Regular readers of Coverage Opinions know that I have been chirping for some time about insurers that are not successful, enforcing a “professional services” exclusion in a commercial general liability policy, for claims where they likely feel strongly that liability was caused by the insured’s professional work and, thus, coverage was not intended.

I have taken a deep-dive into these cases, as well as ones where insurers are successful, in an attempt to discern why some insurers win these “professional services” exclusion disputes while others do not.  And, as I am wont to do, I also put together a webinar on the subject and offered it to insurers.  There was a good take-up on the offer.  It’s still available in anyone is interested. 

In general terms, from my study of this issue, insurers have more success, enforcing a “professional services” exclusion in a CGL policy, when the word “professional” does not appear in the exclusion. 

I know.  That sounds completely counterintuitive.  But here’s what I see happening.  When the word “professional” appears in the exclusion, courts, at the policyholder’s urging, review the allegations in the complaint and attempt to determine if any cause of the injury or damage could be from the insured’s non-professional conduct, i.e., general negligence.  And if there’s any such allegation of non-professional conduct, and given an “any potential for coverage” duty to defend standard, a court can determine that a defense is owed.  Potential coverage for damages is a story for a different day.

But courts have shown that this approach may be eliminated if, instead of using the word “professional” in a “professional services” exclusion, the exclusion precludes coverage for injury or damage caused by the insured’s operation of its trade.  If the insured is a “professional,” then precluding coverage for injury or damage, caused by the insured’s operation of its trade, can preclude coverage for injury or damage that includes, as a component, the insured’s non-professional conduct in performing its trade. 
    
Now, you may be thinking that if a “professional services” exclusion precludes coverage for injury or damage caused by the insured’s operation of its trade, then what does the policy coverage.  In other words, wouldn’t such an exclusion make the policy illusory?

But courts that have addressed this type of “professional services” exclusion have addressed that issue and concluded that it did not make the policy illusory.

I chose Yarbrough v. Erie Inspection Services, Inc., No. OT-23-002 (Ct. App. Ohio May 3, 2024) as one of the year’s top ten coverage cases because it provides a solid example of an insurer that successfully used a “professional services” exclusion to achieve its desired intent, even with a complaint that may have included an allegation of non-professional conduct.   Perhaps this will be a decision – following on the others that I have addressed in the past – that causes some insurers to re-think the language of their “professional services” exclusion.

Joshua Heath, an employee of Erie Inspection Service, was performing an inspection on a home that was the subject of a pending sale.  Heath removed floor paneling from the bathroom to reach the crawl space below.  He was looking for leaks.  Stephanie Yarbrough, the real estate agent for the seller, fell through the hole and suffered injuries.  She brought a negligence action against Erie Inspection Service for Heath’s failure to  replace the floor paneling.

Frankenmuth Mutual Insurance Company insured Erie under a commercial general liability policy.  Coverage litigation ensued, with Frankenmuth arguing that it had no duty to indemnify Erie on account of its policy’s “professional services” exclusion.  The trial court found in favor of Frankenmuth and the case went to the Ohio appeals court which affirmed.

The Frankenmuth policy contained a “professional services” exclusion that provided as follows:

EXCLUSION — INSPECTION, APPRAISAL AND SURVEY COMPANIES

“This insurance does not apply to ‘bodily injury’ ... for which the insured may be held liable because of the rendering of ... professional services in the performance of any ... inspection ... services. This exclusion applies even if the claims against any insured allege negligence or other wrongdoing in the supervision, hiring, employment, training or monitoring of others by the insured, if the ‘occurrence’ which caused the ‘bodily injury’ ... involved the rendering ... [of] any professional services in the performance of any ... inspection ... services.”       

Admittedly, the exclusion speaks in terms of a “professional” service.  However, because of other language, it did not alter the court’s conclusion that the exclusion applied even to a non-professional cause of the injury.  What mattered was that the exclusion applied to “inspection services (i.e., the insured’s trade): “It is undisputed,” the court held, “that the hazard that allegedly gave rise to the accident in this case, namely, the removal of the flooring over the crawl space, was created while Joshua Heath was conducting a home inspection service.”

The exclusion also applied even if Heath was performing a non-professional aspect of an inspection (again, because the exclusion applied to the insured’s trade):

“Appellant’s next argue that, even if ‘professional services’ are construed to include inspection services, the activity that gave rise to the liability in this case -- to wit, Heath’s removal and subsequent failure to replace a removable piece of flooring during an inspection -- involves the ‘nonperformance of a routine, manual, and physical process,’ and, thus, the professional services exception should not apply. Even if the specific underlying allegation implicates a task that does not, in and of itself, involve a specialized skill, we find that Heath’s removal of the flooring in order to access the crawlspace was an integral and necessary part of the inspection and, therefore, was part of the inspection service provided.”

As far as the argument that such a broad interpretation makes the policy illusory, the court was not persuaded:

“[B]ecause appellants actually showed that coverage could still exist for liability incurred during an inspection, and because a plain reading of the policy shows that coverage could still be triggered where Erie employees are exposed to liability for bodily injury caused by their ordinary negligence in performing some task that falls outside the provision of professional services, appellants have failed to identify a genuine issue of material fact regarding whether enforcement of the exclusion renders the policy illusory.”
 
I know.  It sounds completely counterintuitive.  But courts have shown that insurers have more success, enforcing a “professional services” exclusion in a CGL policy, when the word “professional” does not appear in the exclusion.