Oregon Court Holds General Contractor Not Performing Professional Services

In its recent decision in State Farm and Casualty Co. v. Lorrick Pacific, LLC, 2012 U.S. Dist. LEXIS 57922 (D. Ore. Apr. 24, 2012), the United States District Court for the District of Oregon had occasion to consider whether a general contractor’s coordination and management of subcontractors constituted “professional services” for the purpose of an exclusion in a general liability policy.

The insured, Lorrick, was named as a defendant in a construction defect lawsuit involving an apartment complex for which it had been the general contractor.  The complaint alleged, among other things, that Lorrick failed to properly supervise and coordinate the construction of the various subcontractors.  Lorrick’s insurer, State Farm, sought a judicial declartion that it had no duty to indemnify Lorrick in connection with the underlying suit on the basis of a policy exclusion applicable to:

… bodily injury, property damage or personal injury due to rendering or failure to render any professional services or treatments.  This includes but is not limited to:

a.     legal, accounting or advertising services;

b.     engineering, drafting, surveying or architectural services, including preparing, approving, or failing to prepare or approve maps, drawings, opinions, reports, surveys, change orders, designs or specifications;

c.     supervisory or inspection services;

d.     medical, dental, x-ray, anesthetical or nurisng services or treatments, but this exclusion only applies to an insured who is engaged in the business or occupation of providing any of these services or treatments;

                                          *          *          *

While the exclusion did not specify management, oversight or coordination of subcontractors, State Farm argued that based on the Oregon Supreme Court’s decision in Multnomah County v. Oregon Automobile Ins. Co., 256 Or. 24 (Ore. 1970), the term “professional services” must be interpreted to include such activities.  In Multnomah, the Oregon Supreme Court considered whether a medical technician’s administration of insulin shots constituted a professional service.   The court interpreted the phrase to mean service “arising out of a vocation, calling, occupation or employment involving specialized knowledge, labor, or skill, and the labor or skill involved is predominantly mental or intellectual rather than physical or manual.”  The court also observed that it is the insured’s act that must be considered rather than the insured’s title at the time of performing the act.

Relying on the Multnomah court’s reasoning, the Lorrick court rejected State Farm’s argument that coordination of contractors constitutes a “professional service,” explaining:

I do not read the Oregon Supreme Court's decision in Multnomah County as holding that under the facts here, the term "professional services" in the Policy excludes from coverage managing, coordinating, and overseeing the work of subcontractors. Nothing in Multnomah County demonstrates that managing, coordinating, and overseeing the work of subcontractors involves "specialized knowledge" or labor that is "predominantly mental or intellectual" akin to a medical technician's ability to determine whether a patient's condition requires the injection of a medical drug.

Ultimately, the court held that there was a question of fact as to whether Lorrick’s coordination and management of subcontractors requires a “specialized knowledge.”  This question of fact precluded a finding of summary judgment in State Farm’s favor.

State Farm also argued that the exclusion applied based on subparagraph c. of the exclusion, which included “supervisory” services as an example of professional services.   State Farm contended that the plain meaning of “supervisory” necessarily includes work such as coordination and oversight of subcontractors.  The court rejected this argument as well, explaining that in the context of a professional services exclusion, the term “supervisory” has a more specific meaning than commonly ascribed it in a standard dictionary.  As such, and given the holding in Multnomah, the court concluded that supervisory services must mean something beyond merely overseeing the work of subcontractors, explaining:

Here, the Professional Services Exclusion provides explicit examples of the types of services qualifying as "professional services." Such examples include legal, accounting, engineering, architectural, "supervisory or inspection," medical, and veterinary services. It is noteworthy that although the Policy states that "supervisory" services fall under the term "professional services," it makes no mention of coordinating services, including coordinating the work of subcontractors.

The court found this lack of a specific reference to work performed by general contractors to be fatal to State Farm’s argument.