| Q&A of the Week |
Coinsurance on Other Structures
An Ohio subscriber recently asked the following question:
I have a loss to other structures on the homeowners policy. Is coverage and coinsurance determined by taking the value of ALL other structures and adding them together? How does coinsurance work when the damage is to only one of multiple other structures?
ANSWER: Coverage for other structures is 10 percent of coverage of the dwelling; this applies to all the other structures. If the insured has a number of other structures, the ISO HO 04 48 can be added to increase available coverage for other structures. As far as coinsurance goes, the damaged property must be insured to 80 percent of its value. For example, the insured has a dwelling worth $200,000 but has four other structures valued at $10,000, $20,000, $40,000, and $55,000, and the $40,000 structure is the one damaged with damage being $15,000. The calculation of the limit will be the $20,000 of coverage divided by the $40,000 of value; this is a 50 percent proportion, so the insured is underinsured for the loss. Therefore payment will be the lesser of the actual cash value of the damaged portion of the building or the proportion of the cost to repair or replace the damaged property to the 80 percent of the replacement cost. The calculation is ($20,000/$40,000) × $15,000= $7,500. So $7,500 is what is paid out. Read More |
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| Litigation Watch |
Professional Services Exclusion
The insurer brought an action seeking a declaration that it had no duty to defend or indemnify the insured engineering firm based on a professional services exclusion in the general liability policy. This case is General Cas. Co. of Wisconsin v. Nelson Engineering Consulting, LLC, No. CIV.13-4075-KES, 2015 WL 631996 (D. S. D. Feb. 13, 2015).
South Dakota Oilseed Processors (SDOP) entered into a contract with Nelson Engineering Construction for Nelson to act as the general contractor on a construction project to build a seed oil processing facility. The construction was completed and shortly thereafter, SDOP alleges it experienced ongoing problems with the electrical service. An arcing event occurred and caused damage to the facility and as a result, production was interrupted and SDOP had to eventually begin bankruptcy proceedings.
SDOP brought an action against Nelson based on the contention that Nelson was the general contractor for the project. General Casualty was the insurer for the general liability policy issued to Nelson. The policy contained a number of exclusions, including one for professional services. The insurer filed this declaratory judgment action seeking a declaration that it had no duty to defend or indemnify Nelson based on the professional services exclusion.
The United States District Court, South Dakota, noted that the professional services exclusion stated that the policy did not apply to property damage due to the rendering or failure to render any professional service. The policy also stated that the professional services exclusion included, but was not limited to, preparing, approving, or failure to prepare or approve maps, drawings, opinions, reports, surveys, change orders, designs, or specifications, and supervisory, inspection, or engineering services.
The insurer and the insured argued over the nature of the claims. General Casualty argued that the causes of action filed against Nelson clearly reference Nelson's providing or failure to provide professional services, and that the claims focus on Nelson's supervisory failures. Nelson countered that while there are allegations within the lawsuit directed toward Nelson's obligations to supervise and inspect the work, those are not the only allegations contained in the underlying lawsuit.
The court said the claims by SDOP include allegations that Nelson failed to ensure a clean and safe work environment and failed to ensure that the electrical installation was performed properly. The court found that the allegations against Nelson also included claims for failure to provide proper workmanship and that the product delivered was not in conformity with the general contractor agreement. Thus, said the court, the pleadings allege claims relating to the duty to provide services of a physical or manual nature rather than being limited to supervisory, inspection, design, or engineering services.
The court found that Nelson may have had obligations relating to the construction of the plant that did not involve specialized skills or were not primarily intellectual. Therefore, the allegations against Nelson could involve physical or nonspecialized services and SDOP has stated a claim against Nelson that falls outside the scope of the professional services exclusion. The court ruled that the insurer had not met its burden to prove that the claim clearly falls outside of the policy coverage and so, the insurer was not entitled to summary judgment.
The allegations in the lawsuit against Nelson were broad enough to encompass some acts that were not excluded under the professional services exclusion. Because there may be coverage under the general liability policy and because material issues of fact remained with regard to resolution of the duty to indemnify, the insurer's motion for summary judgment was denied.
Editor's Note: The U.S. District Court, South Dakota, finds that the allegations against the insured contain some claims that would not fit within the parameters of professional services. Therefore, the insurer's assertion that there was no duty to defend or indemnify the insured because of the professional services exclusion was not acceptable to the court.
In arriving at its decision, the court noted some court rulings on the definition of professional acts. For example, the South Dakota Supreme Court defined professional acts as those entailing the performance of a vocation, calling, or occupation requiring learning and intellectual skill. The U.S. District Court for the Northern District of Iowa stated that a professional service refers to any business activity conducted by the insured that involves specialized knowledge, labor, or skill, and is predominately mental or intellectual as opposed to physical or manual in nature. |
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