“Professional Services” Exclusion Precluded Coverage to Engineering Firm, New Jersey Appeals Court Affirms

August 18, 2016 | Insurance Coverage

An appellate court in New Jersey, affirming a trial court’s decision, has ruled that a “professional services” exclusion in a commercial general liability (“CGL”) insurance policy issued to an engineering firm precluded coverage for claims against the firm asserting professional negligence.

The Case

EIC Group, LLC, an engineering firm, was sued by New Jersey property owners who alleged damage to their real property and business as a result of the negligence of EIC and other defendants. The complaint centered around a publicly-bid county project for the reconstruction of a county road. The complaint alleged that EIC had been hired by the project’s general contractor “to draft and provide the design specifications” for a temporary road.

According to the complaint, significant rainfall resulted in the flooding of the plaintiffs’ property. The complaint alleged that the temporary road had not been “properly designed, constructed or maintained to handle a large increase in water flow.”

The insurer that had issued a commercial general liability insurance policy to EIC disclaimed coverage on the basis of the policy’s professional services exclusion.

EIC brought a declaratory judgment action against that insurer. EIC asserted that the property owners’ complaint alleged damages caused by EIC’s failure to “properly supervise, inspect, monitor, and maintain the temporary road, and thus contain[ed] express allegations suggesting that … EIC’s liability … falls outside of any professional services purportedly rendered,” and thereby outside the CGL policy exclusion.

The trial court granted summary judgment in favor of the insurer, and EIC appealed.

The Appellate Court’s Decision

The appellate court affirmed.

In its decision, it explained that the professional services exclusion was “broad,” effectively denying coverage to EIC for a variety of duties including “[s]upervision, inspection, … job site safety, construction contracting, construction administration, construction management” and any “[m]onitoring” of these services. (Emphasis added.).

According to the appellate court, the only allegation not within the express language of the exclusion was for negligent maintenance – but the appellate court said that, at the least, “maintenance” subsumed “inspection” as well as “construction management.” Therefore, it said, EIC had not demonstrated that any of the claims in the complaint fell outside the professional services exclusion and within the coverage provided by the CGL policy.

Noting that EIC had admitted that it only had provided design services and nothing else to the project, the appellate court concluded that, as a matter of law, its defense costs were not attributable to claims covered by the CGL policy but, rather, were wholly attributable to claims of professional negligence that were excluded.

The case is EIC Group, LLC v. Travelers Indemnity Co. of America, No. A-2590-14T1 (N.J. App. Div. July 20, 2016).

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  • Robert Tugander

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