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A federal district court in California has issued a decision further expanding the term “professional services” in an exclusion in a commercial general liability insurance policy.

The Case

After a break-in at a San Francisco car dealership, the dealer sued Bay One Security, Inc., the security company it had hired to provide security services.

Bay One sought a defense from Burlington Insurance Company, its insurance carrier.

Burlington asked a federal district court in California to declare that it had no duty to defend Bay One because coverage was barred by, among other things, the policy's professional services exclusion.

For its part, Bay One contended that Burlington had a duty to defend Bay One because a potential for liability existed under the commercial general liability (“CGL”) insurance policy that Burlington had issued.

Burlington moved for summary judgment.

The Burlington Policy

The Burlington policy provided that it:

will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage” to which this insurance applies.

The policy's professional services exclusion stated that:

This insurance does not apply to “any injury or damage” arising out of the rendering of or failure to render any professional services by or for you.

The District Court's Decision

The district court granted the insurer's motion.

In its decision, the district court explained that California courts have defined “professional services” as those “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.”

Moreover, the district court continued, courts have applied the professional services exclusion “broadly” to bar coverage for damages resulting from a “wide range of professional services” that extend “beyond those traditionally considered 'professions,' such as medicine, law, or engineering.” According to the district court, the term has “long ceased to be connected and restricted exclusively to those so-called learned professions.”

The district court then pointed out that the Bay One contract stated that Bay One “shall furnish . . . professional uniformed, card carrying Security Officers” and that Bay One would provide “professional security personnel.” California's Bureau of Security and Investigative Services licenses and regulates security guards, private patrol operators, proprietary private security officers, and proprietary private security employers, the district court added.

The district court also observed that, under California law:

- An individual may not “perform[] the services of a watchman, guard, [or] patrolperson” unless “that person has applied for and received a license to engage in that business pursuant to this chapter.” Cal. Bus. & Prof. Code §§ 7582.1(e), 7582.3(a);

- Security guards must complete 40 hours of initial training and an eight-hour refresher course each year; and

- Any person “entering the employ of a licensee to perform the functions of a security guard” also must “complete a course in the exercise of the power to arrest” and in counter-terrorism. Cal. Bus. & Prof. Code § 7583.6(a).

The district court then ruled that the security services that Bay One furnished to the dealer were professional in nature for two reasons. First, Bay One's security officers were statutorily required to complete initial and continuing training courses including courses in the exercise of the power to arrest and in counter-terrorism. Second, the provision of security services required “specialized knowledge, labor, or skill” and the labor or skill involved was “predominantly mental or intellectual, rather than physical or manual.”

As the district court pointed out, Bay One contracted to provide a “licensed and trained and qualified security guard” capable of conducting “constant and vigilant monitoring of video screens in the on-site security booth . . . and otherwise remain vigilant for any signs of suspicious activity in or about the [dealership's] property.” The security guard was to “be diligently vigilant for any suspicious circumstances” and “promptly make reports of such to the San Francisco Police Department.”

The security guard, therefore, was required to exercise mental judgment with regard to identifying “suspicious circumstances” and “promptly” determining whether a situation warranted a police report.

The district court was not persuaded by Bay One's attempt to characterize these responsibilities as merely “watching [] video monitors” or the fact that security guard services involved some physical and manual tasks. It also rejected the contention that its conclusion made the CGL policy illusory, given that it covered accidents unrelated to how Bay One provided promised security services.

The case is Burlington Ins. Co. v. Bay One Security, Inc., No. 17-cv-04734-YGR (N.D. Cal. April 10, 2018). Attorneys involved include: For The Burlington Insurance Company, Plaintiff: Thomas Holden, Greenberg Traurig, LLP, San Francisco, CA. For German Motors Corporation, Defendant: David S. Rand, LEAD ATTORNEY, Law Offices of David S. Rand, Mill Valley, CA. For Federated Mutual Insurance Company, Defendant: Philip Martin Werner, LEAD ATTORNEY, Attorney at Law, Albany, CA.

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FC&S Legal Comment

Courts in at least two other states have found that security guards were professionals. See, Polet v. ESG Sec., Inc., 66 N.E.3d 972, 981 (Ind. Ct.App. 2016) (security firm had “duty to use that degree of care which a reasonably prudent professional security firm would use”); Robinson v. J.C. Penney Co., Inc., 977 A.2d 899 (Del. Sup.Ct. 2009).

Steven A. Meyerowitz, Esq., is the Director of FC&S Legal, the Editor-in-Chief of the Insurance Coverage Law Report, and the Founder and President of Meyerowitz Communications Inc. As FC&S Legal Director, Mr. Meyerowitz, a member of the team that conceptualized FC&S Legal, provides daily analysis and commentary on the most significant insurance coverage law decisions from courts across the country and news regarding legislative and regulatory developments. A graduate of Harvard Law School, Mr. Meyerowitz was an attorney at a prominent Wall Street law firm before founding Meyerowitz Communications Inc., a law firm marketing communications consulting company.