SAN FRANCISCO -- Finding an insurers policy professional services barred coverage for underlying claims in a fatal pipeline explosion, the California First District Court of Appeal has affirmed a trial court's ruling in favor of an excess insurer.

In a July 11 ruling, after numerous lawsuits were filed against oil and gas pipeline company Kinder Morgan and staffing agency Comforce, the appeals court affirmed  judgment to deny recovery and settlement costs for Kinder Morgan from Comforce, whose excess insurance policy denied any professional service damages in a deadly project explosion. 

In 2004, Associated Electric & Gas Insurance Services Limited (AEGIS) insured Kinder Morgan with a liability limit of $35 million per incident. On many projects, Kinder Morgan used Comforce employees, whose 'professional services' were covered under American Insurance Company (ACE) commercial general liability (CGL) policy with a limit of $1 million per incident.

The same year, an excavator operated by Mountain Cascade Inc. punctured a high-pressured petroleum line owned by Kinder Morgan, killing five employees and seriously injuring four other employees at the Walnut Creek site. After an investigation, Cal/OSHA determined the explosion was due to an unmarked pipeline that should have been labeled, inevitably issuing two “serious willful” citations to Kinder Morgan. 

According to the appeals court decision, "the company employees were aware that an unsafe condition existed and failed to assure that the utility was clearly marked which would have resulted in its relocation or other appropriate measures to safeguard employees.” Discussing how an insurance policy clarification “is primarily a judicial function,” the appeals court said in its decision “words in an insurance policy are to be interpreted as a layperson would interpret them.”

“Here, the activities involved in owning and operating a pipeline, including mapping and marking underground installations are clearly analogous to other skilled services that have been held to be professional services,” according to the appeals court decision. "Here, by contrast, the underlying lawsuits allege that severe personal injuries and deaths arose from the failure to properly locate and mark the underground pipelines, which unquestionably involves more than the mere presence of Comforce and Kinder Morgan at the Walnut Creek site.”

Although both Comforce and Kinder Morgan both declined errors and omission coverage, “it can be reasonably inferred that, at the outset, Comforce understood that the ACE commercial umbrella policy provided no coverage for claims arising out of its professional services,” according to the appeals court decision. 

It added, "Just as Comforce did not expect that its policy would cover claims of professional errors, Kinder Morgan could not reasonably expect that such claims would be covered under the policy."

The appeals court said in the ruling that Comforce’s "policy was a business liability policy, which provided coverage for accidental occurrences involving ordinary negligence, not for professional negligence," and “the professional liability exclusion did not withdraw virtually all of the coverage extended by the insuring agreement that defined Comforce’s business liability coverage.”

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