You have been working with a client on “mindset blocks.” Gradually, the conversation shifts to their childhood trauma and chronic insomnia. You suggest exposure techniques you read about. The client has a breakdown, is hospitalized, and reports you to the state board for “practicing psychology without a license.” You receive a cease-and-desist and a lawsuit.
Key Takeaways
- The Exclusion that Kills Claims: Every coach policy has an exclusion for “Services Outside Scope of License.” If the state board rules you were practicing therapy, your insurance coverage is void.
- State Laws vary: In 2026, many states have tightened the definition of “mental health counseling.” What was “coaching” in 2020 might be “therapy” now.
- Defense Costs Limitation: Some policies will pay for your defense until a court rules you broke the law. Once guilt is established, they stop paying and may demand reimbursement.
- Referral is Protection: Failure to refer a spiraling client is a key negligence indicator.
The “Why” (The Trap): The Medical Services Exclusion
I read the fine print of a popular “Life Coach” insurance plan. Under “Exclusions,” it lists: “Medical, Nursing, or Psychotherapy Services.”
The trap is that you don’t get to define what those are—the State Board does. If you are analyzing the past to fix the present (therapy) rather than strategizing the present to fix the future (coaching), you are in the danger zone. If you cross that line, you are effectively uninsured.
[IMAGE: Graphic showing a Venn diagram of ‘Coaching’ vs ‘Therapy’ with ‘Danger Zone’ overlap highlighted]
The Investigation: Defining the Boundary
I looked at how carriers handle claims where scope is questioned.
1. Philadelphia Insurance Companies (PHLY)
- My Analysis: They offer broad professional liability for non-profits and counselors.
- The Verdict: Strict. If you aren’t licensed, do not touch trauma.
2. Alternative Balance
- My Analysis: Cater to holistic workers.
- The “Energy Work” Loophole: Sometimes, framing the work as “Energy Balancing” or “Reiki” (if certified) is safer than “Trauma Coaching,” as the scope is different. But it’s risky.
3. CPH & Associates
- My Analysis: They offer “Life Coach” specific policies.
- The Protection: They provide a “License Defense” benefit (usually $25k) to help you fight the State Board investigation itself, not just the lawsuit.
Comparison Table: Scope & Defense
| Feature | Standard Coach Policy | Mental Health Policy (CPH/HPSO) |
| Negligence Defense | Yes | Yes |
| License Board Defense | No (Usually) | Yes ( 5k−5k− 35k) |
| Trauma Work Covered? | No (High risk) | Only if Licensed |
Step-by-Step Action Plan
- Audit Your Website Keywords: Remove “Trauma,” “Heal,” “Depression,” “Anxiety,” and “PTSD.” Replace with “Goals,” “Blocks,” “Stress,” and “Future.”
- The “Scope Statement” in Contract: Your contract must say: “I do not diagnose or treat mental illness. If you are in distress, please contact a physician.”
- Establish a Referral Network: Have 3 therapists on speed dial. If a client cries about the past for 2 sessions in a row, refer them out.
- Buy License Defense Coverage: Even if you are unlicensed, the state can investigate you. You need insurance that pays for the lawyer to handle that investigation.
FAQ Section
Can I call myself a ‘Trauma-Informed Coach’?
It’s a marketing term, not a legal one. It flags you to investigators. If you use it, be 100% sure you are not “treating” the trauma.
What if the client asked me to help with depression?
Consent doesn’t override the law. A client cannot consent to illegal medical practice. You are still liable.
Does certification protect me?
Certification (ICF, etc.) is voluntary. It is not a license. It helps show you have training, but it doesn’t grant legal authority to treat illness.