Generally in New Jersey, an insurer has a duty to defend its insured in a lawsuit when the complaint against the insured creates a claim constituting a risk insured against. Danek v. Hommer, 28 N.J. Super. 68, 77 (App. Div. 1953). Simply put, if the language in a plaintiff’s complaint alleges that the insured’s conduct caused damage to the plaintiff, and said conduct is covered by an insurance policy, then that insurer must provide its insured with a defense to the complaint. Conversely, an insurer may deny coverage when the complaint asserts a claim against its insured for conduct which falls under an exclusion to coverage in the policy or outside the scope of the policy.
Recently, the United States Court of Appeals, Third Circuit, addressed a situation in which two general liability insurers sought to disclaim coverage for a construction accident based upon policy exclusions for professional services. Wimberly, Allison, Tong & Goo, Inc. v. Travelers Prop. Cas. Co. of America, et al, 559 F. Supp.2d 504 (D.N.J. 2008). In Wimberly, Allison, Tong & Goo, several workers were injured and killed when a parking garage at the Tropicana Casino and Resort in Atlantic City (“Tropicana”), still under construction, suddenly collapsed. Many suits were commenced against the construction companies and Wimberly, Allison, Tong & Goo (“WATG”), the architects that designed the garage. All of the complaints alleged that WATG negligently designed the garage and caused their damages by deviating from the standard of care that should have been utilized by architectural professionals in designing the garage.
On the date of loss, three insurers provided coverage to WATG: (1) Travelers Property Casualty Company of America (“Travelers”) provided a commercial general liability policy; (2) Gulf Underwriters Insurance Group (“Gulf”) provided a commercial excess liability policy; and (3) Continental Casualty Company provided a professional liability policy. WATG notified Travelers and Gulf of the accident and demanded a defense for the various complaints.
Both Travelers and Gulf denied coverage based upon policy exclusions for injuries arising from “professional services.” The Travelers policy excluded coverage for WATG’s “professional services”, stating that its policy did not “apply to ‘bodily injury’, ‘property damage’, ‘personal injury’ or ‘advertising injury’ arising out of the rendering of or failure to render any professional services”. The Travelers policy defined “professional services” as:
- The preparing, approving or failing to prepare or approve maps, shop drawings, opinions, reports, surveys, field orders, change orders, or drawings and specifications; and
- Supervisory, inspection, architectural or engineering activities.
The Gulf policy similarly excluded coverage for “professional services”, stating:
This insurance does not apply to “bodily injury,” “property damage,” “personal injury,” or “advertising injury” arising out of:
- The rendering of; or
- Failure to render;
any professional services by or for you.
In spite of these exclusions, WATG filed suit in Federal Court against Travelers and Gulf seeking coverage, arguing that the insurers breached their contractual agreements to provide a defense. The parties all moved for summary judgment. The District Court granted the insurers’ summary judgment application and denied WATG’s motion, and WATG appealed the decision.
The Third Circuit, in deciding the matter, recounted well established case law, stating that an insurer’s duty to defend arises when the allegations in a complaint are encompassed by the risks insured against by the policy, regardless of whether the underlying complaint lacks merit. Furthermore, when a complaint states multiple causes of action, the insurer must defend the insured until all the covered claims are eliminated. WATG argued that because the underlying complaints also contained covered claims, such as personal injury, wrongful death, and private and public nuisance, Travelers and Gulf had a duty to defend it. In addressing this argument, the Third Circuit illustrated the difference between professional liability policies and general liability policies, explaining that “professional liability policies are intended to cover risks inherent to a particular profession, such as failure to perform with a standard of skill expected, as opposed to risks that arise as with many types of business.” As such, the Third Circuit rejected WATG’s argument, explaining that all of the allegations against WATG arose out of WATG’s professional services as an architect. Since WATG’s conduct was professional in nature, its potential liability flowed from its professional services at the Tropicana. Therefore, the exclusions for professional services in the Travelers and Gulf policies applied, and the Third Circuit granted the insurers’ summary judgment.
Although the Third Circuit decision was not chosen for publication, it is significant for general liability insurers issuing policies to contractors and professionals involved in construction projects. Traditionally, New Jersey courts have held that an insurer’s duty to defend lasts until all covered claims are eliminated. In a case like Wimberly, Allison, Tong & Goo, the plaintiffs’ allegations of personal injury, in addition to professional malpractice, fueled WATG’s argument that the general liability insurers had a duty to defend it until the personal injury claims were eliminated. However, the Third Circuit found that all of the underlying claims stemmed from WATG’s professional conduct, not from any other independent cause of action. In other words, WATG’s allegedly negligent design of the garage is the conduct which caused the personal injuries. As such, all of the underlying claims arose from WATG’s professional liability and only the professional liability policy applied.
This decision has not yet been widely applied, and it remains to be seen whether New Jersey State Courts will utilize the same logic in similar circumstances. In the meantime, please be advised that the case exists and that it may be utilized for or against insurance carriers in coverage disputes.
Kurt J. Trinter, Esq.
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