The Alabama Supreme Court recently addressed the scope of a professional services exclusion in OMS Pharmacy, Inc., d/b/a/ The Pharmacy at Midtown; and Hannah D. Browne v. Nationwide Property and Casualty Insurance Company; Baldo-Downs Insurance, LLC; and Roger Downs, Inc., SC-2025-0165, SC-2026-0437 (pending formal revision for publication). Specifically, the Court considered whether the exclusion applied to claims arising from the improper compounding and subsequent sale of prescription medication. The Court held that the term “professional services,” although undefined in the policy, was unambiguous and that the exclusion’s “arises out of” language encompassed the products liability claim because the sale originated from the performance of professional services. Id. at 22.

The coverage dispute arose from an underlying negligence and products liability action involving a prescription medication improperly compounded by an OMS pharmacy technician. The customer allegedly sustained injuries after ingesting the medication, and the underlying litigation resulted in a $4,750,000 consent judgment against OMS. Id. at 2. Following Nationwide’s denial of defense and indemnity coverage, OMS filed suit against Nationwide, asserting claims for breach of contract and bad faith. Nationwide moved for summary judgment, arguing that the damages sought in the underlying suit were excluded under the professional services exclusion of its business liability policy. Id.at 8. The trial court granted summary judgment in Nationwide’s favor, and OMS appealed, arguing that (1) the improper compounding did not fall within the professional services exclusion and (2) the sale of a product did not constitute a “professional service” within the meaning of the exclusion. Id. at 13, 19. The exclusion provided, in relevant part: “This insurance, including any duty we have to defend ‘suits’ does not apply to … ‘bodily injury’ or ‘property damage’ that arises out of or is a result of the rendering of, or failure to render, any professional service ….” Id. at 12.

The Court first considered whether the compounding of a prescription medication constituted a “professional service” within the meaning of the exclusion. Although the policy did not expressly define the term, the Court concluded it was not ambiguous. In reaching the conclusion, the Court explained that 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.” Id. at 14. The Court took special notice of the fact that, while not expressly defined, the practice of pharmacy was included within the meaning of “professional services” within the policy. Id. at 15.

The Court further considered other factors, including that the profession of pharmacy was statutorily regulated in Alabama, that compounding was a traditional component of the practice of pharmacy, and that compounding may only be performed by or under the supervision of a licensed pharmacist. Id. at 16-17. The Court further reasoned that the compounding was a professional service because it was performed in direct response to the customer’s request that OMS fill her prescription. Id. at 18.

Finding that the compounding of a prescription constituted a professional service, the Court next turned to whether the products liability claim against OMS for the sale of the compounded prescription was also barred under the professional services exclusion. Id. at 19. OMS argued that the sale of a product was distinct from the performance of professional services and therefore fell outside the exclusion. Although the Court acknowledged authority distinguishing the sale of a medication from the provision of professional services, it found the distinction inapplicable under the circumstances presented. Unlike the sale of an existing commercial product, the medication at issue was specifically compounded through the exercise of professional knowledge and skills, rather than the sale of an existing commercial commodity. Id. at 20.

Holding that the sale of the specially compounded prescription fell within the professional services exclusion, the Court anchored its decision in its interpretation of “arises out of.” Id. at 21. The Court explained that although the language is broad, it is not ambiguous, meaning “originating from,” “growing out of,” or “flowing from” professional services. Id. Because the sale of the prescription has its origin in, grows out of, or flows from the customer’s request for a specifically compounded prescription, the Court found the products liability claim arose from the performance of professional services and therefore fell within the professional services exclusion. Id.

The Alabama Supreme Court’s decision reinforces the breadth of professional services exclusions containing “arising out of” language. Significantly, the Court recognized that an otherwise covered products liability claim may nevertheless fall within a professional services exclusion when the alleged injury originates from the performance of professional services. The decision also confirms that the absence of a policy definition does not, standing alone, render a term ambiguous. For insurers evaluating claims involving both professional services and the sale of products, the decision underscores the importance of examining the underlying conduct giving rise to the alleged injuries, rather than relying solely on the legal theories asserted.