Facts

This suit arose from an insurance coverage dispute between an engineering firm and its commercial general liability carrier about attorney fees.

Plaintiffs (and State Farm insureds) North Counties Engineering Inc. ("NCE") and Gary L. Akerstrom were sued in two underlying actions by third party Lolonis Vineyards Inc. for breach of contract, negligence, and indemnity, related to plaintiffs' engineering, supervision and construction of an earthen dam project on Lolonis' property. The indemnity claim arose out of a lawsuit filed by the State of California against Lolonis Vineyards for stream damage occurring subsequent to the dam construction. NCE and Akerstrom tendered the defense of these suits to State Farm under NCE's commercial general liability insurance policy. In 2004, State Farm initially denied the tender on several grounds, including the policy's professional services exclusion, but later agreed to defend under a full reservation of rights after plaintiffs presented State Farm with additional facts.

Plaintiffs alleged causes of action for breach of contract, bad faith, fraud, and elder abuse.

PLAINTIFFS' CONTENTIONS:
Plaintiffs contended that State Farm on three separate occasions wrongfully refused to pay defense fees and costs from the date of the initial notice of claim even though State Farm ultimately agreed to defend under a full reservation of rights nearly 3 1/2 years after the initial notice of claim. Plaintiffs argued that the occurrence took place at a time when the professional services exclusion did not preclude coverage pursuant since at the time of the occurrence: the work was complete; the professional services exclusion was part of a preprinted form policy; and products completed operations coverage in the aggregate amount of $2,000,000 was expressly added to the policy as evidenced by three separate declarations pages (see CC Sect. 1651) covering the time span at issue in the underlying litigation. Plaintiff also contended that State Farm misrepresented the terms of their policy by contending they did not have products completed operations coverage.

DEFENDANT'S CONTENTIONS:
State Farm contended that the policy was never intended to provide errors and omissions coverage for the engineering and professional services performed by plaintiffs on the Lolonis project. State Farm further contended that plaintiffs' only roles on the Lolonis project were as engineers and supervisors. They were retained as engineers, they acted as engineers, Lolonis paid them according to the engineering rate. Lolonis also sued them for their failures as engineers. Therefore, State Farm argued that the professional services exclusion barred coverage, and there was no duty to defend. State Farm contended that the damages claimed by plaintiffs were caused by plaintiffs' own failure to purchase appropriate insurance coverage. State Farm claimed it never had a duty to defend under the policy and acted reasonably in its handling of the claim. State Farm contended that it committed no wrongful conduct.

Settlement Discussions

The parties attended multiple mediation sessions, which did not result in a settlement.

Result

A directed verdict was granted in State Farm's favor after a six-week trial. The court ruled that the policy's professional services exclusion applied. State Farm had no duty to defend the claims against the insureds under the policy. The court entered judgment in State Farm's favor.

Other Information

FILING DATE: Oct. 17, 2008.