Most small business owners know they need liability insurance. Fewer know which policy actually responds when a lawsuit hits. A coverage fight that just ended in a federal appeals court shows why the wording in your business insurance matters, and why Colorado Springs businesses should understand the difference between general liability and professional liability insurance.
What happened in Scholastic v. St. Paul Fire and Marine
According to Business Insurance, Vanderbilt University sued Scholastic in 2018 over literacy software it had licensed to the publisher, alleging Scholastic used the intellectual property in its READ 180 products without paying royalties. The case, which came down to breach-of-contract and trademark claims, settled in July 2021.
Scholastic's primary insurer paid its full $10 million limit. Its excess professional liability insurer, St. Paul Fire and Marine (a Travelers company), refused to pay about $13.4 million of the remaining settlement and about $960,000 in defense costs. The insurer argued the dispute was an uncovered contract claim, not a loss from Scholastic's professional services. A federal judge in New York sided with Scholastic in 2025 and entered a judgment of nearly $19.5 million, including about $5.2 million in interest.
In November 2026, the U.S. Court of Appeals for the Second Circuit affirmed. The court said developing and selling educational products are Scholastic's core professional services. And because the excess policy kept the primary policy's obligations in force once that policy was used up, the excess insurer owed defense costs as well as the settlement.
General liability vs. professional liability: who covers what
General liability insurance protects your business when someone claims bodily injury, property damage or personal and advertising injury (such as libel or certain advertising claims) arising from your operations. Think of a customer who slips in your shop or a crew that damages a client's property.
Professional liability insurance, also called errors and omissions (E&O), covers claims that your professional services, advice or work caused a client financial harm. General liability policies generally don't cover professional mistakes that cost a client money, and many include a professional services exclusion. That's why consultants, designers, IT firms, real estate professionals, accountants and many contractors carry both.
The Scholastic case shows that the line between "professional services" and "just a contract dispute" can decide whether a claim is covered at all. The answer depends on your policy's definitions.
4 lessons for Colorado Springs business owners
Make sure "professional services" describes what you actually do. Your professional liability policy should define your services broadly enough to match your real work, including products you develop or sell.
Know your layers. A large claim can use up a primary policy. A commercial umbrella or excess policy adds limits on top, but you need to know which underlying policies it follows and whether it pays defense costs.
Watch contract-related exclusions. Many liability policies limit coverage for breach-of-contract claims. Review the contracts you sign, including indemnity and insurance requirements, with your agent.
Report claims early and keep records. Prompt notice to every insurer, primary and excess, protects your rights. If a claim is denied, a coverage attorney can help you evaluate it.
Is your business covered for the right risks?
Many Colorado Springs small businesses start with a business owner's policy (BOP), which combines general liability and commercial property, then add professional liability, commercial auto or an umbrella as they grow. McCloskey Advisor Group is an independent agency, so we compare small business insurance in Colorado Springs from multiple carriers and help you close the gaps between policies.
Want a second look at your coverage? Request a general liability quote, request a professional liability quote or call (719) 247-1554.
Also in this week's insurance news: the Colorado Supreme Court agreed to hear a case about auto insurers' duty to disclose policy limits. Read what Colorado drivers should know.
Sources: Business Insurance, "Court upholds $19.5M judgment against Travelers in Scholastic cover fight" by Richard Sine (Nov. 9, 2026); Law360, "Insurance Litigation Week In Review" (Nov. 12, 2026); Mealey's (Nov. 11, 2026). This article is general information, not legal advice. Coverage always depends on your policy language.