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American Motorists Ins. Co. v. Republic Ins. Co. (5/8/92), 830 P 2d 785
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Notice: This is subject to formal correction before
publication in the Pacific Reporter. Readers are
requested to bring typographical or other formal errors
to the attention of the Clerk of the Appellate Courts,
303 K Street, Anchorage, Alaska 99501, in order that
corrections may be made prior to permanent publication.
THE SUPREME COURT OF THE STATE OF ALASKA
AMERICAN MOTORISTS INSURANCE )
COMPANY and DESIGN PROFESSIONALS ) Supreme Court No. S-4268
INSURANCE COMPANY, )
) Trial Court No.
Appellants, ) 3AN-89-297 Civil
)
v. )
) O P I N I O N
REPUBLIC INSURANCE COMPANY, )
)
Appellee. ) [No. 3837 - May 8, 1992]
___________________________________)
Appeal from the Superior Court of the
State of Alaska, Third Judicial District,
Anchorage,
Milton M. Souter,
Judge.
Appearances: Jerome H. Juday, Atkinson,
Conway & Gagnon, Anchorage, for Appellants.
Kermit E. Barker, Jr., Terisia K. Chleborad,
Lane, Powell, Spears & Lubersky, Anchorage,
for Appellee.
Before: Rabinowitz, Chief Justice,
Burke, Matthews, Compton, and Moore,
Justices.
MATTHEWS, Justice.
I. INTRODUCTION
Appellants, American Motorists Insurance Company and
Design Professionals Insurance Company (American), sued Republic
Insurance Company (Republic) seeking a pro rata recovery of legal
fees incurred by American in defense of a lawsuit brought against
an architectural firm that both American and Republic insured.
The trial court granted summary judgment for Republic and denied
summary judgment for American. American appeals.
This suit involves the construction of the term
"professional services" in a professional liability insurance
policy. The principal issue is whether an architect's
competitive bid for a contract to design school buildings is a
"professional service,"and thus, covered under the insurance
policy. We hold that it is.
II. FACTS
In early 1982, the Anchorage architectural firm of
ECI/Hyer bid to design three schools for the Anchorage School
District. ECI/Hyer's bid consisted of two booklets totalling
approximately one hundred and sixty pages. The booklets
included, among other things, the following: an accelerated
project schedule, drawings, a project approach, a project team
list detailing team member assignments, an estimate of the design
fee, an estimate of manpower requirements, a selection of subcon
sultants, an extensive description of ECI/Hyer's experience, and
the particulars of designs ECI/Hyer had created for other
projects. In April 1982 the School District awarded the contract
to ECI/Hyer.
In June 1984 Lane + Knorr + Plunkett (LKP), another
architectural firm that bid on the school designs, sued ECI/Hyer
for misrepresentation. Specifically, LKP claimed that ECI/Hyer:
misrepresented to the school district
that it had certain employees and experience,
when in fact it did not. Had the School
Board known the true facts, it would not have
awarded the contract to ECI-Hyer, Inc., but
instead would have awarded it to LKP.
In December 1986 LKP amended its complaint.1 The
amended complaint specifically alleged, among other things,
"negligent and/or fraudulent misrepresentation." The amended
complaint also expanded LKP's claim to include, among other
things, defamation, injurious falsehood and business
disparagement.
At the time LKP filed its original complaint, ECI/Hyer
was insured by Republic. The policy provided coverage on a
"claims made" basis and obligated Republic to indemnify and
defend ECI/Hyer against any claim for negligence arising out of
ECI/Hyer's "rendering or failing to render professional
services."2 ECI/Hyer tendered the defense of LKP's original and
amended complaints to Republic.3 Both times Republic denied
coverage and refused to defend. American successfully defended
ECI/Hyer.4
In January 1989 American filed the present action
against Republic seeking a pro rata share of the defense costs
that American incurred in the LKP litigation.5 Both parties
moved for summary judgment. The trial court granted summary
judgment for Republic reasoning that the mere providing of a bid
is not an architectural service and, thus, is not covered under
the policy. American appeals claiming:
1. The trial court erred in
granting summary judgment for Republic.
2. The trial court erred in not
granting summary judgment for American
for $130,000.
III. DISCUSSION
A. Is a competitive bid a "professional service"?
Republic had a duty to defend ECI/Hyer against LKP's
lawsuit if LKP's allegations were within, or potentially within,
the ambit of Republic's professional services insurance policy.
O'Neill Investigations v. Illinois Employers Ins. of Wausau, 636
P.2d 1170, 1173 (Alaska 1981). LKP's original and amended
complaints alleged claims arising out of ECI/Hyer's competitive
bid to design three schools. Thus, the major issue is whether
ECI/Hyer's competitive bid is a professional service.
The term "professional services"includes acts:
arising out of a vocation, calling, occu
pation, or employment involving specialized
knowledge, labor, or skill . . . and in
determining whether a particular act is a
`professional service' the court must look
not to the title or character of the party
performing the act, but to the act itself.
7A J. Appleman, Insurance Law and Practice 4504.01 at 309-10.
Applying this definition, we conclude that ECI/Hyer's bid is
clearly a professional service.
The bid was much more than a price quote. As
previously noted, it contained approximately one hundred and
sixty pages of information. It included, among other things, an
accelerated project schedule, drawings, a project approach, a
project team list detailing team member assignments, an estimate
of ECI/Hyer's design fee, an estimate of manpower requirements, a
selection of subconsultants, an extensive description of
ECI/Hyer's experience, and the particulars of designs ECI/Hyer
had created for other projects. As a practical matter, and as a
matter of Alaska law, only an architect using his or her
specialized knowledge, labor and skills could have prepared the
bid. AS 08.48.281 (only registered architects may "offer to
practice the profession of architecture"). Thus, the bid is
fairly included within the term "professional service." Since
the bid formed the basis of LKP's action, Republic breached its
duty to defend and is liable to American for its share of the
defense costs.
Our decision is supported by Sachs v. St. Paul Fire &
Marine Ins. Co., 303 F. Supp. 1339 (D.D.C. 1969) which held that
a claim premised on a professional's undertaking to represent a
client triggers the insurance company's duty to defend. In
Sachs, Sachs, an attorney, was sued by Fitzgerald, another
attorney, for wrongfully interfering with Fitzgerald's retainer
contract with a client. Sachs' professional liability carrier
refused to defend Sachs, and he sued the carrier for declaratory
relief. The court held that the carrier breached its duty to
defend, reasoning that Sachs "was acting in his professional
capacity as an attorney when the incidents complained of
occurred. Indeed, [Sachs'] undertaking to represent a client
Fitzgerald claimed was his -- the crux of the interference with
contract complaint -- could only be done by an attorney pursuing
his profession." Id. at 1340-1341. Similarly, the crux of LKP's
claim relates to ECI/Hyer's attempt to represent a client. As in
Sachs, this could only be done by a professional pursuing his or
her profession.
In the present case, the trial court relied on two
California appellate court cases, Blumberg v. Guaranty Ins. Co.,
238 Cal. Rptr. 36 (Cal. Ct. App. 1987) and Transamerica Ins. Co.
v. Sayble, 239 Cal. Rptr. 201 (Cal. Ct. App. 1987), in ruling
that a competitive bid is not a professional service. These
cases are inapposite. Both involved disputes between law
partners and neither involved the interaction with actual or
potential clients.6 In its brief and at oral argument,
Republic urges this court to narrowly construe the term
"professional services." Specifically, Republic attempts to
distinguish between claims arising from the preparation to render
professional services and claims arising from the rendering of
professional services. Since LKP's claim arose from ECI/Hyer's
attempt to procure a contract, Republic argues that such action
is merely preparatory and is not based on ECI/Hyer's rendering of
professional services. However, it is settled law that ambiguous
terms in insurance policies will be given that construction which
favors coverage, in this case the construction of "professional
services"which includes bid preparation and submission. Starry
v. Horace Mann Ins. Co., 649 P.2d 937, 939 (Alaska 1982). If
Republic wishes to limit coverage to post-bidding activity, then
it should provide an explicit limitation in its policy.7
Republic's policy contained no such limitation. Thus, we reverse
the trial court and hold that Republic breached its duty to
defend.
B. Should the trial court have granted summary
judgment to American in the amount of $130,000?
American argues that Republic should pay all of
ECI/Hyer's litigation costs incurred before LKP filed its amended
complaint and two-thirds of ECI/Hyer's litigation costs incurred
after LKP filed its amended complaint. American argues that this
amounts to approximately $130,000. Republic responds that the
issue of damages should be remanded because it was not decided by
the trial court and because there are material issues of fact as
to "both the amount and allocation of the damages."8 As a
general rule, we do not decide issues until the trial court has
ruled on them, and a dispute exists as to the correctness of that
ruling. See O'Neill Investigations v. Illinois Employers Ins. of
Wausau, 636 P.2d 1170, 1175 n. 7 (Alaska 1981) (appellate courts
should not ordinarily decide issues not considered by the trial
court). We adhere to this practice here and remand the issue of
damages for the trial court to decide.
IV. CONCLUSION
We reverse the trial court and hold that competitive
bidding is part of an architect's professional services under
Republic's professional liability insurance policy. We remand to
the trial court to determine the amount of American's damages.
_______________________________
1 Actually, Michael E. Plunkett, a principal in LKP, filed
the amended complaint "on his own behalf and on behalf of his
partnership property interest in"LKP. For ease of discussion,
we will refer to this complaint as LKP's amended complaint.
2 The declarations section of the policy describes the
insured's professional services as: architecture, interior
design and planning.
3 ECI/Hyer's policy with Republic contained an "awareness"
clause that permitted claims made after the coverage period to
relate back to the time ECI/Hyer originally notified Republic
about the possible claim. Thus, although LKP filed its amended
complaint after the expiration of Republic's policy, the amended
complaint related back to the policy period.
4 American provided ECI/Hyer with "occurrence based"
comprehensive general liability coverage from January 1, 1982 to
January 1, 1983. American had a duty to defend ECI/Hyer because
LKP's defamation claim of the second amended complaint alleged an
occurrence in 1982. This defense resulted in a jury verdict for
ECI/Hyer on all of LKP's claims. LKP appealed, but we dismissed
LKP's appeal for want of prosecution. File No. S-2813 (dismissed
12/21/88 pursuant to Alaska Appellate Rule 511.5(a)).
5 American's claim for a pro rata share is independently
based on its subrogation rights under its policy with ECI/Hyer
and on the equitable doctrine of restitution.
6 In Blumberg, Blumberg and his law partner, Zommick,
dissolved their law partnership. Zommick sued Blumberg for
misrepresentation during the dissolution. Blumberg, 238 Cal.
Rptr. at 39. The Blumberg court held that Blumberg's
"professional services"insurance carrier had no duty to defend
because:
1. Blumberg was not rendering
professional services; and
2. The insurance policy
explicitly excluded conduct in
connection with "any business
enterprise."
Id. at 39-40.
In Transamerica, Raphael sued his law partner, Sayble,
for breach of contract and dissolution. Citing Blumberg, the
Transamerica court held that Sayble's "professional services"
carriers had no duty to defend because Raphael's claims arose
from business disputes within the law firm. Transamerica, 239
Cal. Rptr. at 205.
7 Additionally, we note that even if such a limitation
existed, LKP's amended complaint would have nevertheless
triggered Republic's duty to defend. This is because LKP's
amended complaint alleged tortious conduct arising from acts that
occurred well after ECI/Hyer had completed the bidding process.
Specifically, in 1984, approximately two years after the school
board awarded ECI/Hyer the contract, the board increased the
contract by two more schools. LKP's eleventh count in its
amended complaint alleges that this modification resulted from
ECI/Hyer's "negligent and or fraudulent misrepresentation[s]."
Thus, LKP's complaint is not limited to ECI/Hyer's conduct in the
competitive bidding process. It also includes ECI/Hyer's conduct
in modifying the school design contract. This post-bidding
conduct independently triggered Republic's duty to defend.
8 The trial court did not need to reach these issues because
it ruled that Republic did not have a duty to defend ECI/Hyer.
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