The United States Court of Appeals for the Second Circuit has affirmed a lower court's ruling that requires St. Paul Fire and Marine Insurance Company to cover Scholastic Inc.'s legal costs and settlement expenses in a dispute with Vanderbilt University. The decision, made on November 6, 2026, is significant for businesses and insurers alike, as it clarifies the interpretation of insurance policies regarding coverage for legal settlements and defense costs.

Scholastic Inc., a well-known educational publishing company, found itself in a legal battle with Vanderbilt University, which claimed that Scholastic improperly used its intellectual property without paying the required royalties. The dispute arose from a licensing agreement between the two parties. After settling the claims brought by Vanderbilt, Scholastic sought reimbursement for the settlement and defense costs from St. Paul Fire and Marine Insurance Company, its excess insurer. The district court had previously ruled in favor of Scholastic, stating that the excess insurance policy covered these costs.

The case reached the Second Circuit after St. Paul Fire and Marine Insurance Company appealed the district court's decision. The insurer argued that the lower court misinterpreted the terms of the insurance contract and that it should not be responsible for the costs incurred by Scholastic. The appeal was documented under docket number 25-2505.

The court ruled that the Travelers policy, which is the policy held by St. Paul, covers losses caused by the rendering of professional services. The judges found that Scholastic's actions in developing educational products were indeed professional services, making the claims against them related to their professional conduct. The court stated, "The entire Vanderbilt settlement amount is covered by the Travelers policy because it was 'caused by' a 'rendering of' a 'professional service.'" This ruling emphasized that Scholastic's work involved specialized knowledge and training, which qualifies as professional services under the insurance policy.

Additionally, the court addressed the issue of defense costs incurred prior to the exhaustion of the primary insurance policy held by AIG. The judges ruled that the Travelers policy would continue to cover these costs once the AIG policy limits were exhausted. The court noted, "The best reading of this clause is that Travelers has the same obligations with respect to covered costs as AIG had at the time of exhaustion." This interpretation further solidified the obligation of St. Paul Fire and Marine Insurance Company to cover Scholastic's legal expenses.

The impact of this ruling is significant for businesses and their insurers. It clarifies that excess insurance policies can cover both settlement amounts and defense costs when related to professional services. This decision may influence how insurance companies draft their policies and how they interpret coverage in future disputes. Companies like Scholastic can feel more secure knowing that their excess insurance may cover legal costs arising from claims related to their professional activities.

Looking ahead, it remains to be seen whether St. Paul Fire and Marine Insurance Company will seek to appeal this decision to a higher court. The court filing did not indicate any pending related cases. However, the outcome of this case could lead to further litigation regarding the interpretation of insurance policies in similar contexts, especially in cases involving intellectual property disputes.