Professional Services Exclusion Bars Coverage For Oil Well Blowout Claim
August, 2010
The U.S. Court of Appeals for the Fifth Circuit recently ruled that the Professional Services Exclusion in a commercial general liability ("CGL") policy issued to an oil field consultant barred coverage for damages arising out of an oil well blowout allegedly caused by the consultant's failure to properly create an oil well drilling plan and monitor drilling operations. Admiral Ins. Co. v. Ford, et al., 607 F.3d 420 (5th Cir. 2010). The exclusion at issue provided that "[w]ith respect to any professional services shown in the Schedule, this insurance does not apply to ‘bodily injury,' ‘property damage,' ‘personal injury,' or ‘advertising injury' due to the rendering or failure to render any professional service." The Schedule referred to the phrase "all operations of the insured" underneath the heading of "Description of Professional Services."
In an effort to get around the exclusion, the insured argued that the exclusion for professional services was so broad that it excluded all the insured's operations and defeated any coverage under the CGL policy. Claiming coverage is rendered illusory under this broad interpretation, the insured argued that the exclusion should be given no effect. Id. at 423. (In coverage litigation, an insured ordinarily argues for a narrow interpretation of an exclusion. Here, the insured read the exclusion so broadly as to defeat any coverage under the policy.) The appellate court rejected the insured's "illusory" construction of coverage as unreasonable.
The Fifth Circuit court first noted that Texas precedent involving similar policies does not support the insured's premise that the language following "Description of Professional Services" (e.g. "all operations of the insured") defines "professional services." When a policy does not define "professional services," a court may under Texas law apply a legal definition for the term. Texas courts define "professional services" to include tasks that arise "... out of acts particular to the individual's specialized vocation, [and] ... it must be necessary for the professional to use his specialized knowledge or training." Id. at 425. Applying Texas law, the appellate court in Admiral determined that the parties intended the legal definition of "professional services" to exclude coverage for professional services rendered in any of the insured's consulting operations. Id. at 424. In this case, the blowout claim implicated the professional services exclusion because the claim allegations were based on the insured's specialized knowledge and/or training in creating and implementing the oil well drilling plan.
Back to CM Special Report on the Gulf Oil Spill (2010) 2010 Summer Table of Contents
