Professional Services Exclusion Precludes Coverage for False Claims Act Suit

In a recent decision in HotChalk, Inc. v. Scottsdale Ins. Co., the Ninth Circuit found that the defendants’ liability insurance coverage was precluded for an FCA suit because the insured’s professional service had a direct relationship to the alleged misconduct. After former employees filed a qui tam suit alleging the firm paid recruiters improper bonuses and commissions, which resulted in false claims in financial aid to the Department of Education, HotChalk tendered the claims to its insurer under its D&O policy. The insurer denied the claim under the policy’s professional services exclusion. HotChalk sued, but the district court and Ninth Circuit both upheld the denial, holding that the professional liability exclusion precluded coverage for any claim arising from the rendering, or failure to render, professional services. Because the services provided by HotChalk directly contributed to the alleged misconduct, the courts held the exclusion applied.

Read the full post from Carlton Fields via JD Supra