Insurance disputes in construction projects often turn on whether the coverage everyone assumed existed was actually in place. In its recent decision in TCF Enterprises, Inc. v. Rames, Inc., the Montana Supreme Court provided important guidance on the liability of insurance agency after agreeing to obtain additional insured coverage and issuing a certificate of insurance representing that coverage exists.

In TCF Enterprises, a general contractor constructed a condominium project in Whitefish, Montana. After construction, the building experienced significant settlement associated with subsurface conditions and the adequacy of the soil investigation performed prior to construction. Reports indicated that the structure settled over four inches, well beyond anticipated tolerances, raising concerns about undocumented fill, bearing capacity, and site preparation. These conditions ultimately led to litigation by the developer alleging negligence and construction defects, a scenario familiar in projects where unforeseen or inadequately characterized soil conditions result in differential movement and costly repairs.

The general contractor sought defense and indemnity as an additional insured under the commercial general liability policy of its engineering subcontractor, which had been retained to perform surveying and prepare a geotechnical report. Coverage was denied after it was discovered that, although a certificate of insurance issued by the subcontractor’s insurance agency stated that the general contractor was an additional insured, the required policy endorsement had never been issued.

In the underlying transaction, the subcontractor directed its insurance agency to obtain additional insured coverage for the benefit of the general contractor and provided sample language outlining the required coverage. The agency issued a certificate of insurance stating the general contractor was an additional insured but failed to obtain the corresponding policy endorsement.

The Montana Supreme Court held that when an insurance agency agrees to procure specific coverage, even for the benefit of a third party, it assumes a duty to exercise reasonable care in doing so. The Court concluded that the agency could be liable where it undertook to obtain the additional insured coverage and failed to do so.

A significant aspect of the negligence assessment is the Court’s treatment of the certificate of insurance. The Court concluded that, despite standard disclaimer language, a certificate may constitute a representation that coverage has been obtained where the agency communicates that coverage is in place and the recipient reasonably relies on that representation.  The Court recognized the practical reality that parties in construction projects commonly rely on certificates rather than reviewing policy endorsements, and that such reliance may be reasonable depending on the circumstances.

The Court also addressed whether a professional services exclusion in the underlying policy would have barred coverage even if the contractor had been properly added as an additional insured. The Court analyzed both the policy language and the nature of the claims asserted in the underlying litigation.

The exclusion applied to bodily injury or property damage “arising out of” the rendering or failure to render “professional services,” defined as services requiring specialized skill or training and including activities such as design, supervision inspection, and engineering functions. The insurance agency argued that the general contractor’s role fell within this exclusion. The Court rejected that argument, emphasizing several key points.

First, Montana law requires exclusions to be construed narrowly and strictly against the insurer.  The Court noted that the phrase “arising out of,” when undefined, can be ambiguous, and ambiguity must be resolved in favor of coverage.

Second, the underlying complaint asserted both general negligence and professional negligence. Under Montana’s mixed-action rule, if any claim potentially falls within coverage, the duty to defend is triggered for the entire action. The allegations that the contractor furnished labor, materials, tools, and equipment, functions that do not necessarily require specialized professional judgement, were sufficient to potentially fall outside the policy exclusion.

Third, the Court expressed concern that interpreting the exclusion to encompass ordinary general contracting activities could effectively render coverage illusory for contractors, contrary to Montana public policy. Taken together, the Court concluded that the professional services exclusion would not have unequivocally barred defense or indemnity for the general contractor. The Court’s analysis underscores that the applicability of a professional services exclusion turns on the nature of the allegations and the role the contractor actually performed, not simply the label attached to the work.

Insurance issues often sit at the center of construction disputes, and the availability, or absence, of coverage can have a significant impact on whether an injured parry is ultimately made whole. As TCF Enterprises illustrates, breakdowns at the coverage procurement stage can leave contractors, owners, and other project participants facing substantial losses when coverage that was expected to respond is not actually in place.

Because these disputes frequently involve layered contractual obligations, technical policy language, and evolving factual records, navigating them requires careful analysis and a clear understanding of both construction law and insurance law. When coverage failures arise, having counsel who understands how to evaluate claims, parse policy language, and pursue recovery can be critical to maximizing a client’s ability to recover what was lost.

The decision serves as a reminder that while insurance is intended to transfer risk, ensuring that it functions as intended, and pursuing remedies when it does not, remains an essential part of protecting parties involved in complex construction projects.