As a business owner, do you know whether your CGL policy provides indemnity if you get sued? Do you know whether that CGL policy also requires the insurer to provide you a defense, or if you would have to pay to defend the suit using business funds? In Wisznia Co., Inc. v. Gen. Star Indem. Co., 13-31125, — F.3d — (5th Cir. July 16, 2014), the Fifth Circuit re-visited the analysis of when an insurer’s duty to defend is triggered, and perhaps more importantly, when an insurer may decline to provide a defense. Wisznia Company, Inc. brought suit against General Star Indemnity, Co. to recover costs of defense for a lawsuit initiated by its former client, Jefferson Parish. Jefferson Parish alleged that Wisznia negligently designed a building, and Wisznia sought a defense from General Star pursuant to two insurance policies. General Star, however, maintained that the suit involved the rendering of professional services, or failure to render the same, and accordingly, the professional services exclusion in the policies absolved General Star of not only its duty to indemnify, but also its duty to defend.
The Court reiterated that, as is well settled in Louisiana law, the duty to defend is broader than the duty to indemnify. Moreover, the Court reinforced that a duty to defend is determined using the “eight corners rule,” wherein the policy is compared to the allegations in the petition. Any equivocal language or vague terms are construed against the insurer and in favor of coverage. Unless the policy unambiguously excludes coverage, an insurer remains obligated to defend its insured. The most relevant consideration in the Court’s application of the eight-corners rule is the fact that under Louisiana law, courts look only to the factual allegations of the complaint, not any conclusions therein. Although a plaintiff may allege negligence by repeated use of the word, it is the facts giving rise to such a claim which are relevant to the Court’s analysis.
This was the issue before the Court in its interpretation of the General Star policies issued to Wisznia. Jefferson Parish’s petition for damages alleged that Wisznia was negligent by designing a defective set of plans and specifications, failing to coordinate with consultants, failing to design with sufficient and accurate detail, failing to provide specifications that were definite in concept, under-designing the project, and any and all negligent acts and omissions to be proven at trial. In short, Jefferson Parish claimed that its damages were due to a failure of Wisznia’s professional skills, but also used the word negligence. Wisznia clung to the use of the word in asserting its entitlement to a defense from General Star. The Court, however, remained unpersuaded.
The Court acknowledged that where a petition’s factual allegations give rise to a claim for negligence, the duty to defend survives the professional services exclusion. The duty to defend has been held to exist where a plaintiff alleged negligent supervision in a case in which a construction employee came into contact with power lines while rendering a professional service. The duty to defend has also survived where a failure to report unsafe conditions during the rendering of professional services allegedly caused an elevator to fall, killing one worker and injuring two. Through the Court’s examples, a dividing line seems to be suggested; allegations regarding safety and bodily injury will sustain the duty to defend, while allegations regarding deficiencies in a final product move the claim within the scope of the professional services exclusion. Such was the case for Wisznia. Although Jefferson Parish used the word “negligence,” the facts pleaded indicated that the Parish was dissatisfied with the work done by Wisznia. Accordingly, Jefferson Parish’s allegations concerned Wisznia’s professional services, and not any general negligence. The Fifth Circuit agreed that the professional services exclusion applied, and affirmed that General Star did not have a duty to defend Wisznia.
The Court’s decision underscores the importance not only in drafting insurance policies, but also pleadings in civil actions. Will plaintiffs seeking remuneration for arguably shoddy professional services take care to draft their petitions and complaints in a manner that will keep insurers in the suit? Will insurers be more aggressive in attempting to limit their duty to defend where there are no bodily injuries or unsafe practices involved? Though those questions will largely depend on the parties involved, it seems likely that business owners will take the brunt of this decision by way of needing additional policies to be sure that any future litigation costs won’t be on the business dime.
Meghan B. Shumaker
July 28, 2014