Hunton Insurance Recovery Blog

A US District Court has ruled that a Professional Services Exclusion in a D&O policy does not bar coverage for suits alleging that a network of for-profit career colleges engaged in false marketing regarding the quality of education and job prospects that enrollees would receive. The decision in Education Affiliates Inc., et al. v. Federal Insurance Company, et al., stems from a series of lawsuits filed against the owner of the career colleges by former students and a subpoena and draft complaint served by the Florida Attorney General alleging that the colleges were deceptive in marketing their services to prospective students.

The career colleges’ owner requested a defense from Federal under its D&O policy, which included a Professional Services Exclusion providing that no coverage would be available for wrongful acts committed “in connection with the rendering of . . . any professional services for others.” Federal denied coverage, arguing that this provision excluded coverage because the allegedly false marketing was related to professional services to be rendered to others.

Rejecting this argument, the court noted that to accept Federal’s interpretation would eviscerate the coverage the policy afforded. After all, the college owner’s core business was rendering educative services to others, so all of its activities would be related to that function. Because the marketing of professional services is not the rendering of professional services, Federal will be required to reimburse the college owner for the costs incurred defending itself against the false marketing claims.

The Education Affiliates decision illustrates the potential danger that exists for policyholders when dealing with broadly worded or imprecise exclusionary policy provisions. A careful policy review of prospective policy wording by experienced coverage counsel during the procurement or renewal process can help avoid such instances down the road. The decision also highlights the importance of viewing carrier coverage positions in context with the policyholder’s business so as to avoid the evisceration of coverage that almost occurred here.