Question
We need help with a general liability claim denial. I have reviewed the attached information (the denial letter) with the adjuster, and she has admitted that the auto exclusion and the pollution exclusion would not be grounds to deny this claim on a standalone basis. The carrier stated that the exclusion for professional services applies in this case based on the need for on-the-job training. I asserted that all jobs require on-the-job training to some degree. Please review the denial letter and weigh in on whether this claim has a valid basis for denial.
Excerpt from Denial Letter from Carrier
THE CLAIM The claim asserted by “Claimant” against Insured alleges that March 2024, the Insured responded to a request by Claimant to pump sewage from the sewage holding tank on his RV. It was reported that the pump was in reverse for a brief moment, to help free any product that may have settled to the bottom of the tank, prior to switching into pump mode. While the pump was in reverse, sewage began escaping the roof vents and underneath the Claimant’s RV, prior to the pump being turned off. This caused damage to the interior of the Claimant’s RV. Additionally, a crack was found in the sewage holding tank. Insured is seeking coverage to pay for the damages to Claimant’s RV. The pump that was used to pump the Claimant’s RV’s sewage holding tank was mounted on a Chevy Silverado. There has been no reported damage to Insured’s vehicle or attached pump.
The “Kitchen Sink” denial, as I call it. Throw three exclusions at it and see if any stick.
Under Section II – Liability of the Businessowners Coverage form, the insuring agreement states that we will pay those sums the insured becomes legally obligated to pay because of “bodily injury” or “property damage” caused by an “occurrence” or “personal advertising injury” arising out of an offense.
The allegation made by the Claimant is that the employee put the pump in reverse, causing sewage to escape through the roof vents and underneath the RV onto the ground. Since the Claimant asserts claims for “property damage” as defined, the insuring agreement has been met under Section II – Liability of the Businessowners Coverage form. The following exclusions apply to preclude coverage.
Under Section II – Exclusions, the insurance does not apply to “bodily injury” or “property damage” to tangible property arising out of the actual discharge, dispersal, seepage, migration, release or escape of “pollutants” if the actual discharge, dispersal, seepage, migration, release or escape of “pollutants” which are or were at any time transported, handled, stored, treated, disposed of, or processed as waste by or for any insured or any person for whom you may be legally responsible. To the extent that the sewage pumped from the Claimant’s RV is considered a “pollutant” and transported, handled, stored, treated, disposed of or processed as waste by the Insured, there would be no coverage for you for such damages.
In Section II – Exclusions, the insurance does not apply to “bodily injury” or “property damage” arising out of the ownership, maintenance, use or entrustment to others of any “auto” owned or operated by or rented or loaned to any insured. To the extent that the “property damage” arose from the ownership, maintenance, use or entrustment to others of your “auto,” there is no insurance coverage for the “property damage” under the policy. Section II – Exclusions also outlines that the insurance does not apply to “bodily injury,” “property damage” or “personal and advertising injury” caused by the rendering or failure to render any professional service. The pumping, removal and disposal of a material that is considered a public health hazard, is a professional service and is subject to the exclusion. Since “property damage” occurred from the rendering or failure to render any professional service, there is no insurance coverage for the “property damage” to the Claimant’s RV under the policy
Per the Agent
I have reviewed the attached information with the adjuster, and she has admitted that the auto exclusion and the pollution exclusion would not be grounds to deny this claim on a standalone basis. They have stated that the exclusion for professional services applies in this case based on the need for on-the-job training. I asserted that all jobs require on-the-job training to some degree.
Please review the denial letter and weigh in on whether this claim has a basis for not being covered.
The Responses Provided:
I agree with you that this service is not subject to the professional services exclusion. Reviewing the Professional Services exclusion…. The listed examples typically require a professional license and special formal education. If the adjuster were at a cocktail party and was asked to identify the professionals in the room, she probably would identify doctors, lawyers and CPAs – not the hardworking gentleman who cleans septic systems and pumps sewage – though he might be very professional in the conduct of his business.
The Professional Services exclusion states included but not limited to………and then lists examples. If the adjuster were on a TV game show and was asked to expand this list, would she have blurted out septic tank cleaning? Maybe with her environmental experience but doubtful. By common standards, her interpretation is contorted – where she cites that because sewage is a public health hazard it now is subject to the professional services exclusion. Do the city park workers who clean up dog droppings require professional liability coverage to handle the waste?
If this named insured had applied for a professional liability policy to include BI and PD coverage, would the insurer’s professional liability underwriters offer one or tell you get a CGL policy? By contrast, septic tank installers who design, inspect and install systems have a professional exposure for failure of poorly designed or poorly installed systems.
If a carpenter drops a hammer that hits a by passer in the head, then is that also a professional liability denial because a carpenter should hold on to the hammer? When plumbers are working on a pipe in a ceiling and drop their tools in the tub cracking it, don’t insurers cover the damage to the tub or is that a professional liability risk for the plumber who dropped the tool?
Mistakes and accidents happen – even with well-trained employees – and because of the potential for accidents responsible companies buy insurance and trust the insured’s policy to respond in the normal course of their business.
Is the carrier selling “illusory coverage”? The CGL classification in the policy is “Septic Tank Systems – Cleaning” for which the insurer charged for nine full time employees. Likely the application you submitted described the business activities that the insurer could have declined to write but it wrote a policy to cover the operations. What coverage did the insurer intend to provide if not to cover the business activity that resulted in a claim? Both you and the Named Insured reasonably believe that there was coverage for this business. The carrier is being unreasonable.
Looking at the adjuster’s LinkedIn profile, she is an environmental casualty adjuster and Complex BI adjuster. Now that you defeated the pollution denial, the adjuster is backing up [the denial] with another exclusion. Perhaps a CGL adjuster who deals with the trades could weigh in with some reasonable analysis.
If you are not worried about your relationship with this adjuster, go up the ladder to a higher-level professional for review.
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I think your real problem exclusion is K, Damage to Property, particular part of any property that must be restored, repaired or replaced because your work was incorrectly performed on it.
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The one reason not to pay the claim - at least as of now - is that no demand has been mentioned/acknowledged/mentioned from the injured party. The letter advises that if such correspondence occurs to relay it to the carrier. That indicates that they are willing to review it at that time.
Regarding the "professional services" exclusion, their reasoning is weak. I would wait until a demand from the injured party is received and at that point, direct that to the Claims Manager. It is more than possible that at that point, common sense will prevail, and the claim will be honored. If it is not accepted for payment, then your discussion with the Claims Manager and at least one above should resolve the issue satisfactorily. If not, the insured should contact an attorney.
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It appears the sewage contamination took place off the insured’s premises and the insured did not bring the pollutant onto premises where the accident took place, so the pollution exclusion doesn’t apply.
This is not a professional liability exposure. “Training,” or a lack thereof is not unique to a professional vs. business exposure.
If there is a reservation of rights, the insurer needs to find another exclusion.
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According to the carrier, this claim arose from a mistake by the insured while cleaning out a sewage holding tank.
In the policy declarations, the carrier classified the insured’s operation as shown below.
The carrier understood the insured’s operation, collected a premium in exchange for a promise to insure that operation and now has interpreted the policy to exclude that very operation!
Is this a great insurance example or what? I vote for the “WHAT.” Based upon its claim denial, the carrier has peddled an illusionary insurance policy and embarrassed itself and the insurance industry in the process.
I don’t know which of the following words best describes the carrier’s “on-the-job training” rationale:
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If the adjuster is actually denying coverage based on the professional services exclusion, she needs some professional insurance training.
She states, “the pumping, removal and disposal of a material that is considered a public health hazard, is a professional service and is subject to the exclusion.” I would ask the adjuster to point out which of the 9 described professions in the Professional Services Exclusion would include pumping of sewage. Also, ask what authority considers pumping sewage a professional service?
The last paragraph that addresses the training or supervising of employees refers back to the 9 professional services listed in the exclusion. It is not meant to exclude any service that requires training and supervision.
If pumping sewage is a professional service, then every type of service work performed is a professional service, and the policy is basically worthless. The Professional Services exclusion does not apply to this claim.
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I agree with you that all jobs require training and would argue that the process described does not constitute a professional service. Is it required that your insured be licensed by the state? Is special knowledge required? Is there a professional association of RV sewage tank pumping services? Is formal training required in addition to on-the-job instruction? Not to my knowledge. It sounds like a clear GL claim to me. It would be good to have some additional facts in investigating it as such. Was the pump truly run on reverse for only a "brief moment"? Is that common and accepted practice? Is it alleged that the incident caused a crack in the holding tank, or was the crack preexisting and at least a partial cause of the problem? I'm sorry to be asking more questions than answers.
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First of all, and most importantly, until a lawsuit is identified, it's impossible to know whether this policy will respond. Here are a few areas I would be looking at if and when a lawsuit is filed, though. The pumping of waste tanks is certainly not a "professional act."
Performance of any business service requires judgement and skill, to a high degree in some cases, but that does not make them "professional services." That term is reserved for specific areas like medicine, accounting, law, engineering, etc. Designing a sewer storage system might qualify as a professional act but pumping it certainly doesn't. You should be able to overcome that argument easily.
Depending upon the nature of the claim, the pollution exclusion is another matter. The stuff that came out probably fits the definition of "pollutant," and the damage caused by it is probably excluded. Damage to the particular part being worked on is only slightly less problematic. It was the tank that was being pumped. But since it was the contents of the tank that was being pumped, I would argue that it's the contents, not the tank, that are excluded. By that argument, I think the damage to the tank was covered. In short, I think you have some ammunition, but you can't fire it until war is declared.
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If it is indeed the professional exclusion the carrier is using to deny the claim, that is a stretch. A profession requires some sort of specialized training, and the examples of professional services listed in the form support that. As you correctly pointed out, every job has some sort of on-the-job training.
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I agree with denial as the proper policy forms were not used. The use of a CGL and pollution liability at the very beginning along with a BAP in my opinion would have addressed this claim properly.
Conclusion
In my opinion, this is a case of “reasonable expectation.” The insured cleans septic tanks. The insured bought coverage disclosing their services and they were rated by the correct class code, it appears. The insured would “expect” coverage for a loss of this nature. I believe the insurer would be hard-pressed to deny this claim.
The Ask an Expert service can help you make a stronger argument on claims denials, help you parse coverage, and provide insight into policy forms. Sometimes, as is the case in our final answer from an expert, experts disagree. That’s what makes a horse race.
Originally Published: September 27, 2024
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