A recurring issue for architects and engineers is whether, in litigation where they are being defended under their professional liability (PL) insurance policies, a duty to defend can also exist under their general liability (GL) insurance policies. This, in turn, raises three questions. First, is the GL policy triggered? Second, if it is, how does it correlate with a potentially significant self-insured retention (SIR) under the PL policy? Third, how does it impact on the PL policy duty to defend?
As to the first item, it should be noted at the outset that GL policies typically include a professional services exclusion, on which the GL carriers can be expected to rely in what otherwise could be characterized as a professional liability matter. See M. Seiden, “Architects and Engineers—Building a Bridge Between Professional and General Liability Insurance” (2004).
Specifically, they usually assert that each and every one of the allegations in the complaint falls within the scope of the professional services exclusion and that not a single one can be deemed to sound in ordinary negligence. However, such assertions are not necessarily warranted.
For example, in Reliance Insurance Co. v. National Union Fire Insurance Co., 262 A.D.2d 64, 691 N.Y.S.2d 458 (1st Dept. 1999) and Selective Insurance Co. v. Chu & Gassman Consulting Engineers, P.C., 2012 N.Y. Slip Op. 31078 (Sup. Ct., N.Y. Co. 2012), the courts made clear that it is the “nature of the conduct under scrutiny rather than the title or position of those involved” which is important and that this is determined by the need for “engineering acumen.” Reliance, supra.
We have also recently been involved as coverage counsel for an engineering firm in connection with the design of a collapsed building, where any reasonable interpretation of the relevant allegations revealed that they broadly involved the utter disregard of known dangers and, even on a narrower basis, included specific things that did not require engineering acumen (such as failure to heed warnings about excessive vibrations, concealing such warnings, and permitting the construction of a walkway which was slanted to allow water runoff toward the foundation of the building). We argued that the GL carrier’s denial on this basis was flawed.
As to the second item, the specific question was the right of the PL insurer to recover the $100,000 SIR from the GL insurer based on the theory that, with no deductible under its policy, the GL insurer bore sole responsibility for that sum which was otherwise not covered under the PL policy. There is at least one case in New York which says this explicitly. See New York State Thruway Authority v. KTA-Tator Engineering Services, P.C., 78 A.D.3d 1566, 913 N.Y.S.2d 438 (4th Dept. 2010) (“We thus conclude that the [professional liability] policy contained a SIR and that [the general liability insurer] was obligated to provide sole primary coverage to [the insured] for its defense costs up to [the] $100,000 [SIR]”).
A similar result was more recently reached in Lexington Insurance Co. v. Steadfast Insurance Co., 168 A.D.3d 640, 93 N.Y.S.3d 27 (1st Dept. 2019) (“The motion court erred in concluding that plaintiff was not obligated to pay any part of [the insured’s] deductible under the [professional liability] policy”).
As to the third item, we concluded that the PL carrier could recover half of the defense costs. Specifically, the PL and GL policies covered the same insured but did not cover the same risk; consequently, the “other insurance” clauses did not apply but, instead, both policies by law had an equal duty to defend. See Axis Construction Corp. v. Travelers Indemnity Co., 2021 WL 3912562 (E.D.N.Y. 2021); New York State Thruway Authority v. KTA-Tator Engineering Services, P.C., 78 A.D.3d 1566, 913 N.Y.S.2d 438 (4th Dept. 2010).
Moreover, even assuming that the other insurance clauses did apply (because the policies covered the same risk), those clauses were essentially identical and canceled each other out, leading to the same result. See Travelers Property Casualty Co. v. Wesco Insurance Co., 2022 WL 376147 (S.D.N.Y. 2022).
While that outcome may seem irrelevant (i.e., it should be of no consequence to the engineer whether its defense costs were paid by one insurer as opposed to both), that is not an accurate assumption; it does indeed make a potentially significant difference because the GL carrier’s defense payments preclude erosion of the available PL policy limits by the amount paid.
In sum, PL carriers and their A&E insureds should be cognizant of the potential benefits of pursuing overlapping GL coverage in the appropriate circumstances. (It should be noted that we do not address in this article the extent to which a GL carrier might have to contribute to any indemnity owed by the insured, but also note that such obligation could be substantially less than its defense obligation).
This article is also on Law.com: A&E Insurance: Professional Liability and General Liability Coverage Overlap