ENTRY ON CROSS MOTIONS FOR SUMMARY JUDGMENT
This case presents several questions of Indiana law about the scope of liability insurance coverage under a business’s general liability insurance policy. Several of the defendants in this case — Sear Corporation and two of its officers, Larry Bass and Birch Dalton (collectively, the “Sear defendants”)— have filed suit in state court for defamation and tortious interference with contract against the “Alliance defendants” — Alliance Environmental, Inc., Alliance Indiana, Inc., Alliance Illinois, Inc., and Bruce Wallace, who is president and chief operating officer of each those corporations. The Alliance defendants submitted a claim for defense and
All parties have moved for summary judgment and agree that Indiana law governs the insurance policy at issue here. Erie argues that the “personal injury” liability coverage provided in the policy it issued to the Alliance defendants excludes coverage for damages arising out of “services of a professional nature.” The Alliance defendants and the Sear defendants argue that Erie is obligated to provide coverage because the underlying lawsuit asserts claims beyond the scope of the professional services exclusion. Both sets of defendants also contend that the policy’s “advertising injury” liability coverage applies even if the professional services exclusion also applies to bar personal injury liability coverage. As explained below, the court concludes that the Erie policy does not apply because the Sear defendants seek to hold the Alliance defendants liable for actions taken in providing professional services and because the Alliance defendants’ actions were not “in the course of advertising” their services. The court therefore grants Erie’s motion for summary judgment and denies the Alliance defendants’ and Sear defendants’ motions for summary judgment.
Summary Judgment Standard and Applicable Indiana Insurance Law
Summary judgment should be granted when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). A genuine issue of material fact exists if there is sufficient evidence for a jury to find in favor of the non-moving party on the particular issue.
E.g., Methodist Medical Center v. American Medical Security, Inc.,
Indiana law governs the interpretation of the Erie policy, so the task for this court is to decide issues of Indiana law as the court believes the Supreme Court of Indiana would decide them. Under Indiana law, words in an insurance policy should be given their plain and ordinary meaning whenever possible. See
Tate,
Indiana’s interpretation rule about ambiguity in both coverage and exclusion provisions should not be taken to its extreme. An insurance company cannot be held to a standard of clarity requiring it to have anticipated every factual situation that possibly could arise and to have expressly addressed how the policy would apply to all of those situations.
Hamischfeger Corp. v. Harbor Ins. Co.,
Undisputed Facts
This dispute arose after asbestos was discovered at Jefferson High School in Lafayette, Indiana. Because the allegations in the complaint ordinarily govern the scope of the insurer’s duty to defend and indemnify, the central facts here are actually the allegations in the Sear defendants’ complaint against the Alliance defendants in state court. (As far as this court is aware, the truth of the material allegations is hotly disputed in that action, but this court must focus on the allegations for purposes of deciding this ease.) In 1991, the Lafayette School Corporation contracted with Sear Corporation to remove the asbestos. Sear Corporation removed asbestos between September 5, 1991, and November 27, 1991. The school corporation then allegedly discovered asbestos remaining at the high school in areas where Sear had worked. The school corporation contracted with Star Environmental, Inc. to remove the additional asbestos. Star completed that work in the summer of 1992.
The school corporation also hired the Alliance companies in August 1992 to “inspect and investigate the source and responsibility for the [asbestos] materials” at the high school. Sear Cplt. ¶ 19. After completing their investigation, the Alliance defendants (through Wallace) reported their findings to the school corporation, the Indiana Department of Environmental Management, and “others.” The Alliance defendants’ findings were that Sear failed to remove all of the asbestos at the high school, and that Sear negligently committed “civil and criminal violations in failing to do so.” 1 The Sear defendants allege that, as a result of the actions of the Alliance defendants and others, Sear Corporation lost its license as an asbestos contractor with the State of Indiana, but later regained its license.
The school corporation brought suit against the Sear defendants in Tippecanoe Circuit Court for failing to remove all the asbestos at the school. The Sear defendants filed a third party complaint against the Alliance defendants and others for tortious interference with a contractual relationship, defamation, and civil rights violations. The Alliance defendants submitted a claim to Erie for coverage under the liability policy. Erie denied the Alliance defendants’ claim and filed this lawsuit to obtain a declaratory judgment that its policy provides no coverage here.
The Erie insurance policy at issue (Policy No. Q40 0750196 R, in effect from April 7, 1992, to April 7, 1993), covers Alliance Environmental, Inc., Alliance Indiana, Inc., Alliance Illinois, Inc., and their officers and directors acting within the scope of their employment. The policy includes casualty protection for the Alliance defendants’ business property and business income. The policy also includes liability protection for
The Erie insurance policy separately covers “advertising injury.” The policy defines “advertising injury” in part as injury arising out of “oral or written publication of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services.” The operative coverage provision includes this limitation: “We cover only advertising injury caused by an offense committed during the policy period and in the course of advertising your goods, products or services and which takes place in the covered territory.” The exclusions portion of the policy does not include a professional services exclusion applicable to advertising injury.
Professional Services Exclusion to Personal Injury Liability Coverage
The Erie policy in this case is not the type of policy known as an “errors and omissions” policy or a professional malpractice policy. It is instead a general business liability policy that expressly excludes coverage for liability for “damages due to (e) any service of a professional nature, including but not limited to: (1) the preparation or approval of maps, plans, opinions, reports, surveys, designs, or specifications and (2) supervisory, inspection or engineering services.” The difference between the two types of policies is important in terms of what the parties to the insurance contract believe they are buying and selling. Where the entity buying a general liability policy is in the business of providing professional services (such as legal advice, medical treatment, or engineering services, as in this case), there is some room for confusion, overlap, and controversy. The precise issue is thus what scope to give the phrase “due to service of a professional nature.”
A. Scope based on identity of plaintiff or type of legal claim
The parties agree that the Alliance defendants provided some professional services to the Lafayette School Corporation and that the professional services exclusion would apply if the underlying suit had been brought by the school corporation against Alliance for professional malpractice. The elements of that hypothetical situation that lead to agreement regarding the exclusion’s application are the identity of the plaintiff bringing the underlying suit and the nature of the legal claim being brought. The Alliance and Sear defendants argue that the exclusion’s applicability is limited by one or both of these two factors and that the exclusion does not apply to claims brought by third parties and characterized as general torts.
First, the Alliance and Sear defendants argue that the professional services exclusion applies only to so-called “first party” claims,
i.e.,
claims by someone to whom the Alliance defendants provided their professional services directly, such as the school corporation in this case. The few Indiana cases dealing with professional services exclusions have involved first party claims. See
Terre Haute First National Bank v. Pacific Employers Ins. Co.,
The Alliance and Sear defendants next argue that the professional services exclusion applies only to claims based on alleged breaches of specific duties uniquely owed by professionals. They cite two eases employing this “type of claim” test to limit professional services exclusions. See
Tread-way v. Vaughn,
The language in the Erie policy — “damages due to any service of a professional nature” — cannot be limited to claims alleging breaches of duties imposed by law only upon someone acting as a professional. This professional services exclusion is framed in terms of the services or activities that give rise to the liability, not in terms of the legal theory articulated by the plaintiff. See
Hurst-Rosche Engineers, Inc. v. Commercial Union Ins. Co.,
B. Scope based on nature of acts
The scope of the professional services exclusion in the Erie policy must be determined from the nature of the allegedly wrongful actions rather than from the identity of the claimant or the legal theories the claimant chooses to articulate. In drawing boundaries between alleged wrongs that are within or without the scope of the professional services exclusion, the court must recognize the fact that there are different insurance policies on the market for different purposes. A professional services exclusion
The Alliance and Sear defendants argue that the professional services exclusion should not apply because the underlying suit is based on alleged conduct that was not inherently professional in nature and that was outside the scope of the Alliance defendants’ contractual obligations to the school corporation. These closely related concepts come from case law in Indiana and other jurisdictions wrestling with similar coverage problems.
Some courts have dealt with the problem in terms of whether the alleged wrongful acts were inherently professional. For example, in
Norways Sanatorium, Inc. v. Hartford Accident & Indemnity Co.,
Conversely, in
Terre Haute First National Bank v. Pacific Employers Ins. Co.,
The Third Circuit similarly based its decision in
Harad v. Aetna Casualty & Surety Co.,
The professional aspect of a law practice obviously involves the rendering of legal advice to and advocacy on behalf of clients for which the attorney is held to a certain minimum professional and ethical standards [sic]. The commercial aspect involves the setting up and running of a business, i.e., securing office space, hiring staff, paying bills and collecting on accounts receivable, etc., in which capacity the attorney acting as businessperson is held to the same reasonable person standard as any other. Indeed, the professional services and the business distinction drawn by the two policies and Harad’s recognition of the limitations inherent in each is manifested by the fact that Harad purchased a separate professional liability policy from Home.
Given the dual nature of the practice of law, an attorney’s liability for an action should be assessed depending on the particular role he was performing at the time the alleged liability arose. For example, if an attorney, while hosting a real estate closing in his office, places his briefcase on the floor and a colleague trips on it, is injured and sues him, the lawyer’s liability would derive not from the rendering of a professional service, but rather from his operation of a business. Conversely, since Harad’s conduct in this case was not related to his operation of a business, but was derived solely from his providing legal services to a client, his liability is professional in nature.
Norways Sanatorium, Terre Haute First National Bank,
and
Harad
all interpreted professional services exclusions to more general liability policies. The court in
Albert J. Schiff Associates, Inc. v. Flack,
The renting of an office, the engagement of employees, arrangements to expand the size of one’s activities, these may all have some connection with a covered business or profession. But, while they may set the stage for the performance of business or professional activities, they are not the professional activities contemplated by this special coverage. An errors and omissions policy is intended to insure a member of a designated calling against liability arising out of the mistakes inherent in the practice of that particular profession or business (see Grieb v. Citizens Cas. Co.,33 Wis.2d 552 ,148 N.W.2d 103 ). After all, the plaintiffs policy here was neither a standard general liability policy nor a standard general liability policy with a contractual liability indorsement. Nor was it one comprehensive enough to protect against all business vicissitudes. To hold otherwise, on a fair reading of the policies, would be to create additional coverage beyond that which was bought and paid for.
Other courts have looked more closely at the precise terms of the particular professional service contract involved. In several cases involving construction projects and engineering firms, courts have examined the scope of the engineering firm’s professional
The Seventh Circuit’s decision in
HurstRosche Engineers, Inc. v. Commercial Union Ins. Co.,
The Indiana courts provided some additional guidance with respect to this problem in
Collins v. Covenant Mut. Ins. Co.,
The nature of the Alliance defendants’ acts at issue must be examined against this background of ease law. The complaint in the underlying suit alleges that the Alliance defendants were retained by the Lafayette School Corporation “to inspect and investigate the source and responsibility for the materials found inside” Jefferson High School. In one of the most important communications at issue in the underlying suit, Bruce Wallace, the President and CEO of Alliance, wrote to an official at the Indiana Department of Environmental Management (IDEM). He introduced several paragraphs with the phrase “it is the professional environmental and safety engineering opinion of Alliance Environmental Inc. that____” See Exhibit A attached to “Plaintiffs Reply in Support of Summary Judgment and Response in Opposition to Cross-Motion for Summary Judgment by Sear” (hereinafter, “IDEM letter”), at page 2, ¶¶ 1-4, 8. As Erie asserts, any liability stemming from the statements in those paragraphs clearly would be “due to services of a professional nature.” However, Wallace also made additional observations about Sear based on information that he presumably acquired before his specific investigation of asbestos problems at Jefferson High School. See IDEM letter, at pages 3-4. He wrote, for example:
I have been made aware that Sear projects typically used untrained, unskilled workers with forged training documentation. They apparently have had a long history of federal and state asbestos work practice violations and safety orders. In my personal dealings with Sear, their general attitude towards regulatory compliance has been poor, to say the least. Sear has worked on several bidded school projects which Alliance has designed and where Alliance was the project manager, over the past four years. As President of Alliance, my experiences with the Sear performance on asbestos abatement projects has [sic] not been good. Their work practices were nothing short of deplorable, their workers undependable and their compliance efforts were non-existent.
Sear also has been noted by their own employees as not paying the full prevailing wage to all workers____ [K]nowing the owners of Sear as I do, I would suspect that an investigation of their labor records would reveal significant legal problems with their payroll records as well as their accounting practices.
IDEM Letter, at page 4. The parties also have submitted to the court copies of other written communications and copies of newspaper articles at issue in the underlying suit.
All of the allegedly defamatory communications identified to the court are clearly communications that Mr. Wallace made in the course of providing his professional services for the school corporation, at least in the sense that he would not have made them but for the contract with the school corporation to inspect and report on the work done by the Sear defendants. The Alliance and Sear defendants argue, however, that at least some of these communications went beyond the scope of the professional service contract and were not essential parts of the profes
The Alliance and Sear defendants are essentially asking this court to hold that the Seventh Circuit’s decision in
HurstRosche Engineers
is limited to liability for actions expressly requested in and/or indispensable to a professional services contract. See
The Erie exclusion for professional services refers specifically to preparing opinions and reports. The statements before the court were either framed expressly as “professional opinions” or were made in the same reports as those “professional opinions.” The statements in dispute were included as part of the reports of the results of the professional investigation that Alliance was hired to conduct. They provided information about the company and individuals who were subjects of the investigation. They provided information that was plainly relevant to the investigation and report. A client like the school corporation contracts for “professional” services in order to benefit from the special skill, training, and judgment of the professional. Even if the school corporation had not expressly requested Wallace to consider other sources of information about the Sear defendants, as a professional’s client it surely would have had a right to expect Wallace to provide it with relevant information available to him from other sources, including his own past experience and personal knowledge.
In light of these circumstances, the statements in dispute here, although not
expressly
called for, were made in the course of providing professional services to the school corporation, were reasonably related to the services provided, and involved the use of professional experience, skill, judgment, or knowledge. Any damages stemming from the statements in dispute here would be “due to” professional services. See also
USM Carp. v. First State Ins. Co.,
Advertising Injury Coverage
The Alliance defendants’ insurance policy from Erie separately provides cover
That conclusion does not resolve the advertising injury issue, however. The other dispute here concerns limiting language in the coverage provision of the policy, which states: “We cover only advertising injury caused by an offense committed during the policy period and in the course of advertising your goods, products or services and which takes place in the covered territory.” Erie argues that the alleged defamatory statements were not made “in the course of advertising” the Alliance defendants’ services. The Alliance and Sear defendants argue the coverage applies because Sear contends in the underlying lawsuit that the Alliance defendants made defamatory statements about Sear for the purpose of obtaining more business for themselves. The Sear defendants’ complaint itself makes no such allegation. After the insurance coverage issue arose, however, the Sear defendants asserted in interrogatory answers about the basis for their punitive damages claims that they “believe that Bruce Wallace was primarily motivated by greed. In other words, he intentionally, recklessly, maliciously, and falsely discredited Micro Air and SEAR Corporation in order to obtain work from LSC.”
The issue then is whether, for the purposes here of indemnification and defense, the underlying suit alleges defamation “in the course of advertising [the Alliance defendants’] goods, products or services.” In
Sentry Ins. v. R.J. Weber Co.,
The Sear defendants’ beliefs (asserted in their interrogatory answers) about the motives for the alleged defamation cannot transform statements made in the course of providing professional consulting services into anything recognizable as “advertising.” As Erie points out, most professionals hope that their work product will enhance their own professional reputations, but that fact cannot transform all professional work product or all statements made in furtherance of the business into “advertising” for purposes of such an insurance provision. The Alliance and Sear defendants would extend the phrase “in the course of advertising your goods, products or services” to any statements by the business that might directly or indirectly increase demand for its services. That approach would erase reasonable limitations on the term “advertising.” Although many courts have considered the scope of similar “advertising injury” provisions, both in exclusions and in coverage provisions, none has stretched the phrase “in the course of advertising” that far. See
Playboy Enterprises v. St. Paul Fire & Marine Ins. Co.,
The broad coverage that the Alliance defendants seek would extend advertising coverage to most claims related to the insured’s business. But an insured can reasonably expect to obtain such broad coverage only by buying other forms of insurance, such as errors and omissions liability coverage, which would cover the claims made here. See
Bank of the West v. Superior Court of Contra Costa County,
Conclusion
A so-called “general” liability insurance policy is not a substitute for a professional “errors and omissions” or malpractice policy. The Alliance defendants could not reasonably have expected the Erie policy to provide insurance for the types of claims asserted by the Sear defendants. The professional services exclusion to coverage for personal injury liability applies to exclude those claims from Erie’s duty to defend and its duty to indemnify. The policy’s coverage for “advertising injury” does not apply to the claims asserted here because the Alliance defendants’ statements were not made “in the course of advertising [Alliance’s] goods, products or services.” Erie is therefore entitled to a declaratory judgment in its favor. That judgment will be entered separately.
Notes
. The record contains copies of some written reports by Wallace as well as numerous newspaper articles about the general controversy conceming asbestos at the high school and the efforts to correct the problem.
. A wide range of legal theories may be available to plaintiffs who believe they have been injured by the actions of professional who was providing professional services. Depending on the circumstances and the profession involved, a plaintiff could plead claims for general negligence, failure to comply with the applicable profession’s standard of reasonable care, defamation, tortious interference with contract, fraud, constructive fraud, negligent or intentional infliction of emotional distress, and so on. Yet perhaps only claims for constructive fraud and failure to comply with a professional standard of care would allege breaches of duties specific to the professional nature of the services provided.
. Judge Sloviter dissented in
Harad,
arguing that when an insurer issues a business liability policy (that includes coverage for malicious prosecution) to a business that is a professional law practice, the exclusion for "professional service” is at least ambiguous. Judge Sloviter would have imposed on the insurer the obligation to clarify the scope of coverage more explicitly.
. The physician was convicted on criminal charges arising from his conduct toward this and other patients.
. The record includes part of a letter from Mr. Wallace to an Erie claims adjuster dated September 14, 1994. The Alliance defendants assert that Wallace wrote that the allegations in the Sear defendants’ complaint "are just the type for which we purchased insurance coverage" and "are just the type for which we are covered in the policy.” The cited page of the Wallace letter is not contained in the court’s copy of the letter (which is an exhibit to Erie's original brief). In any event, Mr. Wallace’s subjective expectations expressed after the coverage controversy arose are not material and do not raise a triable issue of material fact. As explained above, it was not reasonable for Mr. Wallace to expect coverage because the professional services exclusion unmistakably brings the alleged acts within its scope.