FEDERAL JUDGE APPLIES PROFESSIONAL SERVICES EXCLUSION - FINDS CGL INSURER HAS NO DUTY-TO-DEFEND

Last week, a Houston federal judge granted a 12(b)(6) motion in favor of a CGL insurer, holding the face of the pleadings and attached documents showed the insurer had no duty to defend its insured.  In Project Surveillance, Inc. v. The Travelers Indem. Co., 4:19-CV-03324, 2020 WL 292247 (S.D. Tex. Jan. 21, 2020) (slip op.), Project Surveillance had been retained to provide safety supervision services for a construction project.  When a worker was killed on the project site, Project Surveillance was sued, with the petition alleging it “was retained to provide safety supervision or other services for the Project.” The petition went on to allege Project Surveillance had been negligent in six ways, which all involved site supervision, safety inspections, and ensuring trenching and excavations were adequately shored or sloped to prevent collapse. 

The CGL policy contained a Professional Services exclusion which excluded “any service requiring specialized skill or training, including… supervision, inspection… job site safety… construction administration… or... monitoring… necessary to perform any of the[se] services.”

Travelers filed a 12(b)(6) motion to dismiss, arguing that every single allegation in the petition fell squarely within the exclusion, and thus the pleadings showed on its face there was no duty to defend and the case should be immediately dismissed.  Project Surveillance admitted the six allegations of negligence all fell within the exclusion, but argued the allegation, “…or other services for the Project,” left open the possibility that Project Surveillance had been doing something else that fell outside the exclusion.

The court found that the vague allegation of “or other services,” read in conjunction with the six allegations of negligence which all plainly related to site safety supervision, could not create a reasonable inference that a potentially covered claim was being alleged, even when construed liberally as required by the eight-corners rule.

Editor’s Note: Although the court did not expressly say so, this appears to be a clear application of the rule that while the pleadings are construed liberally, and the court considers reasonable inferences drawn from the alleged facts, the court may not read facts into the pleadings or imagine factual scenarios which might trigger coverage.  Nat'l Union Fire Ins. Co. of Pittsburgh, Pa. v. Merchants Fast Motor Lines, Inc., 939 S.W.2d 139 (Tex. 1997).  As a point of federal practice, this case also demonstrates that when the pleadings in a duty-to-defend case are this clear-cut, there is not necessarily any need to wait until the summary-judgment stage to win.  With the right pleadings, a well-crafted 12(b)(6) motion to dismiss can potentially dispose of the entire case quite early.