Sparks from a cutting torch being used to remove bolts from a wastewater digester tank ignited a methane gas explosion that killed an employee of a construction subcontractor and injured an employee of another subcontractor. Both subcontractor’s were required by their contracts to name the project design professional (DP) as an additional insured on their commercial general liability (CGL) polices. When claims were brought on behalf of the subcontractor employees against the DP, the DP tendered the claims to the subcontractor CGL carriers for defense. The carriers refused to defend. In a subsequent declaratory judgment action, the appellate court sustained summary judgment on behalf of the two carriers on the basis that the professional liability exclusion in their policies applied to the claims.
The court found that regardless of how the underlying cause of action was framed, “The substance of the underlying claims is that [DP] is liable for failing to properly plan for, and take preventative measures to ensure, the safe removal of the digester tank lids. … The underlying plaintiffs allege that [DP] had a duty as the project’s consulting engineering firm to do so. Even if some of the underlying factual allegations implicate tasks that do not, in and of themselves, involve a specialize skill, such acts and omissions are reasonably related to [DOP’s] overall provision of professional services.” DP’s own professional liability carrier defended it in the two actions and the court concluded that the CGL policies were “never intended to cover professional negligence claims.” Orchard, Hiltz & McCliment (OHM) v. Phoenix Insurance Co., 2017 WL 244787 (U.S. Court of Appeals, 6th Cir., 2017).
On this project, in addition to having responsibility for design, the DP, during the construction phase, was responsible for “contract administration, construction engineering, construction observation, and construction staking.” It was also responsible to provide daily observation of work, prepare daily field reports, and check completed work for “compliance with contract documents.”
The overall plan for the upgrades of the wastewater plant included removal and replacement of two sludge digester tank lids. The DP met with the prime contractor regarding how this work would be done. The prime subcontracted part of the digester work to a subcontractor who in turn subcontracted with another firm to remove the lids. The court mentioned only in passing that there was an issue of whether the DP was even an additional insured under the polices in question due to a question as to whether the promise to make the DP an additional insured would only be enforceable if it were contained in a contract between the contractors and the DP. Since the professional liability exclusion otherwise barred coverage even if the DP was an additional insured, the trial court and appellate court focused on that issue.
Court Decision on Professional Liability Exclusion
The court stated that,
“The prime contractor’s policy contains an additional insured endorsement extending general liability coverage to “any person or organization that you agree in a ‘written contract requiring insurance’ to include as an additional insured[.]” Excluded from this endorsement, however, is coverage for bodily injury, personal injury, or property damage arising out of the rendering of, or failure to render, any professional architectural, engineering or surveying services, including:
- The preparing, approving, or failing to prepare or approve, maps, shop drawings, opinions, reports, surveys, field orders or change orders, or the preparing, approving, or failing to prepare or approve, drawing and specifications; and
- Supervisory, inspection, architectural or engineering activities.”
The subcontractor’s CGL policy had an exclusion for injuries and damages caused by,
“[a]ny person or organization whose profession, business or occupation is that of an architect, surveyor or engineer with respect to liability arising out of the preparation or approval or the failure in preparation or approval of maps, shop drawings, opinions, reports, surveys, field orders, change orders, designs, drawings, specifications or the performance of any other professional services by such person or organization[.]”
The court found that both CGL policies “broadly exclude coverage for liability ‘arising out of’ performing or failing to perform any professional architectural, engineering, or surveying services.” As to whether any of the underlying allegations against the engineer could fall outside the exclusion by implicating non-professional acts or omissions, the court looked to the applicable Michigan law that provides “whether a professional service is being rendered depends on the nature of the act or omission, not the character or tile of the person who acted or failed to act.” Professional services are defined by the courts of Michigan to be “those involving specialized skill of a predominantly intellectual nature.”
“Both underlying complaints allege that OHM, as the project’s consulting engineer, was negligent in its duty to supervise construction operations, provide adequate safety supervision, and to include in its project plans ways to ensure the safe removal of the digester lids. These acts are predominantly intellectual in nature, and both insurance policies exclude coverage for liability “arising out of” an engineer’s or architect’s failure to prepare or approve drawings and specifications, other ‘supervisory, inspection, architectural or engineering activities,’ and indeed ‘any other professional services.’ Assuming the underlying plaintiffs can show that OHM owed such duties, accounting for and ensuring the safe removal of the lids in its project plans and on site would require OHM to exercise the specialized knowledge and expertise in wastewater facility project design and supervision that Dexter hired it to provide.”
Although the DP claims that the plaintiffs’ assertions in the underlying action are of a general liability nature because they seek to hold the DP liable for unskilled construction and accident prevention tasks. The appellate court rejected that characterization. For the reasons described herein, the allegations were deemed to be of a professional liability and therefore excluded from coverage under the CGL policies.
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. 19, No. 5 (May 2017).
Copyright 2017, ConstructionRisk, LLC
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