By James Rhodes, Esq.
ConstructionRisk Counsel, PLLC
Introduction
A federal appeals court, applying Louisiana law, held that an insurer did not owe a duty to defend its insured, an architect, in a suit by the architect’s former client. The court explained that the “professional liability exclusion” in the commercial general liability (CGL) policy applied because the damages resulted from the performance of professional services. The architect attempted to point to references of general negligence in the former client’s complaint as triggering the duty to defend. In applying the “eight comers” test, the court explained that the factual assertions in the complaint-as opposed to conclusory statements-determine whether the duty to defend is triggered. Because the factual statements, liberally construed, would not support an ordinary claim for negligence (as opposed to professional negligence), there was no duty to defend under the CGL policy. Wisznia Co., Inc. v. General Star Indemnity Co., 759 F.3d 446 (5th Cir. 2014).
Wisznia Company, Inc. (Wisznia) is an architecture firm that was sued by Jefferson Parish, Louisiana, its former client, for improper building design and inadequate coordination with the builders during construction. Following the initiation of the lawsuit, the firm sought legal defense from the provider of its commercial general liability (CGL) policy. The insurer, General Star Indemnity Company (General Star), refused to offer defense and coverage to Wisznia, citing the standard-form “professional liability exclusion” provision found in the policy. The architecture firm subsequently sued its insurer for breach of insurance contract. A federal district court, applying Louisiana law, agreed with the insurer that it was not obligated to defend or provide coverage.
The United States Court of Appeals for the Fifth Circuit agreed, offering insights into the scope of the duty to defend and the interplay between a CGL policy and a professional liability policy. Under Louisiana law – as well as in most states – an insurer’s “duty to defend suits against its insured is broader than its liability for damage claims.” Accordingly, the allegations in a third party’s complaint against the insured may trigger the insurer’s duty to defend the insured, even though coverage under the policy is not complete, and may later be deemed to be inapplicable. Courts generally apply the “eight comers” test to determine if this “broader” duty to defend applies. Under this test, courts compare the “four comers” of the third party’s complaint against the insured with the “four comers” of the insurance policy, construing the language liberally in favor of the insured.
Professional Liability Exclusion Details
In this case, the insurer argued that there was no duty to defend because the allegations by the owner against the architect concerned the rendering of professional services. Consistent with standard CGL policies, the policy included an exclusion of coverage for damages related to performing professional services (a “professional liability exclusion”). This professional liability exclusion typically draws a line between the scope of a general business liability policy with the coverage of a separate professional liability policy, which specifically covers errors and omissions in performing professional services. The insurer characterized the factual basis of the complaint as solely for damages due to improper performance of professional services.
The architecture firm, in turn, pointed to several portions of the complaint that generally alleged “negligence.” They argued that this meant that the plaintiff had alleged “ordinary” negligence, which would be covered by a CGL policy, in addition to professional negligence that would not be covered. Accordingly, the firm argued that the insurer had a duty to defend because at least some of the allegations stated in the complaint would trigger coverage.
The appeals court held that under Louisiana law the mere invocation of general negligence in a complaint will not necessarily defeat a professional liability exclusion. The court explained that a proper analysis under the eight comers test focuses on the specific factual allegations, as opposed to conclusory references. They concluded that the factual allegations in the complaint, even liberally construed, could not give rise to a claim for ordinary-as opposed to professional negligence.
In reaching its holding that there was no duty to defend, the court distinguished from a few cases that seemingly reached a different result. In these cases, construction professionals succeeded in invoking the duty of their CGL providers to defend, against the insurers’ attempts to apply the professional-liability exclusion. However, all of these cases involved injuries from alleged failures in workplace safety, such as an exposed high-voltage wire or the fall of a construction elevator. The appeals court explained that liberally construing the factual allegations in those cases, they included “claims for breach of the general duty of reasonable care to report dangerous conditions.” In contrast, the factual basis of the instant case was solely for professional liability .
Conclusion
This case provides a sound illustration of the scope of the duty to defend and the application of a professional liability exclusion in a CGL. Like the plaintiff in this case, an insured will have trouble invoking the duty to defend under a CGL when a common sense reading of the facts in the complaint shows that the damages stem from professional conduct. However, cases related to professional conduct that also involve workplace safety violations or similar instances will be more likely to trigger the duty to defend under a CGL because those situations may give rise to beaches of a general as opposed to professional-duty of care. Architects, engineers and other professionals should remain mindful of the scopes and limitations of their professional and general liability policies in relation to each other.
About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners. He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects. He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932. This article is published in ConstructionRisk.com Report, Vol. 17, No. 1 (January 2015).
Copyright 2015, ConstructionRisk, LLC
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