Pekin Insurance Co. v. L.J. Shaw & Co.
Annotate this Case
FOURTH DIVISION
August 21, 1997
No. 1-96-0535
PEKIN INSURANCE COMPANY, ) APPEAL FROM THE
) CIRCUIT COURT OF
Plaintiff-Appellant, ) COOK COUNTY
)
v. ) No. 95 CH 6726
)
L.J. SHAW & COMPANY, and )
WILLIAM L. HALL, ) HONORABLE
) DOROTHY KIRIE KINNAIRD
Defendants-Appellees. ) JUDGE PRESIDING.
JUSTICE McNAMARA delivered the opinion of the court:
In this declaratory judgment action, plaintiff, Pekin
Insurance Co. (Pekin), appeals from the trial court's entry of
summary judgment against Pekin and in favor of defendants,
Pekin's insureds, L.J Shaw & Company (Shaw), and Shaw's employee,
William L. Hall (Hall). The trial court found that, under the
provisions of an insurance policy issued to defendants, Pekin had
a duty to defend Shaw and Hall in an underlying action brought
against them. Specifically, the trial court held that the
"professional services" exclusion relied upon by Pekin did not
preclude coverage in the underlying action. On appeal, Pekin
contends that coverage is unambiguously excluded where the
underlying complaint alleges injuries due to defendants'
rendering or failure to render a professional service.
Defendants respond that the allegations of the underlying
complaint fall within, or potentially within, the coverage
provided for in the policy and were not clearly excluded by the
provision relied upon by Pekin.
The underlying action in which Shaw and Hall, among others,
were named as defendants was brought by Joseph P. Caulfield &
Associates, Inc. (Caulfield) in the United States District Court
for the Eastern District of Missouri. According to the
complaint, on January 23, 1994, a fire occurred at the printing
plant of Litho Productions, Inc. (Litho), in Madison, Wisconsin.
The fire caused Litho to "suffer substantial damage" to its
building, equipment, and inventory. Shaw and Hall, "persons
experienced with insurance claim negotiations and adjustment,
represented [Litho's insurers] in the initial Fire Loss claim
discussions with Litho." Litho, inexperienced in such matters,
"knew it needed professional assistance" in negotiating its fire
loss claim, and therefore retained Caulfield, a company
"experienced and expert in fire loss investigations *** and fire
loss claim settlements."
The Caulfield complaint goes on to allege that, during the
course of the negotiations, Shaw and Hall, along with Litho's
insurers and other entities, acted in a manner meant to induce
Litho to terminate its relationship with Caulfield.
Specifically, the complaint alleges that Hall, in the course of
his employment with Shaw, "falsely represented *** that
[Caulfield] grossly overstated, and possibly engaged in
fraudulent misrepresentation, of Litho's Fire Loss damages as a
pretext to cause [Caulfield's] termination *** [by] Litho in the
Fire Loss claim negotiations." These allegations form the basis
for Count II, alleging that Shaw and Hall, among others,
participated in a "civil conspiracy," and Count V, alleging
"intentional interference with [c]ontract."
Upon being named as defendants, Shaw and Hall tendered the
Caulfield complaint to Pekin seeking coverage pursuant to the
"Businessowners Policy" issued to Shaw by Pekin. Pekin refused
coverage and filed the instant action seeking a declaration that
it had no duty to defend or indemnify defendants. Pekin
maintained that the injuries alleged in the Caulfield complaint
resulted from defendants' conduct in performing independent
insurance adjusting on behalf of Litho's insurers. These
allegations, Pekin argued, fell within the policy's "professional
services" exclusion, which provided:
"This insurance does not apply to:
* * *
j. 'Bodily injury', 'property damage', 'personal
injury' or 'advertising injury' due to
rendering or failure to render any
professional service. This includes but is
not limited to:
* * *
(2) Preparing, approving, or failing
to prepare or approve maps,
drawings, opinions, reports,
surveys, change orders, designs,
or specifications[.]"
Defendants filed a counterclaim seeking a declaration of
their rights under the policy. Defendants relied on the
following coverage provision:
"b. This insurance applies:
* * *
(2) To:
(a) 'Personal injury' caused by an
offense arising out of your
business excluding advertising,
publishing, broadcasting or
telecasting done by or for you[.]"
Defendants also pointed to the policy's definition of "personal
injury" which stated:
"'Personal Injury' means injury, other than 'bodily
injury', arising out of one or more of the following
offenses:
* * *
d. 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[.]"
Following a hearing on the parties' cross-motions for
summary judgment, the trial court ruled that coverage was
afforded under the policy's general terms, and that the exclusion
relied upon by Pekin, when read together with the coverage terms,
created an ambiguity. According to the court: "I don't believe
that the allegations against the Defendants Shaw and Hall in the
underlying case constitute what is really intended in that
exclusion as rendering or the failure to render professional
services to a client, and *** if I take Plaintiff's
interpretation, there is not much of a meaning at all to the sub-
coverage d., which is the oral and written publication of
material that slanders or libels a person." The court also
concluded that the professional services exclusion was not
intended to bar coverage where the underlying complaint alleged
liability and injuries to a third party, Caulfield, and not the
underlying defendants' own clients, Litho's insurers. Based on
this reasoning, the trial court entered an order granting summary
judgment in favor of defendants on Pekin's duty to defend.[fn1]
From this final order (155 Ill. 2d R. 301), Pekin appeals.
Our review of the trial court's entry of summary judgment is
de novo. Crum & Forster Corp. v. Resolution Trust Corp., 156 Ill. 2d 384, 620 N.E.2d 1073 (1993). The construction of an
insurance policy and a determination of the rights and
obligations thereunder are questions of law for the court and
appropriate subjects for disposition by summary judgment. Crum &
Forster, 156 Ill. 2d at 391, 620 N.E.2d at 1077; Continental
Casualty Co. v. McDowell & Colantoni, Ltd., 282 Ill. App. 3d 236,
668 N.E.2d 59 (1996).
In determining whether an insurer has a duty to defend its
insured in an underlying lawsuit, the court must compare the
complaint's allegations to the relevant coverage provisions of
the insurance policy. Crum & Forster, 156 Ill. 2d at 393, 620 N.E.2d at 1079; McDowell & Colantoni, 282 Ill. App. 3d at 241,
668 N.E.2d at 63. If the facts alleged in the underlying
complaint fall within, or potentially within, the policy's
coverage provisions, then the insurer has a duty to defend the
insured in the underlying action. Crum & Forster, 156 Ill. 2d at
393, 620 N.E.2d at 1079; McDowell & Colantoni, 282 Ill. App. 3d
at 241, 668 N.E.2d at 63. It is the burden of the insurer to
show that a claim falls within a provision that limits or
excludes coverage. McDowell & Colantoni, 282 Ill. App. 3d at
241, 668 N.E.2d at 62. An exclusion relied upon to deny coverage
must be clear and free from doubt. McDowell & Colantoni, 282
Ill. App. 3d at 241, 668 N.E.2d at 62. All the provisions of an
insurance policy must be read in light of each other to determine
whether an ambiguity exists. McDowell & Colantoni, 282 Ill. App.
3d at 241, 668 N.E.2d at 62. Any ambiguity will be construed
against the drafter of the policy and in favor of coverage.
Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill. 2d 90, 607 N.E.2d 1204 (1992); McDowell & Colantoni, 282 Ill.
App. 3d at 241, 668 N.E.2d at 62. However, the court will not
search for ambiguity where none exists. Crum & Forster, 156 Ill. 2d at 391, 620 N.E.2d at 1078.
In the present case, Pekin contends that the professional
services exclusion unambiguously precludes coverage for Shaw and
Hall in the underlying action. In support of its argument, Pekin
cites State Street Bank & Trust Co. v. INA Insurance Co., 207
Ill. App. 3d 961, 567 N.E.2d 42 (1991), where this court
discussed the meaning of the term "professional service" in the
context of an insurance policy exclusion. In State Street Bank,
we explained that the term is not limited to services performed
by persons who must be licensed by a governmental authority in
order to practice their professions. State Street Bank, 207 Ill.
App. 3d at 967, 567 N.E.2d at 47. Rather, it refers to any
business activity conducted by the insured that involves
specialized knowledge, labor, or skill, and is predominantly
mental or intellectual as opposed to physical or manual. State
Street Bank, 207 Ill. App. 3d at 967, 567 N.E.2d at 47. For
example, in that case, we held that the exercise of business
judgment in conducting banking services fell within a
professional services exclusion. State Street Bank, 207 Ill.
App. 3d at 967, 567 N.E.2d at 47.
Pekin also cites Hurst-Rosche Engineers v. Commercial Union
Insurance Co., 51 F.3d 1336 (7th Cir. 1995), which we find
factually analogous and highly instructive. In Hurst-Rosche, an
engineering firm hired by a local housing authority to supervise
a construction project was sued by a contractor working on the
project for libel and tortious interference with contract. The
contractor based these claims on a letter written by the
engineering firm's general manager to the company that issued the
performance bond guaranteeing the contractor's work. The letter
criticized the contractor's work as untimely and substandard, and
as result, the contractor alleged, it lost the sums due on that
project and any chance that the issuer would underwrite future
bonds. Like defendants here, the engineering firm sought
coverage under an insurance policy expressly covering injuries
"'arising out of [the] ... [o]ral and written publication of
material that slanders or libels a person or organization or
disparages a person's or organization's goods, products or
services.'" Hurst-Rosche, 51 F.3d at 1340. The insurer refused
coverage, however, under the policy's exclusion for injuries
"'arising out of the rendering or failure to render any
professional services *** including *** [t]he preparing,
approving, or failing to prepare or approve maps, drawings,
opinions, reports, surveys, change orders, designs or
specifications.'" Hurst-Rosche, 51 F.3d at 1340. Applying
Illinois law, and specifically citing State Street Bank, the
Seventh Circuit concluded that, even though the letter was sent
to an entity other than the housing authority, the claims arose
from the general manager's rendering of his professional opinion
with respect to the contractor's performance on the construction
project. Hurst-Rosche, 51 F.3d at 1343. These allegations, the
court held, fell "squarely within the professional services
exclusion, which excluded coverage for claims arising from the
'preparing' of 'opinions' and 'reports.'" Hurst-Rosche, 51 F.3d
at 1344.
In addition to Hurst-Rosche, our research has uncovered
another factually similar federal case. In Erie Insurance Group
v. Alliance Environmental, Inc., 921 F. Supp. 537 (S.D. Ind.
1996), the United States District Court for the Southern District
of Indiana was asked to determine whether a professional services
exclusion to "personal injury" coverage barred claims of
defamation and tortious interference with contract where the
insured, hired by a local school corporation to perform
inspections, reported to the school corporation that the
underlying plaintiff failed to remove all of the asbestos from a
local high school.[fn2] In addition to informing the school
corporation, the insured also allegedly reported these findings
to "others" including a state government environmental agency.
Among other damages, the underlying plaintiff alleged that it
lost its license as an asbestos contractor with the State of
Indiana as a result of the insured's actions. The insured sought
coverage under policy provisions expressly covering injuries
arising out of "libel, slander, or defamation of character," but
its insurer refused coverage citing the policy's exclusion for
"personal injury" damages "'due to ... any service of a
professional nature, including but not limited to *** the
preparation or approval of maps, plans, opinions, reports,
surveys, designs, or specifications.'" Alliance, 921 F. Supp. at
541. Applying Indiana law, but also citing State Street Bank,
Hurst-Rosche, and cases from several other jurisdictions, the
Alliance court concluded that the professional services exclusion
barred coverage. According to the court, "[a]ll of the allegedly
defamatory communications" made by the underlying defendant about
the underlying plaintiff's faulty asbestos removal were "made in
the course of providing *** professional services for the school
corporation."[fn3] Alliance, 921 F. Supp. at 546.
Notably, the Alliance court addressed specific concerns
raised by the trial court here about the scope of a professional
services exclusion. First, the Alliance court rejected the
argument that a professional services exclusion applies only to
claims by someone to whom the underlying defendants provided
their professional services directly. Alliance, 921 F. Supp. at
541. The Alliance court reasoned:
"Nothing in the language of the
professional services exclusion *** limits
the exclusion to claims brought by the
clients of the professional, i.e., to first
party claims. The exclusion here applies to
damages or liability 'due to any service of a
professional nature' and does not require
privity between the insured and the claimant.
In addition, cases from the Seventh Circuit
and Third Circuit have applied professional
service exclusions to claims by others,
called 'third party' claims. [Citing Hurst-
Rosche, 51 F.3d 1336; Harad v. Aetna Casualty
& Surety Co., 839 F.2d 979, 983-85 (3d Cir.
1988).] *** The fact that the [underlying
plaintiff], rather than the school
corporation filed the underlying claims
against the *** defendants does not alone bar
application of the professional services
exclusion in the Erie policy." Alliance, 921 F. Supp. at 542.
The Alliance court was also unpersuaded by the argument that
a professional services exclusion in a general business liability
policy is automatically inapplicable where the underlying
plaintiff characterizes its claims in terms of general torts such
as defamation, as opposed to breaches of duties owed uniquely by
a professional. Alliance, 921 F. Supp. at 542. Nor is there
necessarily an ambiguity, the court held, where the entity buying
the general business liability policy that contains a
professional services exclusion is actually "in the business of
providing professional services." Alliance, 921 F. Supp. at 541.
The court explained:
"The scope of the professional services
exclusion *** 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 in a general
business liability policy cannot be read so
broadly as to exclude liability for any act
at all taken in the course of providing
professional services. Such a broad reading
would exclude coverage, for example, for an
automobile accident caused by an [employee]
travelling from one professional meeting to
another, or for negligent injury to a client
visiting an *** office. The general
liability policy here was quite clearly
intended to cover such risks. At the same
time, a professional services exclusion also
should not be read so narrowly as to
transform a general business liability policy
into a professional errors and omissions
policy. *** [T]he focus must be on whether
the claimant is seeking to impose liability
for acts which were taken in the course of
providing professional services and which
drew upon (or at least should have drawn
upon) the professional's training, skill,
experience, or knowledge." Alliance, 921 F. Supp. at 542-43
In closing, the Alliance court set forth the following
standard to apply in determining whether to apply a professional
services exclusion: "[W]here the insured is being sued for
taking actions in the course of providing professional services,
and where those actions both are reasonably related to the
services being provided and involve the use of (or failure to
use) professional knowledge, skill, experience, or training, the
'professional services' exclusion applies." Alliance, 921 F. Supp. at 547.
The above case law compels us to agree with Pekin that the
professional services exclusion at issue in the present case
unambiguously applies and precludes coverage for Shaw and Hall in
the underlying action. The underlying complaint leaves no doubt
that Shaw and Hall were retained to perform professional
services. The complaint specifically alleges that Litho's
insurers retained Shaw and Hall "as persons experienced with
insurance claims negotiations and adjustments" to negotiate
Litho's fire loss claim on their behalf. In other words, as
independent insurance adjusters, Shaw and Hall were asked to draw
on their specialized training, knowledge, and skill in working on
the fire loss claim. The complaint further alleges that Litho
also needed "professional assistance" and therefore retained
Caulfield, an "expert" in the field of fire loss negotiations, to
represent it. The complaint goes on to alleges that Shaw and
Hall, among others, caused Caulfield to suffer damages during the
course of and as a direct result of the claim negotiations.
Specifically, the complaint alleges that Hall, as an employee of
Shaw, "falsely represented" to several parties that Caulfield
"grossly overstated, and possibly engaged in fraudulent
misrepresentation" of Litho's fire loss damages. Hall did this,
according to the complaint, as a "pretext" to cause Caulfield's
termination by Litho, which eventually occurred.
As Pekin argues, these allegations sweep the underlying
action directly within the policy's professional services
exclusion. What Caulfield seeks to do is hold Shaw and Hall
liable for injures allegedly caused by their rendering or failure
to render professional services, and more specifically through
their preparing or failing to prepare "opinions" or "reports"
during the fire loss claim negotiations. As in State Street,
Alliance, and Hurst-Rosche, the exclusion must therefore apply.
Put another way, Caulfield seeks damages for acts which were
taken in the course of providing professional services and that
drew upon (or at least should have drawn upon) defendants'
professional training, skill, experience, or knowledge as
independent insurance adjusters.
We further note that Alliance and Hurst-Rosche offer
persuasive reasoning in opposition to the trial court's concerns
about Caulfield as the underlying plaintiff. These two cases
manifest that the applicability of a professional services
exclusion is not limited to actions brought by the client of the
insured. Like the underlying defendants in Alliance and Hurst-
Rosche, Shaw and Hall were hired to conduct professional services
that involved specialized skill, knowledge, and training, and in
the course of performing those services, allegedly made negative
statements about the performance of a third party involved in the
same project. Indeed, the holdings in Alliance and Hurst-Rosche
demonstrate that an underlying plaintiff, regardless of whether
he is the one for whom the professional services are rendered,
may still allege injuries falling clearly within the terms of the
exclusion. Moreover, that the coverage terms of the policy might
cover general torts such as slander and defamation does not
automatically mandate coverage where, as in Alliance and Hurst-
Rosche, the underlying defendants are in the business of
providing professional opinions and advice, the policy contains
an exclusion for injuries arising from professional "opinions"
and "reports," and the underlying complaint alleges injuries
caused by the rendering of professional opinions.
In short, we find no meaningful distinction between the
circumstances here and those in Alliance and Hurst-Rosche. We
emphasize that these courts interpreted policy provisions that
mirrored the exact ones at issue here. We remain unpersuaded by
defendants that an ambiguity in the policy or the identity of the
underlying plaintiff precludes application of the professional
services exclusion. Instead, we agree with Pekin that the clear
and unambiguous language of the exclusion relieves Pekin of any
duty to defend Shaw and Hall. For these reasons, and others set
forth above, we reverse the trial court's entry of summary
judgment for defendant and enter judgment in favor of Pekin.
Reversed.
WOLFSON, P.J., and BURKE, J., concur.
[fn1]The trial court declined to reach the issue of whether
Pekin had a duty to indemnify defendants under the policy. To
prevent jurisdictional problems on appeal, the court's order
dismissed without prejudice any claims relating to Pekin's
alleged duty to indemnify, leaving no claims or issues pending
between the parties.
[fn2]Another issue before the district court was whether
these claims fell under the policy's coverage for "advertising
injury." The district court found the "advertising injury"
provision inapplicable, and the Seventh Circuit affirmed this
determination. Erie Insurance Group v. Alliance Environmental,
Inc., 921 F. Supp at 548-49, aff'd by Erie Insurance Group v.
Sear Corporation, 102 F.3d 889, 895 (7th Cir. 1996). The
district court's decision as to the professional services
exclusion, however, was "not challenged on appeal" and therefore
not addressed in the Seventh Circuit's opinion. Erie Insurance
Group, 102 F.3d at 891 n.1.
[fn3]Again, the professional services exclusion was not at
issue in a subsequent appeal to the Seventh Circuit. As the
Seventh Circuit's opinion explained:
"At the district court, the parties also argued the
applicability of the Erie policy's separate 'personal injury'
coverage provision. The court found that coverage inapplicable
because Alliance's actions fell within the exclusion to that
coverage for personal injury damages due to service of a
professional nature. This decision is not challenged on appeal."
Erie Insurance Group v. Sear Corp., 102 F.3d 889, 891 n.1 (7th
Cir. 1996), aff'g Erie Insurance Group v. Alliance Environmental,
Inc., 921 F. Supp. 537 (S.D. Ind. 1996).
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