Court Rejects Narrow ‘Professional Service’ and Insurable Conduct Interpretations

In Scholastic Inc. v. St. Paul Fire & Marine Ins. Co., No. 23-CV-3485 (JMF), 2025 U.S. Dist. LEXIS 179713 (S.D.N.Y. Sep. 15, 2025), Scholastic sought to recover costs it incurred in connection with a lawsuit brought by Vanderbilt University. Scholastic allegedly misappropriated intellectual property by creating new products and failing to pay royalties as required by its agreement with Vanderbilt. The parties settled following a summary judgment motion that left two surviving claims: (1) breach of contract and (2) trademark infringement. Scholastic’s primary insurer paid up to its policy limit, so Scholastic turned to its excess insurer for the remainder.  

The insurer argued there was no coverage because the injurious activities were not “caused by the rendering of, or failure to render, any professional service” as required by the policy. The court disagreed. It concluded that Scholastic’s actions were "‘directed at a core “professional service” undertaken by Scholastic, including developing, publishing, and, of course, selling educational products,’ namely, the design, publication, and sale of its various educational technology products.” Id. at *14–15.  

The court also rejected the insurer’s argument that Breach of Contract is categorically uninsurable under New York law. The key inquiry is whether the conduct is insured, not what labeled cause of action the claimant chooses to plead. As the court explained, “Vanderbilt's breach of contract claim was not premised on Scholastic's mere failure to pay an agreed upon amount; instead, it was premised on a separate act — namely, Scholastic's purported misappropriation of Vanderbilt's intellectual property. In other words, Vanderbilt would have been entitled to relief even if the License Agreement did not exist.” Id. at *16.

This critical principle for coverage analysis eludes many judges and has often been the subject of our past blog entries. See, e.g., David A. Gauntlett, Digging Deeper: Evaluating Potential Coverage for Litigation, https://lnkd.in/g-44PgmJ (May 8, 2025).