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(Article from Insurance Law Alert, June 2018)

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The Ninth Circuit ruled that a professional services exclusion in a directors and officers liability policy bars coverage for a qui tam action against an insured company.  HotChalk, Inc. v. Scottsdale Ins. Co., 2018 WL 2473474 (9th Cir. June 4, 2018).

HotChalk, a company that provides online marketing and technology services to universities, was sued by former employees in a qui tam action.  The suit alleged that HotChalk violated federal regulations concerning the enrollment of students who received federal financial aid, causing both the students and universities with which HotChalk partnered to submit false claims to the government.  Scottsdale Insurance denied coverage and refused to defend the suit based on the policy’s professional services exclusion.  In ensuing litigation, a California district court granted Scottsdale’s summary judgment motion.  The Ninth Circuit affirmed, ruling that the allegations in the qui tam suit against HotChalk “arose out of” the rendering of professional services because they involved HotChalk’s professional services of recruiting students and providing support services to the universities.