Imagine you are a licensed HVAC (heating, ventilation, air conditioning) contractor and you own your own business. You have a great reputation in the community and often work with general contractors on new, ground-up construction projects. You’ve been extremely successful and find yourself facing the same kinds of “growing pains” as any successful business.
Because you are familiar with the fact that things can and do go wrong on construction projects, you have what you believe to be adequate insurance coverage for your business in the event something happens. However, are you sure you have the right coverages in place?
“Professional Negligence” and CGL Policies—A Sometimes Problematic Combination
Like many specialty contractors, HVAC subcontractors must do a variety of things in connection with many jobs. Construction plans are not always complete. Sometimes, specialty contractors are required to use their own expertise to make certain decisions about how to complete a system that they have been contracted to install. Some decisions are more technical than others. Some more mental than others. If a mistake is made and a claim results, what is the type of policy that covers the HVAC subcontractor? The answer, as can so often be the case, may depend on the error that caused the damage and how that error might be characterized.
The reason is that many CGL policies include a professional liability exclusion. The scope of these exclusions can vary dramatically and as is true with respect to any exclusion or other policy provisions, the wording is important. While such exclusions can be common, they seldom define what type of services fall within their scope. In looking at the undefined term, professional services, California courts have often viewed the term as encompassing those services “arising out of a vocation, calling, occupation, or employment involving specialized knowledge, labor, or skill, and the labor or skill involved is predominately mental or intellectual, rather than physical or manual.” Tradewinds Escrow, Inc. v. Truck Insurance Exchange (2002) 97 Cal.App.4th 704, 713; see also, Stone v. Hartford Casualty Co. (CD CA 2006) 470 F.Supp.2d 1088, 1098 (applying CA law).
For many specialty contractors, on any given job, depending on the scope and the state of the construction drawings, what they might be asked to do as part of their work can vary widely. And, while some of these things might be viewed as just “part of the life of a subcontractor”, those vagaries can have lasting impacts.
If the HVAC subcontractor needs to run calculations in order to determine what the plans are calling for, if the subcontractor makes a mistake in those calculations, is that an act of professional negligence (and therefore potentially excluded (see, e.g., Tradewinds Escrow, Inc. v. Truck Ins. Exch., supra, 97 Cal.App.4th at 713; Antles v. Aetna Casualty & Surety Co. (1963) 221 Cal.App.2d 438, 443)) or is the work that was performed (and which arguably was part and parcel of the calculations) an act of negligent construction (i.e., manual labor) that takes the mistake and resulting damage outside the scope of a professional liability exclusion (Food Pro International, Inc. v. Farmers Insurance Exchange (2008) 169 Cal.App.4th 976, 991; North Counties Engineering, Inc. v. State Farm General Insurance Co. (2014) 224 Cal.App.4th 902, 928)?
The Application to You and Your Business
Are you thinking to yourself: “What the heck? I am a contractor. Of course, what my company does is physical!?!” One can empathize. If this feels like a trap for the unwary, the sense is justified. But the fact is that many contractors should consider whether their operations are such, whether their own project experiences are such, that perhaps the addition of professional liability coverage (alongside the much more standard general liability coverage) is justified.
While professional liability policies can be more expensive, the cost could pale in comparison to the possible nasty surprise of finding oneself without coverage, because the work that caused the damage or injury was later determined to be the result of an act or omission that was a professional service, because it was more “mental” than “manual”.
If that distinction sounds inexact and potentially arbitrary, you are likely right. Yet, perhaps even more reason to carefully consider whether a professional liability policy might be a worthwhile addition to your company’s risk mitigation plans. Our firm is here to help you navigate your policies and evaluate your risk do not hesitate to reach out to us today.