate in favor of finding

coverage for PMI.

MacKinnon, 73 P.2d at 1218 (internal quotation marks omitted). PMI

seems to rely on this passage for its arguments about California interpretive rules, but this reliance is misplaced. This passage in MacKinnon

addresses exclusionary clauses specifically. While the prevailing rule as to

ordinary coverage provisions also favors the insured over the insurer, it is

substantially less stringent than the rule cited here, which is specific to

exclusionary clauses. 

6This interpretive approach applies with special force when the insurance company’s duty to defend the insured against a lawsuit is at issue.

A federal district court applying California law has recently ruled that

“ ‘[u]nder California law, the duty to defend is so broad that as long as the

complaint contains language creating the potential of liability under an

insurance policy, the insurer must defend an action against its insured.’ ”

Horizon W., Inc. v. St. Paul Fire & Marine Ins. Co., 214 F. Supp. 2d 1074,

1076 (E.D. Cal. 2002) (quoting Zurich Ins. Co. v. Killer Music, Inc., 998

F.2d 674, 678 (9th Cir. 1993)). Under this rule “[a]ny doubt as to whether

the facts give rise to a duty to defend is resolved in the insured’s favor”

such that, an insured seeking legal defense coverage “need only show that

the underlying claim may fall within policy coverage.” Id. (internal quotations marks omitted). 

PMI MORTGAGE INSURANCE v. AMERICAN INT’L SPECIALTY 693
B. The Case Law on Professional Malpractice 

Insurance

Since our primary analytical considerations under California law — the plain language of the PMI policy and the canons of interpretation applicable to insurance policy contracts

— both demand a finding of coverage, we need proceed no

further. However, since the district court ultimately arrived at

the opposite conclusion via a different analysis, it is appropriate to address the disposition below on its own terms.

[5] Confronted with the PMI policy’s strikingly broad definition of “Professional Services,” the district court turned to

leading judicial constructions of that term in traditional professional malpractice policies. 2002 WL 32065867, at *1. The

most authoritative construction of the term “professional services” as used in the malpractice insurance setting was made

by the Ninth Circuit in Bank of California, N.A. v. Opie: 

“Something more than an act flowing from mere

employment or vocation is essential. . . . A ‘professional’ act or service is one arising out of a vocation,

calling, occupation, or employment involving specialized knowledge, labor, or skill, and the labor or

skill involved is predominantly mental or intellectual, rather than physical or manual . . . . In determining whether a particular act is of a professional

nature or a ‘professional service’ we must look not

to the title or character of the party performing the

act, but to the act itself.” 

663 F.2d 977, 981 (9th Cir. 1981) (quoting Marx v. Hartford

Accident & Indem. Co., 157 N.W.2d 870, 871-72 (Neb.

1968)). To be considered a “professional service” for insurance purposes, a liability “must arise out of the special risks

inherent in the practice of the profession.” Id. This standard

has been cited with approval by several courts across the

country, including a California federal district court applying

694 PMI MORTGAGE INSURANCE v. AMERICAN INT’L SPECIALTY
California law. See, e.g., Pac. Ins. Co. v. Burnet Title, Inc.,

380 F.3d 1061, 1064-65 (8th Cir. 2004) (applying a similar

standard); Med. Records Assocs., Inc. v. Am. Empire Surplus

Lines Ins. Co., 142 F.3d 512, 514 (1st Cir. 1998) (applying

the same standard); Horizon W., Inc. v. St. Paul Fire &

Marine Ins. Co., 214 F. Supp. 2d 1074, 1078 (E.D. Cal. 2002)

(applying California law and adopting the Opie standard). 

[6] In keeping with this general rule, California state courts

have uniformly held that insurance policies covering “professional services” reach only those acts committed by the

insured in his or her capacity as a professional — they do not

cover general administrative activities that occur in all types

of businesses. For example, Inglewood Radiology Medical

Group, Inc. v. Hospital Shared Services, Inc., held that professional malpractice insurance does not cover a lawsuit concerning a physician’s decision to fire an employee, even

though the physician’s professional medical knowledge was

required to make employment evaluations. 266 Cal. Rptr. 501,

503 (Ct. App. 1989) (“[T]he decision to terminate employment is a business or administrative decision. In making such

a decision, the physician is acting as an employer and not as

a ‘physician rendering services.’ ”). Similarly, Blumberg v.

Guarantee Insurance Co. held that professional malpractice

insurance does not cover a lawsuit between attorneys over an

alleged breach of their partnership agreement since, in bringing the suit, the plaintiff was acting in his capacity as a law

partner, not as an attorney rendering services. 238 Cal. Rptr.

36, 39 (Ct. App. 1987). TransAmerica Insurance Co. v. Sayble held that professional malpractice insurance did not cover

litigation expenses arising from an attorney’s alleged mismanagement of a law firm. 239 Cal. Rptr. 201, 205 (Ct. App.

1987). Since the case was held to concern essentially a business dispute, it did not implicate the defendant’s professional

activities as an attorney. At least one California court has held

that, in such cases, the dispositive question is whether the

alleged injuries occurred “during the performance of profesPMI MORTGAGE INSURANCE v. AMERICAN INT’L SPECIALTY 695
sional services.” Tradewinds Escrow, Inc. v. Truck Ins. Exch.,

118 Cal. Rptr. 2d 561, 568 (Ct. App. 2002). 

In applying these precedents to the case at bar, the district

court characterized PMI’s alleged kickback scheme and disclosure failures as a “[b]illing” matter involving “undercharging its clients for . . . products and services.” 2002 WL

32065867, at *2. It cites Medical Records for the proposition

that “the bill is an effect of the service provided, not part of

the service itself.” 142 F.3d at 516. Insurers also cite several

cases that establish the general proposition that “claims

regarding the amount of fees charged for professional services

are not covered under professional liability policies.”

7

 This

conclusion, anchored in an unqualified analogy between the

PMI policy and traditional professional malpractice policies,

is flawed. 

[7] It should be observed, first, that PMI is a major financial institution whose core lines of business include, among

other things, the sale of mortgage insurance. PMI is not

engaged in one of the traditional “professions” as that term is

commonly understood, and it does not render the physical or

intellectual acts of service one commonly associates with doctors or lawyers. Additionally, it is important to note that the

PMI policy language is significantly broader than the language at issue in any of the aforementioned professional malpractice insurance cases. The professional malpractice

7

In addition to Medical Records, 142 F.3d at 515-16 (“we fail to see

how setting a price for photocopies and producing accurate invoices are

other than generic business practices”), Insurers also cite Cohen v. Empire

Casualty Co., where the Colorado Supreme Court held that one attorney’s

failure to pay another for services rendered was not covered by a professional liability policy. 771 P.2d 29 (Colo. Ct. App. 1989). Insurers also

cite National Union Fire Ins. Co. v. Shane & Shane Co., in which an Ohio

appeals court ruled that an attorney’s alleged overcharging of a personal

injury client, beyond what was provided for in his contingency fee contract, was also not covered by the attorney’s professional liability policy.

605 N.E.2d 1325 (Ohio Ct. App. 1992). 

696 PMI MORTGAGE INSURANCE v. AMERICAN INT’L SPECIALTY
policies in virtually all of those cases define “professional services” narrowly, explicitly limiting coverage to acts performed by the insured in its professional capacity. See, e.g.,

Johnson v. First State Ins. Co., 33 Cal. Rptr. 2d 163, 165 (Ct.

App. 1994) (“Professional Services” defined as “all services

rendered or which should have been rendered for others: 1. by

the Insured in the Insured’s capacity as a lawyer, notary

administrator of an estate . . . .”) (emphasis added); Sayble,

239 Cal. Rptr. at 203 n.2 (“Professional Services” defined as

“all services rendered or which should have been rendered for

others: 1. By the Insured in the Insured’s capacity as a lawyer

. . . .” ) (underscore emphasis added); Inglewood Radiology,

266 Cal. Rptr. at 502 (“professional services” defined as those

“services performed in the practice of the profession of a physician”) (emphasis added); Blumberg, 238 Cal. Rptr. at 37

(policy covers claims “arising out of . . . any acts or omissions

of the Insured in rendering or failing to render professional

services for others . . . in the Insured’s capacity as a lawyer”)

(emphasis in original). The PMI policy does not contain any

such explicit restriction and thus is distinguishable from the

policies analyzed in these cases. A policy that uses the buzzwords “professional services,” but then proceeds to define

them more broadly than most standard malpractice policies,

should certainly be read differently than policies containing

narrower language. 

But even to the extent that the aforementioned “malpractice” precedents are indirectly relevant here — PMI’s core

business does, after all, involve “specialized knowledge” and

expertise — it is not clear that they favor the Insurers. PMI

was acting in its professional capacity as a mortgage lender,

and within the context of its specialized relationships with its

lender-clients, when the alleged improper conduct occurred.

While the kickback scheme at issue does involve the valuation or pricing of services, PMI has not been charged merely

with sending customers inflated invoices. It has been accused

of participating in an ongoing collusive scheme under which

it received customer referrals in exchange for undercharging

PMI MORTGAGE INSURANCE v. AMERICAN INT’L SPECIALTY 697
lender clients for its services. And while PMI was not formally charged with disclosure violations under RESPA, the

Baynham plaintiffs alleged that PMI “acted in concert with its

lenders to violate Regulation X [of RESPA] which specifically imposes a duty to disclose . . . the nature of the relationship between the lender and a required service provider.”

8

This alleged kickback scheme goes to the heart of PMI’s business. It implicates the way in which it finds and serves its customers, the business opportunities that it enjoys and the

network of professional relationships through which it operates.9

This alleged behavior is a far cry from more conventional

administrative “pricing” decisions or improper “billing” practices. 

[8] In short, even assuming, arguendo, that we may look

beyond the text of the PMI policy in resolving this case,

Insurers find little support in California case law on professional malpractice policies, which apply narrower policy language to professional conduct fundamentally different from

that at issue here. The district court’s invocation of these precedents to characterize PMI’s alleged kickback scheme as

merely an administrative or “billing” matter was erroneous. 

8

It bears repeating that such alleged misconduct is sufficient to trigger

coverage under the policy, which indemnified PMI for losses “arising

from a Claim . . . for any actual or alleged Wrongful Act of any Insured

in the rendering or failure to render Professional services.” (Emphasis

added.) 

9While we agree that an elaborate kickback scheme such as the one

alleged here is fundamentally different from merely issuing inflated

invoices, we disagree with PMI’s broader assertion that the issue of valuation can never be separated from the rendering of insurance services. Several courts have convincingly distinguished between billing practices and

professional services in other industries, and we see no reason why this

distinction might not apply to the insurance industry under a different set

of facts. 

698 PMI MORTGAGE INSURANCE v. AMERICAN INT’L SPECIALTY
C. The Implications of RESPA

[9] One additional factor militates in favor of finding coverage in this case — the fact that the losses at issue stem from

a claim under the Real Estate Settlement Procedures Act

(RESPA). Section 2607 of RESPA places certain requirements on parties who make referrals or provide certain services in connection with real estate transactions. 12 U.S.C.

§ 2607(c). Among other things, RESPA requires that parties

making referrals disclose their relationship with the entity

receiving the referral, and that parties involved in real estate

transactions price their services properly. Id. Entities involved

in real estate transactions can be exposed to liability under

RESPA for failure to meet these requirements, even if such

failure is innocent or unintentional. Id. To invoke the terminology of the Opie court, RESPA’s liability provisions

undoubtedly represent one of the “special risks inherent in the

practice of” the mortgage insurance business or profession.

See Opie, 663 F.3d at 981. 

Insurers challenge the notion that professional liability policies must be interpreted to cover RESPA claims, and the district court asserts that the mere fact of federal regulation

cannot transform all activities in a regulated industry into

insurable “professional services.” 2002 WL 32065867, at *2.

PMI counters by claiming that “RESPA uniquely applies to

those in the residential real estate business, requires specific

actions and uniquely exposes such a business to possible suit,

however unfounded, should it fail to make all disclosures

required or should it allegedly misvalue its services.” Based

on this contention, PMI argues that, as a unique risk inherent

to its specific professional industry, RESPA suits should be

presumptively covered by general professional liability policies. PMI goes on to assert that excluding RESPA claims

from its policy coverage would both violate its expectations

in purchasing the insurance and remove one of its major motivations in seeking professional liability insurance in the first

place. 

PMI MORTGAGE INSURANCE v. AMERICAN INT’L SPECIALTY 699
This characterization might be dismissed as partisan and

self-serving except that two federal courts recently have

endorsed this very position. The first such case is Nowacki v.

Federated Realty Group, Inc., which holds that a professional

liability policy covering “any negligent act, error or omission

in the rendering or failure to render, professional services”

covers losses stemming from a RESPA action that alleged the

insured (a real estate broker) participated with a title insurance company in an illegal referral scheme. 36 F. Supp. 2d

1099, 1105 (E.D. Wis. 1999). This case is doubly on point

because it involves not only the construction of a professional

liability policy with respect to a RESPA claim, but also an

alleged illegal referral scheme and a failure to make required

disclosures. 

Insurers attempt to distinguish Nowacki by observing that

the insurance broker in that case was sued by its own clients

for misconduct in the rendering of services directly to those

clients. Yet this argument is easily dealt with. The PMI policy’s coverage does not depend on the status of the Baynham

plaintiffs, or their relationship to PMI — the policy merely

requires that losses stem from a rendering of “Professional

Services” to some “customer or client” pursuant to an “agreement.” The Baynham action resulted directly from PMI’s rendering of services to its lender clients pursuant to specific

business agreements. The exact relationship of the ultimate

plaintiffs with PMI is not relevant. 

More recently, the court in Pacific Insurance Co. v. Burnet

Title, 380 F.3d 1061 (8th Cir. 2004), likewise held that

RESPA violations fall within the ambit of professional liability policies. In Burnet Title, the court held that a class action

complaint against a real estate firm accused of overcharging

clients and failing to disclose material information in violation

of RESPA did implicate “professional services” and thus was

covered by the firm’s professional liability policy. Id. Again,

the similarities to the case at bar are striking, both in the centrality of the RESPA violation and in the specific allegations

700 PMI MORTGAGE INSURANCE v. AMERICAN INT’L SPECIALTY
of wrongful “pricing” and failure to make required disclosures. 

[10] More important for the purposes of our analysis, the

Burnet Title decision appears to turn on the presence of disclosure violations in addition to allegations of mere overcharging. The Burnet Title court distinguishes Medical

Records on this ground and states that “[t]he statutory obligation imposed upon real estate service providers to provide

accurate information in settlement statements is distinct from

the mere act of overcharging for services.” Id. at 1065. This

statement is equally pertinent to the case at bar. The Baynham

complaint makes it clear that PMI’s alleged sins are not limited to mere pricing decisions. PMI purportedly “acted in concert with its lenders” to violate disclosure duties and deceive

the Baynham plaintiffs. The Burnet Title court also observes

that, under Haug v. Bank of America, 317 F.3d 832, 838 (8th

Cir. 2003), “RESPA does not directly target overcharging, but

was intended to regulate the underlying business relationships

and procedures of real estate service providers of which the

costs are a function.” 380 F.3d at 1065 (internal quotation

marks omitted). Whatever else can be said about the alleged

kickback scheme at issue here, it certainly concerns the “business relationships and procedures of real estate service providers,” and thus implicates the core RESPA policy values

vindicated in Burnet Title. 

One superficially contrary precedent is presented by Gregg

& Valby L.L.P. v. Great American Ins. Co., 316 F. Supp. 2d

505 (S.D. Tex. 2004), which holds that claims against a lawyer alleging a fee splitting and kickback scheme in violation

of RESPA did not qualify as claims stemming from “professional services” under the lawyer’s professional malpractice

policy. The significance of this case is limited, however, since

(1) the insurance policy in Gregg featured a narrower definition of “professional services” (specifically limiting coverage

to conduct committed in the insured’s capacity as a lawyer)

than the one at issue in the PMI case, (2) the court in Gregg

PMI MORTGAGE INSURANCE v. AMERICAN INT’L SPECIALTY 701
was concerned exclusively with fee setting rather than disclosure violations or other non-pricing conduct, id. at 515 (“all

claims in the underlying suits arose out of Plaintiff’s billing

and/or fee-setting”), and (3) the insured in Gregg was a lawyer holding a typical legal malpractice insurance policy rather

than a mortgage insurer holding a more general professional

services policy, with a consequent difference in expectations.

The presence of a RESPA claim implicates the legitimate

expectations of a mortgage insurer in purchasing professional

liability insurance to a far greater extent than it would implicate the expectations of a lawyer purchasing malpractice

insurance. While a mortgage insurer probably sees RESPA

claims as one of the paradigmatic liabilities to be covered by

the insurance, a lawyer has a very different core set of potential liabilities in mind. In short, Gregg’s ultimate implications

for the case at bar are little different than the other professional malpractice insurance cases discussed above, notwithstanding the fact that the case happens to involve a RESPA

claim. 

The presence of a RESPA claim in the instant case does not

automatically resolve the interpretive question before us. We

do not go so far as to espouse a general rule that all professional liability policies presumptively cover damages arising

from RESPA claims. Nonetheless, the fact that the Baynham

action presented a RESPA claim adds support to PMI’s contention that its losses should be covered. While the jurisprudence on this point is not controlling authority in this circuit,

the federal courts have shown a tendency to favor coverage

for RESPA claims under professional liability policies where,

as here, significant non-billing conduct is at issue. Moreover,

the centrality of RESPA to the real estate industry in general

(and the mortgage insurance industry in particular) supports

PMI’s claim as to its expectations in purchasing the insurance,

and it suggests that, at least in this case, given the otherwise

broad language of the PMI policy, any exclusion of RESPA

claims from coverage should have been explicitly articulated.

This pro-coverage bias seems all the more appropriate in the

702 PMI MORTGAGE INSURANCE v. AMERICAN INT’L SPECIALTY
instant case since it is in line with California’s general policy

of interpreting all policy ambiguities in favor of the insured.

IV. CONCLUSION

The plain text of the PMI policy and the basic principles of

insurance policy interpretation under California law support a

finding of coverage; and the implications of prevailing case

law on professional malpractice policies — while only indirectly relevant — do not compel a contrary result. We therefore hold that PMI’s losses stemming from the Baynham

action are covered by the policy as arising from alleged

Wrongful Acts in the rendering of Professional Services as

those terms are defined in the policy. The fact that the Baynham claim alleges a RESPA violation, while not determinative, bolsters this conclusion. The rulings of the district court

are therefore REVERSED and the case REMANDED with

instructions to enter summary judgment in favor of PMI. 

PMI MORTGAGE INSURANCE v. AMERICAN INT’L SPECIALTY 703