March 16, 2020 Construction Law 101

The “Professional Services” Exclusion in a Design Professional’s Commercial General Liability Policy: Considerations for Contract Negotiations and Coverage Disputes

Sam Laurin

Most of my contract negotiations involve representing Owners who contract with Design-Builders. On occasion I have and do negotiate contracts with Architects.   One issue that used to generate discussions when negotiating with architect’s counsel or brokers was my request that the Architect indemnify the Owner.  Without fail, counsel for the Architect pushed back on the request for indemnification. For a variety of reasons, I determined years ago that there were other contract issues with Architects that were more important than pushing for indemnity. One reason is that the Owner is always getting indemnity and additional insurance coverage from the General Contractor and the General Contractor’s major Subcontractors as well.  While I stopped pushing for indemnity many years ago, I continued to ask that the Architect name the Owner as an additional insured on its commercial general liability policy (“CGL”). That request was often accepted.

Fast forward to 2017.  The AIA B101-2017 Owner Architect Agreement now has a specific provision that the Architect name the Owner as an additional insured on the Architect’s CGL.  For some reason when I saw this provision, it dawned on me that general liability policies always have some type of professional services exclusion. So do architects have general liability coverage for allegations arising out of the performance of design services?  As a result, I started asking colleagues the following question:  Why do I care if the Owner is named as additional insured on the architect’s general liability policy when the professional services exclusion exists?  As a general proposition, I never really got what I consider a clear answer to that question.  As a result I remained puzzled by this issue.

I recently  saw a summary of the  decision in Travelers Indem. Co. v. Figg Bridge Eng’rs, Inc. 389 F. Sup. 3d 1060 (S.D. Fla 2019).  The district court in Figg determined that the professional services exclusion in Figg Engineer’s CGL policy precluded coverage in the tragic bridge collapse at Florida International University.  I decided that I was going to analyze the Figg case so that I could understand how the professional services exclusion works in a design professional’s CGL policy. 

The Figg case helped clarify the issue for me.  The balance of this article will (i) briefly explain how the Figg  decision addressed the issue and (ii) explain my current view of how the professional services exclusion affects contract negotiations and those who represent design professionals seeking a defense under a CGL  policy.  The Figg case addressed whether Travelers was required to defend Figg Engineers in wrongful death and personal injury claims resulting from the bridge collapse that were asserted in the underlying complainst.  Travelers and Figg Engineers agreed that the CGL policy applied because the claims were for bodily injury. They also agreed that Figg Engineering’s CGL policy had the professional exclusions for bodily injury arising out of or the rendering or failure to render any professional services (“Exclusion”).  Lastly, Travelers and Figg Engineers agreed that if the Exclusion applied, then Travelers was not required to defend Figg Engineering.  While Figg Engineers agreed that some allegations were subject to the Exclusion, Figg Engineers argued that Travelers was required to provide a defense because other allegations were not subject to the Exclusion. 

An initial threshold issue in Figg was whether the district court could look beyond the allegations of the complaint to determine if the Exclusion precluded coverage.  Travelers took the position that the district court should look at the Figg Engineers Agreement to see how that Agreement defined Figg Engineers’ services. Travelers obviously believed that a review of the agreement supported its arguments why the Exclusion applied.  Figg Engineers took the opposite position. Figg Engineers argued that, under Florida law, a court is only allowed to review the allegations in a complaint in a coverage dispute. The district court agreed with Figg Engineering’s position.  Whether a court can review the terms of a design professional’s agreement is obviously an important issue for this coverage issue.  The answer to that question varies from state to state.   

The Exclusion stated that there was no coverage for claims “arising out of or the failure to render professional services.” The Exclusion then provided a lengthy but not exclusive list of professional services.  Figg Engineers claimed that certain allegations in the underling complaint were not covered by this exclusion. For example, one count of the underlying complaint alleged negligent failure to insure for the safety of the public. Another count alleged that Figg Engineers negligently failed to disclose to those working on the bridge of the danger of a collapse. Another count was captioned “Negligence against Figg [non-professional].   

The district court found that the “arising out of” language was broadly interpreted under Florida law. Figg Engineers cited cases (relying principally on New Jersey Court of Appeals case) that had a more restrictive view of the “arising out of” language.  Based on district court’s conclusion that “arising out of” is broadly construed, the policy’s examples of professional services were not exclusive, and under Florida law “professional services are those which require specialized skill, training or experience”, the district court ruled that Travelers was not required to defend Figg Engineers. 

What do the issues discussed in the Figg decision mean for construction lawyers?  As an initial starting point it seems likely that in any case where a design professional seeks coverage under a CGL policy, the professional service exclusion will be an issue and, at a minimum, will result in a reservation of rights letter citing the exclusion.  An analysis of the district court’s decision in Figg makes clear that which state’s law applies can have a huge impact how a coverage case involving the professional services exclusion is decided. As discussed in more detail in Figg, Travelers was able to rely on Florida law which governed the issue, while Figg Engineers cited cases from other jurisdictions. As noted above, in some states a court can look beyond the complaint’s allegations. States can differ how to interpret certain policy language (i.e. “arising out of”). In some states, as long as any allegation might trigger coverage, then an insurer is required to defend the entire case. Other states allow an insurer to claw back defense costs for uncovered claims. One issue in coverage disputes that is generally applied is that labels in the underlying complaint do not matter, it is the facts alleged. That is why the non-professional negligence allegations against Figg Engineers was easily rejected by the district court.

My general view of whether an Owner should demand that an Architect indemnify an Owner has not changed since reviewing Figg. My principal concern on behalf of an Owner relative to a design professional’s insurance program is my Owner client being subject to economic damages because of a design professional’s acts or omissions.  A professional liability policy, not a CGL policy, should respond to such claims. In my view, I do need an indemnity provision to make this claim against a design professional even if it is in the nature of third party claim based on a claim against the Owner by a General Contractor. As a general proposition, standard indemnity clauses are also limited to claims for personal injury or property damage. That being said, I still request that the Architect name the Owner as additional insured. After reading Figg, I understand better the possible limitations of an Owner being an additional insured.   Moreover, even if an insurer provides a defense to a design professional, there remains the significant issue as to limitations on indemnity given the professional services exclusion.

Based on this analysis it is my judgment that the most significant issue raised by a professional services exclusion in a design professional’s CGL policy is whether the design professionals can get a defense under a CGL policy for personal injury claims.

 

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Sam Laurin

Bose McKinney & Evans LLP, Indianapolis, IN, Division 7 (Insurance, Surety and Liens)