Government investigations by SEC, DOJ, and state attorney generals are a significant source of exposure for companies and their directors and officers. Companies can spend millions of dollars responding to a government subpoena or investigative demand. The broadly worded demands for information or testimony typically require extensive searches through mountains of paper documents and electronically stored information (“ESI”).
As investigation defense costs rise, the question inevitably follows: Will the company’s D&O or professional liability insurance cover the costs of responding to a formal investigative order, civil investigative demand or subpoena? The answer to this question is not always clear-cut. Given the stakes, insurers and policyholders frequently litigate this issue, with courts across the country reaching different conclusions depending on the unique terms, definitions, and conditions of the policies and the type of investigation at issue. A recent decision in Delaware addressing insurance coverage for the costs of responding to a civil investigative demand provides helpful guidance for policyholders seeking coverage for these costs.
In Guaranteed Rate, Inc. v. Ace Am. Ins. Co., No. N20C-04-268 MMJ CCLD (Del. Super. Ct. Aug. 18, 2021), appeal refused, 266 A.3d 212 (Del. 2021), the Delaware Superior Court considered whether a civil investigative demand – issued by the U.S. Attorney’s Office for the Northern District of New York and the U.S. Department of Justice – qualified as a “Claim” as required to trigger coverage under the policyholder’s Private Company Management Liability Policy. The civil investigative demand was issued pursuant to the False Claims Act “in the course of an investigation to determine whether there is or has been a violation of 31 U.S.C. § 3729.”