Court Finds Professional Services Exclusion Bars Coverage for Suits

By Don R. Sampen, published, Chicago Daily Law Bulletin, August 6, 2024

The 4th District Appellate Court recently addressed liability coverage for allegations of negligence against a design consulting company for carbon monoxide injuries to students and others due to faulty venting of water heaters in a new school building addition.

The court found that the allegations fell within the professional services exclusion of the company’s policy, thereby precluding coverage.

The case is Allied Design Consultants, Inc. v. Pekin Insurance Co., 2024 IL App (4th) 230738 (June 18). The consulting company, Allied, was represented by Zack Stamp Ltd. of Springfield. Pretzel & Stouffer Chtd. of Chicago represented the insurer, Pekin.

The North Mac Community Unit School District No. 34 in Macoupin County undertook a construction project for an addition to a middle school, which was completed in 2003. Allied, whose business included architectural services, had been retained to design and/or construct various mechanical systems for the addition, including hot water heaters and a venting system.

In addition, in 2005, Allied performed a “Health/Life Safety Survey” for the school buildings, including for the addition.

In 2014, a carbon monoxide leak from the exhaust vent pipe for the water heaters allegedly caused injuries to students and staff at the school, resulting in some 23 personal injury lawsuits being filed against Allied.

The complaints generally alleged that Allied was negligent in performing the safety survey and negligently failed to discover that the hot water heaters and their vent systems did not accord with the manufacturer’s instructions and violated safety codes.

Additional allegations claimed that Allied failed to warn others about the dangerous conditions, failed to make the needed repairs, and failed to follow the directions and recommendations of the manufacturer relating to safe operating conditions.

Allied tendered defense of the 23 lawsuits to its insurer, Pekin, which had issued Allied a business owner liability insurance policy and a commercial umbrella policy. Pekin, however, declined coverage based on the professional services exclusions in the two policies. They excluded coverage generally for “professional services,” including supervisory, inspection and engineering services. The umbrella policy also provided a nonexclusive list of professions, which included architects.

Allied then brought suit against Pekin, claiming it owed coverage, and Pekin counterclaimed seeking a determination that it had no duty to defend or other coverage obligation. Upon cross-motions for summary judgment, the circuit court agreed with Pekin, and Allied filed this appeal.

Analysis

In an opinion by Justice John W. Turner, the 4th District affirmed. At the outset he observed that a “professional service” in Illinois is not limited to services performed by persons who must be licensed to practice a profession. Rather, the term includes activities that involve “specialized knowledge, labor, or skill” and that are “predominantly mental or intellectual as opposed to physical or manual in nature.”

As for what constituted a professional service here, Allied contended that each alleged act of negligence must be examined separately to determine the character of the act at issue. It thus focused on the allegations regarding Allied’s supposed failure to warn others, its failure to adequately repair, and its failure to follow manufacturer instructions, all of which it claimed were not professional services.

While not disagreeing that each allegation must be examined independently, Turner pointed out that all the allegations on which Allied relied “must have resulted from the failure to properly conduct” the safety survey, which survey Allied did not challenge constituted a professional service. All of the specific failures alleged, moreover, according to Turner, involved specialized knowledge of a predominantly mental or intellectual nature.

In addition, Turner wrote that the allegations of the underlying complaints must be read, not just individually, but also as a whole to assess their true nature. Thus, the specific allegations to which Allied pointed were tied to the performance of the survey. But even if they were not, the complaints indicated generally that the school district had contracted with Allied to perform professional architectural services both in connection with the original construction project and also later to conduct the survey.

Based on this reasoning, the 4th District agreed that the underlying lawsuit allegations fell under the professional services exclusion and affirmed.

Key Point

In determining applicability of a professional services exclusion in a liability policy, attention should be given both to the individual acts of alleged negligence and those acts read in the context of the underlying complaint read as a whole, to determine their true nature.