Wimberly Allison Tong & Goo, Inc. v. Travelers Property Casualty Co. of America
Docket: No. 08-2976
Court: Court of Appeals for the Third Circuit; November 17, 2009; Federal Appellate Court
Plaintiff Wimberly, Allison, Tong, Goo, Inc. (WATG) appeals the District Court's summary judgment favoring Defendants Travelers Property Casualty Company of America (Travelers) and Gulf Underwriters Insurance Group (Gulf), which concluded that these insurers had no duty to defend WATG in lawsuits stemming from a parking garage collapse at the Tropicana Casino Resort in Atlantic City, New Jersey.
In November 2000, WATG, an architectural firm, entered an agreement with Tropicana for constructing a parking garage. On October 30, 2003, a significant collapse occurred, resulting in multiple fatalities and severe injuries. The first lawsuit was filed by Govathlay Givens, who accused WATG of negligence for failing to meet the standard of care expected of architects, including improper design, lack of supervision, and failure to address known dangers.
Another lawsuit from Another Time, Inc., a nearby hotel/restaurant, alleged negligence and nuisances, claiming WATG's actions unreasonably interfered with property use, leading to economic loss. Similar allegations were made in a consolidated Master Complaint by various plaintiffs, asserting that WATG's deviations from care standards and non-compliance with OSHA regulations contributed to the garage’s structural failure. Claims included loss of consortium, wrongful death, survivorship, and emotional distress for bystanders.
At the time of the garage collapse, WATG held several insurance policies: a professional liability policy and an excess professional liability policy with Continental Casualty Company (CNA), a commercial liability policy with Travelers, and a commercial excess liability policy with Gulf. The Travelers policy covered damages from 'bodily injury' or 'property damage' caused by an 'occurrence' within the coverage territory but included a professional services exclusion, which denied coverage for injuries arising from the rendering or failure to render professional services by WATG or its employed engineers, architects, or surveyors. The Gulf policy similarly provided coverage for damages WATG was legally obligated to pay but included the same professional services exclusion.
On April 16, 2004, WATG notified Travelers of the Givens complaint and other claims. On May 12, 2004, Travelers denied coverage, citing the professional liability exclusion related to WATG's role as architects. WATG sought reconsideration after notifying Travelers of additional suits, but coverage was repeatedly denied, although Travelers indicated a duty to defend claims unrelated to professional activities. Despite further notifications in 2005, Travelers maintained its denial of coverage. WATG also informed Gulf of the lawsuits on April 16, 2004, but Gulf deemed the request for defense and indemnification premature, reserving the right to deny coverage based on the professional liability exclusion, and did not provide coverage following subsequent notifications from WATG.
Summary judgment is deemed appropriate when no genuine issues of material fact exist, allowing the moving party to prevail as a matter of law. The court's review of summary judgment is thorough, with interpretations of insurance contracts and policy exclusions also subject to comprehensive review.
Under New Jersey law, an insurer must promptly investigate a potential claim once notified by the insured and inform the insured of the results within a reasonable timeframe (Griggs v. Bertram). The insurer cannot disregard known information simply because it is absent from the complaint but is not required to explore all possible implications of an underlying suit that may activate coverage. The insured is responsible for promptly providing the insurer with information that might trigger coverage (SL Indus. Inc. v. Am. Motorists Ins. Co.). WATG acknowledges that the insurer's investigation need not be exhaustive. WATG argues that the defendants conducted no investigation before denying coverage, a point not specifically addressed by the District Court. However, the evidence shows that the defendants met their investigation obligations. Upon receiving notice of the Givens complaint, Travelers’ Dawn Minell engaged with WATG’s corporate counsel and broker, reviewed the policy, and concluded that coverage should be denied. After WATG contested this denial, the case was reassigned to Lorraine Ankosko, who sought independent counsel for a thorough review. The independent counsel, John Tinker, communicated the reasons for denial in detail and requested further information from WATG if relevant facts emerged from the underlying case. Gulf's representative, Clay Woodman, also reviewed documents from WATG and explained Gulf's denial, asserting that WATG's request for defense was premature since primary coverage was not shown to be exhausted or denied. Overall, both Travelers and Gulf satisfied their investigative duties regarding the claims.
An insurer's duty to defend is triggered if the allegations in the complaint fall within the policy's coverage, regardless of how the plaintiff frames the complaint (W9/PHC Real Estate LP v. Farm Family Cas. Ins. Co.). This duty exists even if the underlying complaint lacks merit, as the duty to defend is broader than the duty to indemnify. Insurance policies should be interpreted liberally in favor of the insured. If a complaint is ambiguous, it should be construed in the insured's favor (Voorhees v. Preferred Mut. Ins. Co.). An insurer must defend against all claims until all covered claims are ruled out. Professional and general liability policies address different risks (Search EDP, Inc. v. Am. Home Assurance Co.).
Professional liability policies are designed to address risks specific to a profession, such as failing to meet the expected standard of skill, rather than general business risks. In the context of a law practice, professional activities include giving legal advice and filing lawsuits, while commercial activities involve business operations like managing staff and finances. A professional act is characterized by the use of specialized knowledge or skill, predominantly intellectual in nature. Liability categorization hinges on the nature of the activity at the time of the incident; for instance, if an attorney is negligent while conducting a real estate closing, their liability would stem from business operations rather than professional services.
When assessing whether a professional services exclusion applies in a general liability policy, courts analyze the insured's conduct and the nature of the services provided to see if liability is directly linked to professional activities. Key factors include the necessity of specialized skill for the insured's acts, their alignment with the profession's standard practices, and whether the actions were performed under a contract that involved compensation.
WATG acknowledges the validity of professional malpractice exclusions in their policy but argues that Travelers and Gulf have an obligation to defend against underlying actions due to the inclusion of both excluded malpractice claims and covered claims (e.g., personal injury, wrongful death). WATG notes that the complaints do not classify the claims as professional malpractice, and no required Affidavits of Merit were submitted under New Jersey law. Ultimately, all allegations against WATG stem from their professional services as architects, and their involvement in the garage collapse is linked solely to their contractual obligations with Tropicana, with no indication of unrelated conduct.
WATG's conduct is characterized as professional, arising from its role as an architect, which establishes potential liability linked to professional activities. The District Court noted that the absence of Affidavits of Merit or classification of claims as professional malpractice does not negate liability, as the complaints involve multiple defendants, some acting professionally. Consequently, the professional services exclusion in both the Travelers and Gulf policies applies to WATG’s actions.
On January 29, 2008, WATG and Defendants filed cross-motions for summary judgment, indicating consensus that the matter was ready for resolution. The only disputed facts include potential claims of negligence, nuisance, and loss of consortium, the absence of Affidavits of Merit, the non-classification of claims as professional malpractice on CIS forms, and the Another Time complaint's allegation of business loss, which does not qualify as damage under policy exclusions. WATG showed no genuine issues regarding the underlying claims.
The District Court's order is affirmed. WATG asserts that defense and settlement costs exceeded $1 million under the CNA primary policy and the $2 million per occurrence/$5 million aggregate limit of the CNA excess policy, claiming $2,323,000 in unreimbursed defense costs. Appellees argue that WATG contributed $500,000 to a global settlement covered by CNA. All parties acknowledge New Jersey law applies, rendering Gulf's claims of non-coverage moot, given CNA's obligation to defend all underlying claims.
