Commercial General Liability ("CGL") policies typically provide coverage for businesses against claims for bodily injury and property damage caused through their operations. While CGL policies are intended to cover a wide range of potential liabilities that businesses may face in their day-to-day operations, they typically exclude damages arising from professional services by way of the Professional Services Exclusion (the "PSE"). This is because professional services are meant to be dealt with under a professional liability policy. Professional services are usually defined in some detail in a CGL policy, but whether or not the term is defined, it is generally interpreted through the lens of being services that encompass specialized knowledge, labour or skill, with a primarily intellectual component.
The PSE can prove to be problematic for contractors, subcontractors and material suppliers in the construction industry ("Trade Contactor(s)"). Due to their experience, skills and expertise in their trade, Trade Contactors are often called upon or required to weigh in on, or provide an opinion related to, the design and engineering of a building component. A loss related to a defect in the subject building component and the Trade Contactor's advice or opinion may result in an action against the Trade Contractor. The Trade Contractor may turn to its CGL insurer to assume the defence of the action. While the duty to defend may be triggered if the pleadings are sufficiently broad, the insurer may ultimately deny coverage for the loss pursuant to the PSE.
The issue of what is included within professional service then arises. This issue has been considered in various B.C. coverage enforcement cases where the underlying action involves construction defects.
In the leading case of Chemetics International Ltd. v. Commercial Union Assurance Co. of Canada, [1984] B.C.J. No. 1728, 11 D.L.R. (4th) 754, 55 B.C.L.R. 60, affd 11 D.L.R. (4th) 754 (C.A.)the insured, Chemetics International Ltd. ("Chemetics"), designed and built a pulp bleach plant which was subsequently damaged. At the trial of the underlying action, Chemetics was found liable for the damage. Chemetics then brought the subject coverage enforcement action against its general liability insurer, Commercial Union Assurance Co. of Canada ("CU"). CU argued that Chemetics was found to have given inadequate instructions on how to operate the plant and CU denied coverage for Chemetics' actions due to the PSE clause in the policy.
The British Columbia Court of Appeal ("BCCA") stated that the profession and qualifications of the person who provided the services are not determinative of the question of whether they were "professional services". Rather, the BCCA focused on the nature of the service provided. In this case, they determined that the service could have been provided by a technician experienced in operating the plant. While this person would no doubt be a professional as distinguished from an amateur, they were not the type of professional contemplated by the PSE. They found that the PSE was intended to refer to the kind of services which could normally be expected to be provided only by a professional engineer. As a result, CU was liable to extend coverage to Chemetics.
Monenco Ltd. v. Commonwealth Insurance Co., [1997] B.C.J. No. 1971, 42 B.C.L.R. (3d) 280, 47 C.C.L.I. (2d) 12, 73 A.C.W.S. (3d) 516, affd on other grounds 8 C.C.L.I. (3d) 1 (C.A.), affd on other grounds [2001] 2 S.C.R. 699 [Monenco] is another B.C. case that interpreted the PSE clause. In Monenco, the plaintiffs provided engineering consulting services in connection with the expansion of an industrial plant. A fire destroyed the plant and an action was commenced against the plaintiffs for various breaches including a breach of duty to warn and advise of effective measures to protect the plant from the risk.
The plaintiffs had professional liability insurance in place but were self-insured for up to $1 million dollars under that policy. The plaintiffs sought to recover the self-insured retention from their general liability insurer, Commonwealth Insurance Company ("Commonwealth"). Commonwealth denied coverage on the basis of the PSE clause in the CGL policy. The PSE did not define the term "professional services". The Court interpreted "professional services" as services "arising out of a vocation or occupation involving specialized knowledge or skills, and the skills are mental as opposed to manual." The Court affirmed the ruling in Chemetics that the "determination of whether a particular act or omission falls within the scope of a [PSE] depends upon the nature of the activity rather than the position of the person responsible for the act or omission". In Monenco, it was clear that the allegations against the plaintiffs arose out of the rendering or failure to render a professional service which could only be a matter of professional engineering. As a result, the service was found to fall within the scope of the PSE.
It is noteworthy that on many construction projects, Trade Contractors may assume responsibility for retaining consultants and subconsultants. These parties' roles, like the plaintiffs in Monenco, would likely amount to professional services. In the event of a loss arising out of the professional services, the Trade Contractor may also be named as a liable party and the PSE in the Trade Contractor's CGL policy could negate coverage for the loss.
Trade Contractors that do not carry separate professional liability insurance should review the PSE in their CGL policies. If Trade Contractors are carrying out services that would normally be provided by a consultant (architect or engineer) or that require specialized knowledge or skills that are mainly intellectual as opposed to manual, they should review with their broker whether they require professional liability insurance.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
