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Insurance Law

CGL Carrier’s Duty To Defend Was Triggered Where Non-Professional Work Was Alleged and, Therefore, the Professional Services Exclusion Did Not Apply to Remove All Possibility of Coverage

North Counties Engineering, Inc. v. State Farm General Ins. Co., 224 Cal. App. 4th 902 (2014), [enhanced version available to subscribers].

In North Counties Engineering, the California Court of Appeal held that an insurer’s duty to defend its insured under a comprehensive business liability policy was triggered based on limited allegations relating to the insured’s non-professional work.

North Counties Engineering, Inc. (“NCE”) was issued a comprehensive business liability policy, which specifically contained coverage for “Products-Completed Operations.” NCE entered into an agreement with the underlying plaintiff, Lolonis, to build a dam on his property. NCE and Gary Akerstrom, the president and majority shareholder of NCE, were involved in the labor and construction work on the dam through 1998. Beginning in 1999, Lolonis entered into several written agreements with NCE and another party to complete construction of the dam; NCE’s new role was defined as a “Contractor” and, pursuant to the new contracts, NCE was responsible for furnishing “all work, labor, tools, equipment, materials . . . necessary to construct and complete in a good, expeditious, workmanlike and substantial manner the dam project under the terms of this agreement.” In 2000, shortly after the completion of the dam, the state filed a lawsuit against Lolonis for failure to remediate problems stemming from the dam’s operation. Lolonis filed a cross-complaint in the action against NCE and Akerstrom, among others, asserting various claims for breach of contract, negligence, indemnity, and declaratory relief. NCE and Akerstrom tendered the defense of the underlying suit to the carrier, which initially rejected the tender but subsequently agreed to provide a defense. The insureds then filed a lawsuit seeking reimbursement for expenses incurred during the period that the carrier refused to defend. The trial court entered directed verdict in favor of the carrier. The insureds appealed.

In reversing the trial court, the appellate court found that the issue before it was whether the Professional Services exclusion in the policy applied to the underlying claim. The court ultimately disagreed with the carrier’s position that there was no possibility of coverage by virtue of that exclusion. While much of NCE’s work was professional in nature, the court found that some of the allegations against it, including allegations relating to NCE’s role as a “Contractor,” did not fall within the Professional Services exclusion.

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