Restoration Contractors: Professional Liability Exclusion

There are a number of exclusions included in every general liability policy for restoration contractors. Some of them are standard exclusions included on every general liability policy while others are specific to restoration contractors. One of the common exclusions for all contractors is the professional liability exclusion. In fact, the professional liability exclusion has been the subject of the most substantial litigation out of all the exclusions listed on the CGL policy.

Contractors Engaged in Construction Operations—Exclusion of Professional Services

It is customary to find an exclusionary endorsement attached to a contractor's CGL policy with one of the following titles and form numbers:

• "Exclusion—Engineers, Architects or Surveyors Professional Liability" (CG 22 43)

• "Exclusion—Contractors—Professional Liability" (CG 22 79)

• "Limited Exclusion—Contractors—Professional Liability" (CG 22 80)

All three exclusionary endorsements eliminate coverage for bodily injury, property damage, and personal and advertising injury "arising out of the rendering of or failure to render any professional services.…" While each endorsement is materially different in the scope of the coverage eliminated, it is fair to say these endorsements are generally intended to remove coverage from the contractor's CGL policy for engineering, architectural, or surveying services.

Exclusion—Engineers, Architects or Surveyors Professional Liability (CG 22 43)

Traditionally, insurers used only endorsement CG 22 43—"Exclusion—Engineers, Architects or Surveyors Professional Liability." This endorsement defined professional services of engineers, architects, or surveyors to include "the preparing, approving, or failure to prepare or approve maps, shop drawings, opinions, reports, surveys, field orders, change orders or drawings and specifications." Further, the endorsement also defined excluded as professional services "supervisory, inspection, architectural or engineering activities."

This exclusion applied whether the named insured or an engineer, architect, or surveyor engaged by the named insured performed the professional services. In other words, if a contractor that performed none of the services described in the endorsement engaged an engineer, architect, or surveyor to perform any of the excluded services, the contractor was not covered for any allegations that implicated those services.

Illustration of the Application of CG 22 43

Assume a general contractor was engaged by the owner to build a house for the property owner. The general contractor engaged an engineering firm to survey and stake out the location of the home on the parcel. After completion of the house, the building inspector would not grant an occupancy permit—alleging the setback was less than the required 25 feet from the property line. The home owner sued the general contractor. While there was dispute over who actually staked out the home site—the general contractor or the engineering firm—the trial court found that it did not matter—the professional services exclusion applied irrespective of that fact.

The court noted that the general contractor "failed to supervise or otherwise ensure the professional service of preparing an accurate survey" and that the insurer had no duty to defend as the circumstances fell within the professional liability exclusion.

Professional versus Nonprofessional Services

A substantial amount of the litigation regarding the meaning of the professional services exclusion centers on which activities are professional services and which are not professional services—the result of which greatly affects the scope of the professional services exclusion.

In our following post, we will provide a real life as to how the exclusion works and why you should be concerned about it as a restoration contractor.