Where a swimming pool construction contractor built a multi-million dollar “floating floor pool, it designed a system based on information found on YouTube. When completed, the pool floor wouldn’t raise evenly. It jammed inside the pool shell and each time it was moved it caused damage to the pool shell as well as to the expensive flooring. Additionally, 15,000 gallons of water were released down the hillside below the pool every time the floor was moved. A jury awarded judgment against the contractor for $3.7 million. The CGL carrier had defended the law suit, but refused to indemnify the contractor for the loss. Reasons provided included an argument that the loss was not caused by an insured “occurrence,” and that even if it was, several exclusions barred coverage – including Business Risk exclusions, the Professional Liability Exclusion and the Subsidence Exclusion. The trial granted judgment for the carrier. Nautilus Insurance Company v. Farrens, 719 F.Supp.3d 1105 (2024).
The first issue the court reviewed there was an “occurrence” that might trigger coverage under the CGL policy. The court explained:
Coverage under the Policies is triggered only if there is “bodily injury” or “property damage” caused by an “occurrence.” … “Occurrence” is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” (See, e.g., id. at 24.) In interpreting what an occurrence is, courts employ a two-part test: “(1) whether the act itself was intentional, and (2) if so, whether the consequence or resulting harm stemming from the act was intended or expected from the actor’s standpoint.”
In this case the carrier argued there was no “occurrence” because the damage was the product of defective workmanship, which is never considered an occurrence, and the damage was exclusively to the contractor’s own work product. The court concluded there was an “occurrence.” Because the Plaintiff’s damages arose from the unanticipated and unexpected consequence of the Contractor’s design and work, Contractor’s installation of the floating floor and its component parts constitutes an “occurrence,” triggering coverage under the Policies.
Turning to the Exclusions section of the CGL policy, the court found several Exclusions barred coverage in this dispute.
Professional Liability Exclusion.
“The 2016 Policy excludes coverage for property damage “arising out of the rendering of or a failure to render any professional services by you, but only with respect to your providing engineering, architectural or surveying services in your capacity as an engineer, architect or surveyor.” (Doc. 37-1 at 33.) The 2016 Policy defines professional services to include“[p]reparing, approving, or failing to prepare or approve … shop drawings, opinions, reports, or drawing and specifications” and “[s]upervisory or inspection activities performed as part of any related architectural or engineering activities.” (Id.)
In arguing that this exclusion does not apply, the [Plaintiffs] insist that “Nautilus submitted no evidence that [Contractor] acted in the capacity of an engineer, architect, or surveyor.” (Doc. 44 at 21.) … [Plaintiffs] argue that the exclusion requires the rendering of “professional services,” claiming [Contractor] rendered no such services. In response, Nautilus claims the record shows that Rock and Water designed all of the faulty elements at issue here, and “[t]he fact that Rock and Water lacked the credentials to make these types of design and engineering decisions does not render the exclusion inapplicable.” (Doc. 47 at 15.) Once again, Nautilus has the persuasive and better argument.
Under the plain language of this provision, coverage is excluded when a contractor acts in the capacity of an engineer or architect. As contended by Nautilus, that necessarily includes [Contractor’s] design of all the pool components that were designed and built here. Indeed, while [Contractor] may have contracted only to build the pool, it is undisputed that Sean Henry, [Contractor’s] owner, “said he would design [the pool] himself.” (See Doc. 42 at ¶ 9.) He then did so. (See id. ¶ 10 (“Based on this YouTube video, [Contractor] designed a ballast tank system that consisted of nine tanks that were seven feet wide and two feet deep.”) (Emphasis added).) The fact that Sean Henry was not qualified to perform this design or engineering function does not change the undisputed fact that he did. While the [Plaintiffs] may be correct that the “professional” component of these services was questionable considering the fact Henry copied an idea from YouTube, that does not alter the applicability of the policy terms. He prepared drawings of the pool and provided a detailed list of its structural components. (See Doc. 33-6 at 18–30.) Furthermore, the pay schedule specifically notes that the first 20% of the pool cost included “completion of engineering” that would “be completed in R&W WHSE.” (See id. at 32.) Thus, the fact that [Contractor] was not qualified to render the professional services it provided does not avoid the application of this policy exclusion.”
Business Risk Exclusions j(5)
Exclusion j(5) excludes coverage for “[p]roperty damage to … [t]hat particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the ‘property damage’ arises out of those operations.” The parties agree that the pool, spa, and water features Rock and Water constructed qualify as “real property.” The parties also agree that Rock and Water’s work on the project remained ongoing through 2018. Nautilus therefore argues that the damage to these items is excluded because it occurred when Rock and Water was performing operations on or immediately adjacent to them. In response, the Farrens argue that “particular part” is limited to the discrete project component at issue, not the pool area as a whole. Nautilus disagrees, arguing that while “particular part” is narrower than the residence, it encompasses the entire pool area in which all of Rock and Water’s work was performed. On this point Nautilus has the better argument.
In reviewing this Exclusion and the Plaintiff’s argument, the court found that the pool shell, aluminum tanks, spa frame, and deck fence were all part of the floating floor pool system. As such, the alleged property damage was to the particular part of real property that was the direct focus of the Contractor’s work, and coverage was therefore barred by this Exclusion.
Business Risk Exclusion j(6)
Exclusion j(6) precludes coverage for “[p]roperty damage to … [t]hat particular part of any property that must be restored, repaired or replaced because ‘your work’ was incorrectly performed on it.” The Policies define “your work” as Rock and Water’s “[w]ork or operations,” “[m]aterials, parts or equipment furnished in connection with such work or operations,” or “[w]arranties and representations made at any time with respect to the fitness, quality, durability, performance or use of ‘your work.’ ” Nautilus argues that this exclusion applies because “all of the awarded damages[ ] … were to replace [Contractor’s] own work product (or the materials, parts and equipment used in connection with that work) because Rock and Water’s work was done incorrectly.” In response, the [Plaintiffs] quibble that there were completed, properly installed portions of the project that were damaged: the pool shell; the aluminum tanks, frame and hydraulic cylinders; and the Ipe wood decking. Nautilus once again has the better cogent argument.
After reviewing the details of the allegations, the court concluded that the Plaintiff’s unsuccessfully tried to separate out the failures of what they call the “floating pool floor” from its component parts. “Because the property damage alleged here was a result of your work by [Contractor], coverage for those damages is also excluded under j(6).”
Comment: The professional liability exclusion of the CGL policy alone seems sufficient for the court to hold in favor of the carrier. As the court noted, professional services can be provided by individuals and firms that are not architect and engineers, and who hold no professional license whatsoever. In this instance, the contractor chose not to retain a design professional to design the floating pool floor but instead designed the system itself basing its design on information it obtained from YouTube videos. Contractors can certainly obtain professional liability insurance policies to protect them against claims asserting professional liability.
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 ConstructionRisk 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 Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932. This article is published in ConstructionRisk Report, Vol. 27, No. 2 (Feb 2025).
Copyright 2025, ConstructionRisk, LLC
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