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In Orchard, Hiltz & McCliment, Inc. v. Phoenix Insurance Co., Nos. 16-1176 & 16-1231, 2017 WL 244787 (6th Cir. 2017), the United States Court of Appeals for the Sixth Circuit affirmed a lower court’s grant of Summary Judgment against the Engineer, Orchard, Hiltz & McCliment, Inc. (“OHM”) and in favor of Insurers, Phoenix Insurance Co. and Federated Mutual Insurance Co., based on exclusionary provisions for professional services in commercial general liability policies issued by the Insurers.
In 2011, the Village of Dexter, Michigan hired OHM to design upgrades to its wastewater treatment plant. Dexter also hired nonparty, A.Z. Shima, Inc. (“Shima”), as the Project’s general contractor. Shima, in turn, subcontracted with Platinum Mechanical, Inc. (“Platinum”), to provide labor and materials for the Project. Shima and Platinum each obtained a general liability insurance policy naming OHM as an additional insured. Both policies contained the standard provision excluding coverage for bodily injury, property damage, or personal injury arising out of the rendering of any professional architectural, engineering or surveying services.
On April 23, 2013, methane gas inside a digester tank was ignited by a construction worker using a cutting torch. The explosion injured one construction worker and killed another. The injured worker and the estate of the deceased worker filed lawsuits against OHM, alleging negligence and gross negligence in the performance of OHM’s engineering duties. OHM filed a declaratory judgment action seeking a judgment requiring the Insurers to defend and indemnify OHM in the underlying actions. The lower court granted summary judgment in favor of the Insurers, holding, as most courts do, the professional services exclusion in the commercial general liability policies excluded the claims from coverage.
On appeal, OHM argued the lower court’s construction of the professional services exclusion rendered coverage under the commercial general liability policies “illusory.” Under the illusory coverage doctrine, courts are to avoid interpreting insurance policies in such a way that an insured’s coverage is never triggered and the insurer bears no risk. The Sixth Circuit rejected OHM’s argument, holding the illusory coverage doctrine did not apply because coverage could be triggered where OHM employees are exposed to liability for bodily injury or property damage caused by their ordinary negligence in performing some task that falls outside the provision of professional services. The Sixth Circuit also noted the Insurers provided general liability policies that were never intended to cover professional negligence claims, and OHM even obtained a professional liability policy indicating OHM was aware of the limitations to coverage.
The Sixth Court’s decision in Orchard, Hiltz & McCliment, Inc. addresses the ongoing issue in the A&E field of what is covered by general and professional liability policies. The opinion demonstrates the importance of a design professional procuring, in some form or fashion, both commercial general liability coverage and professional liability coverage to fully cover the various risks.