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Professional
Liability |
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Professional Services
Exclusion |
Claims-made |
An environmental consulting firm purchased two liability
policies from its insurer. One was a CGL policy providing $1,000,000 coverage
on a per occurrence basis. This policy included a professional services
exclusion, describing the excluded services as “all operations of the insured.”
The second was a professional liability policy covering oil and gas consulting
operations. This policy was written on a claims-made basis with a $50,000 limit
per claim.
The consulting firm was hired by an oil company to create a
drilling plan and assist in the drilling of an oil well. The well had a blowout during the drilling
operation. The oil company sued the consultant, alleging that the consultant
acted negligently in both a professional and nonprofessional manner. The
insurer paid $50,000 under the professional liability policy, then filed for a
declaratory judgment that it owed nothing under the CGL policy as the “all
operations” wording applied to any professional services offered by the insured
consulting firm. The insured argued that the wording of the professional
services exclusion in the CGL policy effectively applied to any type of claim that
could possibly be brought against them, and should therefore be considered null
and void. The district court agreed, finding that the description of excluded
services effectively nullified the entire CGL policy, and ruled in favor of the
consulting firm. The insurer appealed.
The Court of Appeals reviewed the case, noting that terms
not specifically defined in the insurance contract, in this case “professional
services,” must be given their ordinary meaning. The Court held that the term
“all operations of the insured” was confusing, but that using a literal
interpretation would be unreasonable as the insured would be unlikely to
purchase a policy containing an exclusion so broad that it precluded any type
of coverage for any of its operations. The Court considered legal precedents
that professional services were those particular to the application of a
professional’s advanced or specialized knowledge or training, and whether
specific actions related to the rendering of professional services could be
separated as either professional or nonprofessional. In this case, the Court
determined that all actions of the insured in its relationship with the oil
company were of a specialized nature.
The Court held that the only reasonable interpretation of
the professional services exclusion was to exclude coverage for all
professional services of the insured. As the consulting work for the oil
company was entirely of a professional nature, the Court of Appeals reversed
the decision of the lower court, finding in favor of the insurer.
Admiral Insurance Company v. Randall Ford Associates
Incorporated RKF Consultants Incorporated, Case No. 09-50671 (