In Wisznia Company, Inc. v. General Star Indemnity Company, No. 13-31125, 2014 U.S. App. LEXIS 13563 (5th Cir. July 16, 2014), the United States Court of Appeals for the Fifth Circuit, applying Louisiana law, affirmed the trial court’s summary judgment order holding that an insurer had no duty to defend its policyholder against a lawsuit alleging that the policyholder prepared defective design plans and failed to adequately coordinate and supervise the construction of a performing arts center. In so ruling, the Court relied on the facts alleged in the underlying lawsuit, as opposed to the underlying plaintiff’s characterization of those facts.
The policyholder was an architecture firm that had been sued by a former client that was dissatisfied with a building that the architecture firm designed. Id. at 1. Applying the “eight-corners rule” the court looked to the terms of the two general liability policies at issue, and the former client’s petition, to determine whether the insurer had a duty to defend. Id. at 17-23. The insurance policy contained a professional liability exclusion, which provided that
This insurance does not apply to “bodily injury”, “property damage” or “personal and advertising injury” arising out of the rendering of or failure to render any professional services by you or any engineer, architect or surveyor who is either employed by you or performing work on your behalf in such capacity.
Id. at 11. The former client’s petition alleged that the client suffered damage as a result of the architecture firm’s negligence and breach of its contractual and warranty obligations. Id. at 9. Among other things, the petition alleged that the architecture firm designed and prepared “a defective set of plans and specifications for the project” and failed “to coordinate the design with its consultants in an effective and professional manner.” Id. at 10.
The court concluded that the insurer did not have a duty to defend because the professional liability exclusion in the policy “unambiguously excludes coverage” for the architecture firm’s liability arising from the design of the performing arts center. Id. at 17. The court reasoned that the use of the word “negligence” in the petition to describe the architecture firm’s conduct was insufficient to obligate the insurer to provide a defense where “every one of the factual allegations pertained to the rendering of professional architecture services.” Id. In sum, the court concluded that the former client sued the architecture firm because “it was dissatisfied with the final product.” Id. at 18.
In this case, the court rejected the policyholder’s attempt to treat its liability insurer as a surety. By refusing to find a duty to defend despite the negligence allegation, the court applied the “well settled” principle that “the allegations of fact, and not conclusions, contained in the petition determine the obligation to defend.” Id. at 7.