Q
An insured of ours operates a septic tank cleaning company. In addition, he does dye tests for banks for mortgage closings. Dye tests consist of pouring a vegetable dye into the drains while the water is running to see if any of the dye appears on the surface, indicating a failure of the system. The notice to the property owner tells of the condition of the field on a fixed date and contains no warranty as to future condition. There are no national standards, apparently, on how this test is to be performed. The local board of health follows the same testing procedure but our insured tests to higher standards as he runs more water through the system than does the county.
The insured is covered by a commercial general liability policy. A claim was filed following failure of the system a year after the insured's inspection. The claimant alleges that either the dye testing was negligently done, giving a false reading of the condition of the system, or that the inspection of the field was negligent in failing to obtain a true reading.
Upon presentation of the claim to the insurer, we are told that there is no coverage because of: exclusion a (intentional injury or damage); exclusion k (damage to “your product”); exclusion l (damage to “your work”); and, exclusion m (damage to “impaired property”).
The insurer's claims department says that the complaint as presented speaks of an intentional act so exclusion a is invoked and, furthermore, that the inspection was the insured's work/work product so exclusions k, l, and m may also be applied. We wonder if you have any suggestions or comments.
New York Subscriber
A
Does the CGL policy exclude coverage for the rendering or failure to render professional services? The unadorned CGL policy covers the professional liability exposure — “we will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage” to which this insurance applies” — unless it is excluded (so that, indeed, this insurance does not apply to professional liability claims).
If professional services are covered, the insured would seem to have a legitimate claim under the CGL policy. The allegation is presumably along the lines that the claimant's reliance on the insured's negligent inspection or testing left the claimant with a loss of use situation (i.e., property damage) partial or otherwise. If, as the insurance company says, however, the claimant alleges that the insured's failure was deliberate rather than accidental, then the claimant may have missed involving the insurance as the claims department suggests. A careful reading of the complaint by qualified counsel is required to settle that question.
As for damage to the insured's “product” or “work,” neither matter is at issue. Furthermore, in order to qualify as “impaired property” it has to be made good as new if only the insured withdraws his product or executes his work correctly. Such a remedy is not available — and neither is the impaired property exclusion.
The scenario describes a classic errors and omissions situation. If there is no professional exclusion on the policy and if the allegation is one of negligence rather than intent, then the insured is entitled to a defense and coverage.
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