(Article from Insurance Law Alert, October 2026)
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Holding
The Alabama Supreme Court affirmed judgment for a general liability insurer, holding that a professional services exclusion barred coverage for claims alleging bodily injury arising out of a pharmacy’s error in compounding medication, including claims pleaded under product liability theories. The court also held that the insured’s failure to read policy exclusions constituted contributory negligence as a matter of law, defeating its negligent-failure-to-procure claim against its insurance agent. OMS Pharm., Inc. v. Nationwide Prop. & Cas. Ins. Co., 2026 Ala. LEXIS 88 (Ala. Oct. 9, 2026).
Background
This coverage dispute arose from a $4.75 million consent judgment against OMS Pharmacy, Inc. in favor of a customer injured after receiving improperly compounded prescription medication. The customer had sued OMS and its pharmacist owner for negligence, wantonness, product liability, liability under the Alabama “extended manufacturer’s liability” doctrine, breach of warranty, and failure to warn.
OMS’s general liability insurer, Nationwide Property and Casualty Insurance Company, declined to defend based on a professional services exclusion barring coverage for bodily injury “that arises out of or is a result of the rendering of, or failure to render, any professional service, treatment, advice or instruction,” expressly including “service . . . in the practice of pharmacy.”
OMS sued Nationwide for breach of contract and bad faith, and also asserted claims against its insurance agent for negligent and wanton failure to procure appropriate coverage. OMS alleged that the agent had been instructed to obtain coverage comparable to its prior Zurich policy, which, unlike the Nationwide policy, contained an exception to its professional services exclusion for certain pharmacological services. The injured customer intervened, seeking payment of the judgment by Nationwide. The trial court granted summary judgment to Nationwide and the agent.
Decision
The Alabama Supreme Court affirmed.
First, the court held that the professional services exclusion unambiguously barred coverage for all claims arising from the compounding error. Although the policy does not define “professional services,” the exclusion expressly excludes coverage for bodily injury arising out of “service . . . in the practice of pharmacy.” The court rejected the argument that the error was merely a pharmacy technician’s clerical mistake in entering a formula into a computer rather than a “professional service,” observing that a pharmacist has a professional responsibility to ensure that medication is correctly compounded and that compounding requires specialized professional skill and is subject to statutory regulation.
The court also rejected the contention that the professional services exclusion did not apply to the product liability claims because those claims concerned the sale of a defective product rather than performance of a professional service. Distinguishing decisions involving the sale or distribution of off-the-shelf products, the court emphasized that OMS had compounded the medication specifically to fill the customer’s prescription. Moreover, the court found that the exclusion’s “arises out of” language is broad and unambiguous, encompassing all claims for bodily injury arising from the rendering of a professional service, “regardless of the claimant’s theory of recovery.” Because all of the customer’s claims originated in OMS’s compounding error, the exclusion applied to each of them.
Second, the court held that OMS’s negligent procurement claim against its insurance agent was barred by contributory negligence. Although OMS had requested that the agent procure coverage comparable to its prior Zurich policy that provided coverage for certain pharmacological services, OMS’s owner acknowledged that he received the Nationwide policy but never read the exclusions. The court reasoned that reviewing the policy would have revealed that services in the practice of pharmacy are expressly excluded, putting OMS on notice that the replacement policy did not afford the same coverage as the Zurich policy. The court concluded that OMS’s failure to review the Nationwide policy constituted contributory negligence as a matter of law.
Comments
The decision illustrates the potentially broad reach under Alabama law of exclusions applying to injuries “arising out of” specified conduct. Such language may encompass claims based on different theories of liability where the underlying injury arises from the excluded conduct. Here, the court held that a professional services exclusion barred all claims arising from a pharmacy’s compounding error, including product liability claims, regardless of whether those claims independently required proof of professional negligence. The court nevertheless distinguished claims involving the sale or distribution of off-the-shelf commercial products from those arising out of the rendering of professional services.
The decision also underscores the consequences of an insured’s failure to review its policy, which the Alabama Supreme Court held defeated a negligent procurement claim as a matter of law, despite the insured purportedly having specifically requested coverage that the agent did not obtain. The ruling thus enforced the policy’s written terms rather than the insured’s expectations concerning the coverage it had instructed its agent to procure.