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(Article from Insurance Law Alert, July/August 2016)

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A Maryland federal district court ruled that an insurer was obligated to defend deceptive marketing claims, finding that a professional services exclusion did not apply and that a subpoena constituted a “claim.”  Educ. Affiliates Inc. v. Federal Ins. Co., 2016 WL 4059159 (D. Md. July 28, 2016).

The coverage dispute arose out of a federal and state investigation of certain for-profit educational institutions owned by Education Affiliates.   The colleges were also named as defendants in private lawsuits brought by former students.  The complaints alleged that the colleges’ recruiters made false various statements, including about the quality of education and facilities.  Education Affiliates sought a defense from Federal under a D&O policy that covered wrongful acts during the policy period.  Federal denied coverage on the basis of a “Professional Services” exclusion that barred coverage for claims arising in connection “with the rendering of . . . professional services for others.”  The court rejected this assertion and ruled that Federal was obligated to defend.

The court ruled that the Professional Services exclusion did not apply as a matter of law because the “marketing of professional services is not the rendering of professional services.”  The court explained that the “fact that the marketing relates to the professional services to be rendered to others cannot be said to conflate the two because, in light of the fact plaintiffs’ core business is the rendering of educational services to others, such conflation would provide an ‘evisceration’ of coverage.”

The court also ruled that a subpoena issued by a state Attorney General’s Office constitutes a “claim” under the policy because it is a “written demand for . . . non-monetary relief.”  As discussed in our October 2013 Alert, decisions addressing whether the issuance of a subpoena or other agency investigative measures constitute a claim turn primarily on applicable policy language as well as the particular factual record presented.