The U.S. Court of Appeals for the Ninth Circuit, affirming a district court's decision, has ruled that security services offered by a security company fell within the professional services exclusion in the commercial general liability insurance policy issued to the security company.
The Case
German Motors Corporation hired Bay One Security to provide security for its BMW dealership in San Francisco.
According to German Motors, in June 2015, while a Bay One security guard was on duty, a man broke into a German Motors' dealership and caused significant damage to multiple cars and the dealership.
German Motors sued Bay One in state court for breach of contract and negligence, and Bay One then tendered the claim to The Burlington Insurance Company, from which it had acquired a commercial general liability ("CGL") insurance policy.
Burlington asserted that the damage claimed by Bay One was excluded from coverage by the CGL policy's professional services exclusion.
The U.S. District Court for the Northern District of California agreed with Burlington, and the coverage dispute reached the Ninth Circuit.
The Burlington Insurance Policy
The Burlington insurance policy provided:
This insurance does not apply to "any injury or damage" arising out of the rendering of or failure to render any professional services by or for you.
The Ninth Circuit's Decision
The Ninth Circuit affirmed, holding that the policy's professional services exclusion applied to preclude coverage.
In its decision, the circuit court explained that Bay One's security services fell within the "commonly understood" meaning of "professional services" – namely, those "arising out of a vocation, calling, occupation, or employment involving specialized knowledge, labor, or skill, and the labor or skill involved is predominantly mental or intellectual, rather than physical or manual."
In the Ninth Circuit's opinion, Bay One's services met each criterion: they arose out of employment, involved specialized knowledge, and were predominantly mental.
The circuit court added that the type of policy Burlington issued to Bay One was a CGL policy, and that CGL policies typically did "not cover professional negligence, such as a security guard's negligent failure to watch a video monitor."
Finally, the circuit court reasoned that the nature of the security enterprise suggested that it was a professional service. The circuit court pointed out that German Motors' agreement with Bay One involved an exchange for value: Bay One provided security, and German Motors paid an hourly rate of $45 for the service. Additionally, the circuit court continued, Bay One's services required employees to have specialized knowledge, training, and qualifications. Moreover, each guard's individual duties were "primarily mental" given that each guard's responsibilities included monitoring live surveillance footage and "otherwise remain[ing] vigilant for any signs of suspicious activity."
Overall, the Ninth Circuit concluded, the nature of Bay One's security services placed those services "squarely within" the professional services exclusion.
The case is Burlington Ins. Co. v. German Motors Corp., No. 18-15835 (9th Cir. Dec. 17, 2019).
Learn more:
Steven A. Meyerowitz
Steven A. Meyerowitz, a Harvard Law School graduate, is the founder and president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. He may be contacted at [email protected].