(Article from Insurance Law Alert, September 2021)
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A Delaware trial court ruled that a professional services exclusion in a Private Company Management Liability Policy did not bar coverage for an underlying suit alleging False Claims Act violations. Guaranteed Rate, Inc. v. Ace American Ins. Co., 2021 WL 3662269 (Del. Super. Ct. Aug. 18, 2021).
The policyholder, an underwriter of federally-insured mortgage loans, sought approximately $18 million in coverage in connection with a federal investigation of alleged False Claims Act violations. ACE denied coverage on several bases, including a professional services exclusion. Ruling on the parties’ cross-motions for judgment on the pleadings, the court concluded that the exclusion did not apply.
The exclusion provided that ACE “shall not be liable for Loss on account of any Claim . . . alleging, based upon, arising out of, or attributable to any Insured’s rendering or failure to render professional services.” The term “professional services” was not defined. The court noted that the wrongful acts alleged in the investigation involved the policyholder’s failure to meet certain quality-control standards imposed by the government. The court concluded that “[c]ompliance with applicable quality-control standards is not a Professional Service provided directly to borrower clients, such that coverage would be excluded by the Policy’s Professional Services Exclusion.”