Kathy Maus and Samantha Wuschke | Butler Weihmuller Katz Craig
Although a construction manager’s scheduling and liaison responsibilities do not require specialized training, such tasks may be sufficiently related to the actor’s other roles to be excluded from coverage under a liability policy’s Professional Services exclusion, the U.S. Eleventh Circuit Court of Appeals has held.
In Colony Insurance Company v. Coastal Construction Management, LLC, et al., the Eleventh Circuit affirmed a grant of judgment on the pleadings for Colony Insurance Company, finding that the insurer did not owe a duty to defend its insured construction manager for underlying construction defect claims under a commercial general liability policy.[1] The court found that 1) the professional services exclusion at issue was not ambiguous, 2) it could not separate “scheduling and liaison tasks” from construction management tasks, and 3) “compliance” issues were excluded under the professional services exclusion as a matter of law. Interestingly, it does not appear the underlying plaintiff expressly alleged defective performance of “scheduling, compliance, and liaison tasks” in the underlying complaint.
Underlying this coverage dispute, Coastal Construction Management served as the construction manager for a project involving Rosalyne Holdings, LLC’s four-story apartment complex in Sarasota, Florida. Allegedly defective work was performed. Colony insured Coastal under two commercial general liability policies. Rosalyne sued Coastal Construction Management for defects at the completed project, alleging breach of contract and negligence.
Colony later filed a federal declaratory judgment action against Coastal, Rosalyne, and others involved in the project, asserting Colony had no duty to defend or indemnify them with respect to the underlying construction defect suit. After answering the declaratory judgment complaint, Colony moved for judgment on the pleadings based on the “professional services” exclusion in the policy.[2] The district court granted Colony’s motion for judgment on the pleadings, and Rosalyne appealed.
The Eleventh Circuit, applying Florida law, explained that it would construe the policy according to its plain meaning, it would not search for ambiguity, and it would not consider the absence of a definition grounds to render the policy ambiguous. Further, the Eleventh Circuit explained rules specific to the professional services exclusion, which Florida courts approach with a “fact-intensive analysis” that looks at the act itself, not the nature of the performing individual or entity. Florida courts interpret “professional services” to mean those that require special training. The court also clarified that it must look at the causal connection between the subject act and the provided professional service, nevertheless recognizing that the duty to defend stems from the complaint’s allegations in the end.
Although the policy did not define professional services, the exclusion was not ambiguous where it listed examples, including:
[. . .]
(2) preparing, approving, or failing to prepare or approve maps, drawings, opinions, reports, surveys, change orders, designs or specifications.
(3) inspection, supervision, quality control, architectural or engineering activities done by or for you on a project on which you serve as construction manager; [and,]
(4) engineering services, including related supervisory or inspection services[.] (emphasis added).
The exclusion applied to preclude coverage because the complaint alleged in Count I that Coastal:
failed to properly and timely complete its Work; failed to timely and properly complete punch-list items; and failed to correct inadequate, defective, and noncomplying Work at the Project; and failed to perform services in a good and workmanlike manner and to provide necessary materials in accordance with and pursuant to approved plans and specifications, industry standards and all applicable codes.
Count II alleged Coastal breached its duties by failing to ensure the general contractor correctly and timely constructed the project, resulting in numerous defects.
In viewing the allegations of the underlying complaint, the court examined the actions rather than the actors but acknowledged that the actors and actions intertwined to a certain extent. In other words, Coastal was a construction management company, so the types of actions it took were construction management actions. Rosalyne conceded some parts of its underlying complaint alleged construction management services but argued that Colony had a duty to defend because scheduling, compliance, and liaison tasks were beyond the exclusion as they did not require specialized training.
The court disagreed and held that scheduling, compliance, and liaison tasks did not trigger a duty to defend here. The court reasoned that the professional services exclusion applies when compliance is at issue as a matter of Florida law. The court further reasoned that scheduling and acting as a liaison could not be separated from construction supervision. The exclusion included in its description is inspection and quality control on a project where you serve as construction manager. The court found that “overall, the allegations [. . .] closely parallel the specific provisions of the professional services exclusion.” As such, the court held that because the wrongs fell within the professional services exclusion, Colony did not have a duty to defend.
Although scheduling, compliance, and liaison tasks do not require specialized training, if those actions are wrapped up with the excluded actions alleged against an insured, the exclusion still applies. In other words, the professional services exclusion applies to scheduling, compliance, and liaison tasks that are required for the insured to render its professional service. A plaintiff cannot merely say there is coverage because a professional service alleged in a complaint inherently involves tasks that do not require specialized training. Accepting that argument would essentially eliminate the exclusion—for example, are there any professional services that do not involve scheduling?
[1] Colony Ins. Co. v. Coastal Constr. Mgmt., LLC, 22-14037, 2024 WL 861254 (11th Cir. Feb. 29, 2024)
[2] Colony dismissed Coastal as a party, but Coastal stipulated it would be bound by the district court’s judgment.
When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.