Commercial general liability (CGL) policies for contractors traditionally contain a professional liabilities exclusion. This exclusion is generally added through a specific endorsement to eliminate coverage for professional services. Read the endorsement The point of the exclusion, in a nutshell, is simply to eliminate a CGL policy for a contractor serving as a professional liability policy.
Contractors need to appreciate a professional liabilities exclusion added through endorsement because oftentimes there are delegated design components they are responsible for. Perhaps the contractor value engineered a system and is responsible for engineering and signing and sealing the engineered documents (through its subcontractor) associated with that system. Perhaps there is a performance specification that requires the contractor to engineer a system. Perhaps there is a design-build component. Regardless of the circumstance, this professional liabilities exclusion can certainly come into play, particularly if a defect is raised with the design or professional services associated with the engineered system.
In a non-construction case dealing with a professional liabilities exclusion, the Second District Court of Appeal in Alicea Enterprises, Inc. v. Nationwise Ins. Co. of America, Inc., 43 Fla.L.Weekly D1713b (Fla. 2d DCA 2018) held:
Whether a professional service has, or has not, been rendered is a fact-intensive analysis. Thus, when deciding whether an act arises out of the rendering of or failure to render a professional service, the court must focus on the act itself and not the character of the individual performing the act. The act from which the claim arises must be related to a professional service that requires the use of professional judgment or skill.
Id. (internal citations omitted).
In this case, the insurer issued a CGL policy to a pharmacy. The pharmacy was sued in a negligence action. The pharmacy’s CGL insurer filed an action for declaratory relief claiming it had neither a duty to defend nor indemnify its insured (the pharmacy) since the underlying claims arose out of professional services and the CGL policy contained a professional liabilities exclusion.
The Second District maintained, as to the insurer’s duty to defend its insured, that the insurer had a duty to defend the pharmacy (insured) in the negligence action because the allegations in the underlying complaint could be deemed unrelated to professional services.
The Second District maintained, as to the insurer’s duty to indemnify its insured, that this duty is more fact-intensive and without sufficient discovery, there was a genuine issue of material fact as to whether the evidence brought the pharmacy’s conduct within the meaning of the professional liabilities exclusion in the CGL policy.
Here, while the pharmacy will get the benefit of the insurer’s duty to defend since that is triggered by the underlying complaint, the duty to indemnify is different and triggered by the facts. It is likely that the facts in this case trigger the application of the professional liabilities exclusion, meaning the CGL insurer does NOT have a duty to indemnify the insured for the damages proven against it. Not the situation an insured wants to be in!
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