Alabama Court Holds Professional Liability Exclusion Applicable to Negligent Inspection

In its recent decision in AIX Specialty Ins. Co. v. H&W Tank Testing, Inc., 2017 U.S. Dist. LEXIS 169787 (M.D. Ala. Oct. 12, 2017), the United States District Court for the Middle District of Alabama had occasion to consider the scope and permissibility of a professional liability exclusion contained in a general liability policy.

H&W, a tanker truck inspection company, was sued in connection with its alleged negligence in inspecting a tanker truck carrying a load of propane gas.  The truck later was involved in a crash, which resulted in the propane leaking and ultimately exploding, causing severe injuries to the driver.  The driver sued H&W on the basis that it negligently failed to test and inspect the propane tank.

H&W sought coverage for the suit under its general liability policy issued by AIX.  The policy contained an endorsement titled Testing or Consulting Exclusion, applicable to an error, omission, defect or deficiency in any test performed or an evaluation, consultation or advice given by or on behalf of any insured.   AIX denied coverage for the underlying suit on the basis of the exclusion.  H&W nevertheless contended that the exclusion was void as against Alabama public policy and that in any event, it did not apply to the allegation that it had failed to properly inspect plaintiff’s tank.

Considering first the scope of the exclusion, the court rejected H&W’s argument that the exclusion did not apply to allegations of negligent inspection.  H&W argued that the literal terms of the exclusion applied only to testing, and did not include inspection, and that a distinction could be drawn between negligent testing and negligent inspection.  The court concluded that there was no meaningful distinction between a test and an inspection, nor would a reasonable person understand these words to have different meanings.

Turning to the issue of public policy, H&W argued that because it was required under Alabama statutory law to maintain general liability insurance for its inspection services, it was improper for AIX to issue a policy with an inspection exclusion.  The court rejected this argument, noting that the statutory requirement for insurance applied only to companies such as H&W, not to their insurers.  The court concluded that the burden was on H&W to secure the proper coverage and that this burden could not be shifted on AIX to assume responsibility for H&W’s mistake.