August 21, 2017 Practice Points

Broad Interpretation of Professional Services Exclusion Bars Coverage for Pipeline Explosion Liability

Policyholders should be aware of professional services exclusions in their liability policies that may be broadly interpreted to exclude liability arising out of operations that may include professional elements or duties

by Celia B. Waters and Richard Brown

Policyholders should be aware of professional services exclusions in their liability policies that may be broadly interpreted to exclude liability arising out of operations that, while traditionally not regarded as professional in nature, may include professional elements or duties. Furthermore, it should never be assumed that an umbrella or excess policy will provide follow-form coverage to a primary policy that does not contain a professional services exclusion. Accordingly, when relying upon additional insured coverage as a principle means of risk transfer, a thorough review of all relevant policies should be undertaken whenever possible.

These points are underlined by an unpublished decision issued in July 2017, the California Court of Appeals determined that the failure to properly mark a petroleum pipeline, which led to a massive explosion and the death of five individuals, arose from the performance or non-performance of professional services. See Energy Ins. Mut. Ltd. v. Ace Am. Ins. Co., No. A140656, 2017 WL 2953677 (Cal. Ct. App. July 11, 2017). Accordingly, the court found that the professional services exclusion of an umbrella liability policy operated to bar additional insured coverage.

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