Energy Insurance Mutual Limited v. Ace American Insurance Company

In Energy Insurance Mutual Limited v. ACE American Insurance Company, 14 Cal.App.5th 281 (August 10, 2017), the California First District Court of Appeal affirmed the trial court's entry of summary judgment in favor of ACE American Insurance Company ("ACE") based on a professional liability exclusion in its policy. The parties' dispute arose out of an underlying oil and gas pipeline explosion. The pipeline was owned by Kinder Morgan, Inc. ("Kinder Morgan"). Kinder Morgan was insured under an excess liability insurance policy issued by Associated Electric & Gas Insurance Services Ltd. ("AEGIS") with a limit of $35,000,000 per occurrence, subject to a self-insured retention of $1,000,000 per occurrence for general liability. In addition, Energy Insurance Mutual Limited (EIM) insured Kinder Morgan under a "following form excess general liability indemnity policy" with a liability limit of $100,000,000 per occurrence, excess to the AEGIS policy limit of $35,000,000.

ACE insured co-defendant, Comforce Corporation ("Comforce"), which is a staffing company that supplies businesses with temporary employees in a variety of contexts. Comforce had been providing employees to Kinder Morgan entities since the late 1980s. ACE insured Comforce under a primary commercial general liability policy with limits of $1,000,000 per occurrence. ACE also insured Comforce under a stand-alone "commercial umbrella liability policy" (umbrella policy) with a $25,000,000 per occurrence limit. The umbrella policy contained a "professional services exclusion" regarding claims arising out of the provision or failure to provide "services of a professional nature." Comforce was also insured under a "Specific Professions Professional Liability Insurance" policy by Steadfast Insurance Company, with limits up to $5,000,000 per claim.

Kinder Morgan hired two temporary employees through Comforce to work as construction inspectors on a large water supply line project being constructed for the East Bay Municipal Utility District (EBMUD) in Walnut Creek, California. Comforce did not train or supervise the employees. Kinder Morgan selected and trained the inspectors. According to the job description, construction inspectors were required to ensure compliance with engineering specifications, safety standards and industry codes. Kinder Morgan also required inspectors to have knowledge of the practices, principles, procedures, regulations, and techniques as they related to terminal pipeline construction. Inspectors were also required to have the ability to understand and interpret construction drawings, maps and blueprints. Though not required, an ideal inspector would have had a minimum of ten years of experience in petrol chemicals and/or a bachelor's degree in mechanical, civil, or electrical engineering.

Kinder Morgan also had one of its own employees at the Walnut Creek project, who acted as a line rider. The line rider's primary function was to perform daily surveillance of the designated pipeline area, in order to protect and ensure the integrity of the pipeline system by avoiding third party damage. Part of the line rider's responsibilities involved pipeline identification, including locating and marking lines, as well as replacing damaged or missing markers. The job requirements included passing and...