A California appeals court ruled Friday that an electronic health record software developer cannot use its directors and officers liability insurance to cover a $145 million settlement it reached with the U.S. Department of Justice in January 2020.

The three-judge appellate panel in Practice Fusion Inc. v. Freedom Specialty Insurance Co. et al. agreed with a trial judge in San Francisco that a professional services exclusion barred coverage.

The panel said the work performed by Practice Fusion as part of its contracts with 13 pharmaceutical companies between 2013 and 2017 constituted professional services because the policyholder designed and coded clinical decision support alerts in its software. Additionally, Practice Fusion modified its software by embedding CDS alerts that would be triggered by the pharmaceutical companies’ guidelines.

San Francisco-based Practice Fusion, which was purchased by Allscripts Healthcare LLC in 2018, obtained primary and excess D&O policies from eight insurers, including Hiscox Insurance Co. Inc. and units of Nationwide Insurance Co. of America and Tokio Marine Holdings Inc. that provided $50 million in coverage, court records show.

Practice Fusion’s electronic health record software allows patients to book appointments with health care providers and enables providers to chart visits, write prescriptions, order lab work and make referrals. The company provided its software for free and made money by placing advertisements in the software by licensing and analyzing data for pharmaceutical companies.

The DOJ began investigating Practice Fusion’s use of CDS alerts and discovered that the company was soliciting and receiving payments from pharmaceutical companies based on anticipated sales of drugs resulting from deploying the alerts.  Practice Fusion sought coverage from its D&O insurers after it reached a settlement with the DOJ that resolved allegations of Anti-Kickback Statute violations. The insurers denied coverage under the professional services exclusion.

Representatives for the parties did not respond to requests for comment.