(Article from Insurance Law Alert, July/August 2017)
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A California appellate court ruled that a professional services exclusion bars coverage for losses arising out of a pipeline explosion. Energy Ins. Mut. v. Ace Am. Ins. Co., 2017 WL 2953677 (Cal. App. Ct. July 11, 2017).
Kinder Morgan, an owner and operator of oil and gas pipelines, used employees provided by Comforce, a staffing company, for construction of a water supply line. During construction, an excavator struck an unmarked petroleum pipeline, resulting in an explosion that killed and injured several workers. Kinder Morgan sought coverage from its own insurers and from ACE, which insured Comforce under an umbrella policy. ACE denied coverage based on a professional services exclusion and also argued that Kinder Morgan was not an additional insured under the policy. Ruling on cross-motions for summary judgment, a trial court held that the exclusion bars coverage, but that an issue of fact exists as to whether Kinder Morgan was an additional insured. The appellate court affirmed.
The professional services exclusion provides that “[t]his insurance does not apply to any liability arising out of the providing or failing to provide any services of a professional nature.” Although the policy did not define the terms used in the exclusion, the court held that the exclusion’s meaning is clear because “services of a professional nature” has a generally accepted meaning – services arising out of employment that involve specialized knowledge, labor, or skill that is predominantly mental or intellectual, rather than physical or manual. The court further held that the activities involved in owning and operating a pipeline, including mapping and marking underground installations, are professional services because they involve specialized knowledge and generally require extensive experience and education. Thus, the court held that the failure to mark the pipeline that exploded falls squarely within the ambit of the exclusion. The court noted that even if some underlying claims do not arise out of professional services, coverage is nonetheless barred because any such claims are “inseparably intertwined” with the excluded professional services claims.
Finally, the court held that neither the additional insured endorsement nor the separation of insureds clause creates coverage. Even assuming that Kinder Morgan was an additional insured under the ACE umbrella policy (an issue in dispute), the separation of insureds clause does not provide coverage for Kinder Morgan because both Comforce and Kinder Morgan engaged in professional services in connection with the pipeline.