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Consultant's 'Professional Services' Relating to Oil Well Blowout Are Excluded Under CGL Policy
Insurance Law Update
July 2010
U.S. Court of Appeals, Fifth Circuit
In Admiral Ins. Co. v. Ford, 607 F.3d 420 (5th Cir. (Tex.) May 21, 2010), the Fifth Circuit Court of Appeals held that a professional services exclusion in a CGL policy issued to a company that provided “oil and gas consultant” operations in connection with the implementation of a plan to drill a well barred coverage for damages caused by a blowout of the well because the insured’s operations required “specialized knowledge or training.”
Admiral Insurance Company issued to the insured, Ford, both a professional liability policy for “oil and gas consultant” operations and a CGL policy. The CGL policy had an exclusion for professional services, which were described in the policy as “all operations of the insured.” Ford was hired to create a drilling plan for an oil well and to consult and assist in the drilling of the well. During the drilling, the well blew out, leading to a lawsuit against Ford. Admiral made a payment to Ford under the professional liability policy, but filed an action for a declaratory judgment that it did not owe Ford any coverage under the CGL policy.
The trial court entered summary judgment in favor of Ford. The court ruled that the professional services exclusion in the CGL policy was illusory because it applied to all operations of Ford, rather than to the specific professional services Ford provided. Thus, the trial court held that Admiral had a duty to defend the insured under the CGL policy.
The Fifth Circuit reversed. The court found that it was both unreasonable and unlikely that Ford would purchase insurance that it believed would exclude all of its operations. Instead, the court found that the exclusion was meant to apply to those services that required the insured’s “specialized knowledge or training.” The court observed that the underlying suit involved the existence of and failure to fulfill a contract calling for Ford’s expertise and services in drilling operations. The court rejected Ford’s argument that some of the services it provided were non-professional in nature. The court acknowledged that implementation of a drilling plan invariably involved some menial tasks, but found that the insured was ultimately tasked with ensuring that the drill pipe did not fail under the drilling conditions. Thus, the professional services exclusion applied.
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