The Consumer Financial Protection Bureau (“CFPB”) and other government agencies have initiated numerous investigations against a wide variety of companies, and there may be no end in sight. Costs associated with responding to these investigations can be enormous. Insurance generally covers these costs, but specific actions need to be taken to preserve and secure coverage. We previously explained in an article and webinar how policyholders can obtain coverage for these government investigations. Errors and Omission (E&O) or Directors and Officers (D&O) policies typically provide coverage for the costs of responding to subpoenas, CFPB Civil Investigation Demands, and regulatory actions. The key factor in determining whether the costs of responding to government investigations are covered is whether those investigations constitute “claims” under the language of the policy at issue. Many courts have held that costs of investigation are covered defense costs. See e.g. MBIA Inc. v. Federal Ins. Co., 652 F.3d 152 (2d Cir. 2011). Fortunately for policyholders, courts are continuing to uphold coverage for government investigations. Two courts recently held that government investigations are “claims” under the relevant policy language. Syracuse University v. National Union Fire Ins. Co. of Pittsburgh, PA, 40 Misc.3d 1205(A), 2013 N.Y. Slip Op. 51041(U), No. 2012EF63 (N.Y. Sup. Ct., Onondaga County, March 7, 2013), aff’d, 976 N.Y.S.2d 921 (N.Y. App. Div. 2013) (six subpoenas from federal and state prosecutors who were investigating media reports of sexual abuse by basketball coach constituted a claim under New York law); Protection Strategies, Inc. v. Starr Indem. & Liability Co., No. 1:13-CV-00763 (E.D. Va. Sept. 10, 2013) (investigation by NASA and U.S. Attorney regarding allegations of defrauding NASA constituted claim). Even an insurance company has argued that a government investigation was a claim in order to defeat coverage. Employers’ Fire Ins. Co. v. ProMedica Health Systems, Inc., 524 Fed. Appx. 241, 2013 WL 1798978 (6th Cir. Apr. 30, 2013) (insurer argued unsuccessfully that FTC investigation was claim that would have voided coverage). The take-away here is companies that have pursued coverage for the costs of government investigations have not been disappointed by the courts. Prompt notice should be provided under all relevant policies for any action by any government regulator, whether a subpoena or even a letter just mentioning an investigation. Once a company gives notice, it should zealously pursue insurance and refuse to take no for an answer.
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