Duty to Defend and Who Is an Insured Clause

The United States District Court for the Western District of Washington addressed a matter pertaining to the insurer's duty to defend based on the who is an insured clauses of the commercial general liability policy. This case is Burns v. Scottsdale Insurance Company, 2010 WL 2947345 (W.D.Wash.).

Plaintiff (Filosa) had her tongue pierced by an employee of Painless Steel-Everett, LLC and later experienced severe pain in her mouth. The medical personnel treating her opined that she suffered a life threatening infection of flesh-eating bacteria. She sued Painless Steel and its owners, James Burns and Mandy Burns. The suit was settled for $3 million and the defendants assigned their rights to the woman under an insurance policy issued by Scottsdale. Filosa then sued Scottsdale as the assignee of the policy.

The liability policy was purchased by James Burns and the named insured was James Burns, as an individual. The policy contained who is an insured provisions with the following information: if you are designated in the declarations as an individual, you and your spouse are insureds, but only with respect to the conduct of a business of which you are the sole owner; no person or organization is an insured with respect to the conduct of any current or past partnership, joint venture, or limited liability company that is not shown as a named insured in the declarations.

The insurer denied any duty to defend for any claims (and thus, no coverage), stating that the named insured on the policy was not the one being sued; and this is the point that the U.S. District Court addressed first. The court said that the insurer determined that it did not have a duty to defend because Painless Steel was not a named insured on the policy, and this was an indisputable fact. The court continued that James Burns, an individual, was the named insured, and as such, there was coverage for Burns and his wife but only with respect to the conduct of a business of which James Burns was the sole, that is only, owner. Filosa's amended complaint alleged that the Burnses were the owners of Painless Steel, and the Burnses's attorney confirmed that both Burns and his spouse owned Painless Steel; so, James Burns was not the sole owner. Finally, the court noted that Burns received a latter from his broker quoting a price for the policy and explaining that the policy covered just the liability associated with the building as the lessor's risk; it did not contemplate coverage for any of the operations being run from that building. In other words, Burns chose to leave the operations of Painless Steel bare of insurance. The court agreed with the insurer on the lack of any duty to defend and that the policy did not provide coverage for the claims of Filosa.

The court also addressed the professional services exclusion that was on the policy. The exclusion excluded coverage for any and all “professional services”. This term was not defined in the policy so the court referred to Webster's Collegiate Dictionary. That source defined professional as “of or relating to or characteristic of a profession”, which in turn was defined as “a calling requiring specialized knowledge and often long and intensive academic preparation”. The court found this definition broad enough to include tattooing and piercing services, services that call for specialized knowledge. Indeed, the court said, the employee who pierced Filosa's tongue had undergone a one-year apprenticeship and the organization that provided the training considered itself a professional service group. Therefore, even if the policy provided coverage, the professional services exclusion applied.

The court ruled that Scottsdale correctly determined that no coverage applied and it had no duty to defend.

Editor's Note: The U.S. District Court noted in this case that the duty to defend and the duty to indemnify depend on the insured being legally obligated to pay damages. The insurer declined those duties because the insured(s) listed in the policy were not the ones legally obligated to pay damages. The only insured covered by the policy was James Burns, an individual, and he was covered as the lessor of the building. Some may see this as a technicality, but, as the court affirmed, the facts showed there was no insured in this case that was legally obligated to pay damages, and so, the insuring agreement was not met and the insurer was correct in its denying of coverage.

 Another point to be made with this case is the broad interpretation of the term “professional services”. Since the phrase was not defined in the policy, the common dictionary was used to interpret the extent of its meaning and this was found by the court to be broad enough to include tongue piercing.