Government Investigations

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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.”Continue Reading Guaranteed Rate v. Ace American Insurance – a victory for policyholders seeking coverage for government investigations

Whistleblower lawsuits under the False Claims Act, also known as qui tam actions, have become more common in recent years. This is particularly so in heavily regulated industries and those in which the government routinely pays or reimburses costs, such as health care, pharmaceuticals, finance, construction and defense. Companies defending themselves against government investigations and FCA actions often have the insurance coverage they need — but frequently overlook it.

Our group recently authored an article in Business Insurance discussing insurance coverage for FCA investigations and actions. As discussed at greater length in the article, businesses facing whistleblower suits and government investigations often have coverage in standard policy types, including employment practices liability (EPL), errors and omissions (E&O), directors and officers (D&O), and commercial general liability (CGL) policies. For instance, EPL policies, which cover losses from claims stemming from wrongful employment practices, may respond to FCA claims because FCA suits frequently include a claim of retaliation by the whistleblowing employee. Where employment-related claims are also at issue and intertwined or interrelated with the FCA claims, courts have ruled that EPL insurers have a duty to defend the entire action.
Continue Reading Double-check existing policies for whistleblower coverage