Facts
In Sioux Steel Co. v. Insurance Company of the State of Pa., No. 24-1121 (8th Cir. 2/6/2025), insured Sioux Steel, a designer and manufacturer of commercial grain storage systems, launched a new line of hopper bins. The design was initially prepared by a Sioux Steel employee, a licensed professional engineer, and then reviewed and approved by an outside engineering firm. One of the new hopper bins was sold by a distributor to an end user. After the distributor installed the hopper, it failed resulting in bodily injury and property damage. Sioux Steel’s CGL insurer ICSOP denied the claim based on a standard (ISO language) professional services exclusion which states generally that the insurance does not apply to any injury or damage:
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.
ISCOP’s investigation determined that the failure of the bin was caused by engineering defects rather than construction defects. Sioux Steel settled the claim and then sued ISCOP for breach of contract and bad faith.
Holding
The federal district trial court entered summary judgment for ISCOP and the Eighth Circuit affirmed. Applying South Dakota law, the court held that the unambiguous professional services exclusion applied. The court rejected Sioux Steel’s argument that the word “render” means the professional services must be provided directly to a third party such that the exclusion did not apply where, in the instance of a product manufacturer, the professional services are provided internally. Because “render” is an undefined term, the court refers to two dictionary definitions–Black’s Law Dictionary and Merriam-Webster’s Unabridged Dictionary–neither of which include a third party requirement. In other words, one can “render” services to anyone, including oneself. After determining that “render” is unambiguous, the court states:
There is no requirement within the [exclusion] that the professional services be rendered directly to a third party rather than indirectly through the design of a faulty product.