You are a licensed therapist in California. Your long-term client moved to Texas but wanted to keep seeing you via Zoom. You agreed. After a crisis, the client’s family in Texas files a complaint with the Texas board. You are now facing an investigation for practicing without a license in Texas, and your California malpractice insurer is shaking their head.
Key Takeaways
- Licensure is Location-Based: You must be licensed where the client is standing (Texas), not just where you are sitting (California).
- The “Illegal Acts” Exclusion: Insurance covers negligence. It does not cover illegal activity. Practicing without a license is a crime/misdemeanor in many states, potentially voiding coverage.
- PSYPACT: In 2026, many psychologists are in PSYPACT (an interstate compact). If you aren’t in it, you are exposed.
- Defense vs. Indemnity: The insurer might defend you against the malpractice claim but refuse to pay the fines for unlicensed practice.
The “Why” (The Trap): The Territory/License Clause
I reviewed the “Conditions” of a malpractice policy.
It states: “Coverage applies only to Professional Services rendered… provided the Insured is licensed/certified in the jurisdiction where services are performed.”
If you are not licensed in Texas, you are technically not performing “Professional Services” under the policy definition; you are performing “Unlicensed Activity.” This is the trap. The insurer can deny the claim entirely.
The Investigation: Cross-State Coverage
I compared how carriers handle the Telehealth boom.
1. The Doctor’s Company / CPH
- My Analysis: They are strict. They rely on your license.
- The Solution: They offer “Portable Coverage” if you have a license in the new state or are registered under a temporary COVID-era (or 2026 equivalent) waiver.
2. HPSO
- My Analysis: They cover “Telemedicine” but usually defer to state law. If the state says it’s illegal, HPSO says it’s uncovered.
3. PSYPACT Membership
- My Analysis: This is the gold standard in 2026. If you are a psychologist in this compact, your insurance follows you to 40+ states automatically.
Comparison Table: Telehealth Risk
| Scenario | Insurance Status | Legal Status |
| Client in Home State | Covered | Legal |
| Client on Vacation (Temp) | Gray Area (Check policy) | Usually OK (check laws) |
| Client Moved (Permanent) | Denied (Unless licensed there) | Illegal (Unlicensed practice) |
[IMAGE: Map of the US highlighting ‘PSYPACT’ participating states in 2026]
Step-by-Step Action Plan
- Verify Client Location: At the start of every Zoom call, ask: “Where are you physically located right now?” Document it.
- Join Compacts: If you are a Counselor (Counseling Compact) or Psychologist (PSYPACT), join immediately. It solves the license issue.
- Check “Telehealth” Endorsement: Ensure your policy specifically lists Telehealth as a covered service.
- Transition Plan: If a client moves to a non-compact state, you must refer them out. Keeping them is a liability time bomb.
FAQ Section
What if they are just on vacation for a week?
Most states allow a temporary window (10-30 days) per year. Check the laws of the destination state.
Does this apply to Coaching?
No. Coaching is not a licensed profession (yet). You can coach across state lines freely, provided you aren’t doing “Therapy.”
Will insurance pay the licensing board fine?
Usually no. They defend the lawsuit; you pay the administrative fines.