Insurance Coverage for Government Investigations

The proverbial alphabet soup of government regulators inside the Beltway in Washington DC have steadily increased their oversight and enforcement activities.  These include such agencies as the Securities and Exchange Commission (SEC), the Department of Justice (DOJ), the Office of the Comptroller of the Currency (OCC), the Federal Communications Commission (FCC), the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN), and the Consumer Financial Protection Bureau (CFPB), to name a few.   Government agencies are initiating and pursuing an unprecedented number of investigations, whether for alleged securities violations, money laundering, product safety issues, false claims, or the bribery of foreign officials.  This regulatory zeal also extends to the state level as well, with state attorneys generals and city and local prosecutors zeroing in on supposed business fraud and other crimes. 

These investigations and settlements have generated a flurry of media headlines.  What is not getting publicity is the enormous cost of responding to these government investigations.  In this video, we explain how insurance policies provide a valuable sources of funds how insurance policies provide a valuable sources of funds to cover the costs of responding to governmental investigations and lawsuits.

Are Government Investigations Covered By Your Insurance Policy?

One of the key factors in determining whether the cost of responding to government investigations are covered is whether the investigations constitutes a “Claim” under the policy.  Many courts have held that costs of investigation are covered defense costs.  Because the costs associated with responding to investigations can total in the millions, or tens of millions of dollars, it is important for businesses to independently evaluate coverage for governmental investigations with insurance recovery counsel.  This kind of legal analysis, however, needs to be conducted immediately upon recognizing the existence of a governmental investigation, as insurance companies routinely deny claims that are not noticed during the applicable insurance policy period.

The take-away here is companies that have pursued coverage for the costs of government investigations have not been disappointed by the courts.  Proper notice should be provided under all relevant policies for any action by any government regulator, whether a subpoena or even a letter mentioning an investigation.  To do this effectively, policyholders need to understand not only their insurance policies, but also the procedures under which governmental agencies are authorized to open and pursue investigations.  For example, some agencies cannot issue a subpoena without first opening a formal investigation.  In some cases, the subpoena may not be a claim, but the initiation of a formal governmental investigation is.   Hence, reporting the subpoena, without also reporting the initiation of the formal governmental investigation, could result in the insurance carrier arguing that coverage has been forfeited. 

Once a policyholder gives notice, it should zealously pursue insurance with the help of experienced coverage counsel and refuse to take no for an answer

Coverage for governmental investigations and the associated reporting of governmental investigations remains one of the most universally misunderstood areas of insurance recovery law.  For additional information on this topic, please see :

Insurance Coverage For Government Investigations Presentation 

Insurance Coverage For Governmental Investigations 

Insurance Coverage For Government Investigations: The Trend For Coverage Continues

CFPB—A New Federal Agency Is On The Prowl

We have included a transcript of the video below:

Insurance policies generally cover the cost of a Government investigation, but coverage can easily be waived

You read about it all the time, the government is investigating a company for alleged misconduct. It might be the Department of Justice, the SCC, the CSPP or a State Agency. It could be a criminal investigation, it could be a financial scandal or it could be foreign bribery. You might find the story interesting unless your company is the target of the investigation. Because if it is even, if the allegations are merit less, you are in for a long and expensive fight. These investigations can last years and cost a lot of money. You’ll be spending money on lawyers, experts, and electronic discovery. 

If your company becomes a target of a government investigation or if you get caught up in an investigation of another company there are a lot of things you need to do. But one thing you should do is forget about insurance coverage. Because your insurance policies can pay for the costs of responding to a government investigation. 

There are a couple different insurance policies that might provide coverage. One is directors and officers policy, those policies cannot only cover individual directors and officers but they often cover the companies own direct liability as the defendant. There may also be coverage for errors and omission policies or professional liability policies. Those might provide coverage as well. They provide coverage for the wrongful acts of the company and its employees. Each of these types of policies is usually called the claims made policy. It provides coverage once a claim is first made against the policyholder. 

Because government investigations can start in a variety of ways the key question is what can you get coverage for, or in other words, what’s the claim. Can you get coverage for an informal or formal document request by the government, how about a request for an interview, a civil investigation demand or CID, or a subpoena or maybe even an administrative order. Can you get coverage for any of these? The answer is yes. If you have the right policy language, if you give notice at the right time, and if you pursue coverage properly. The key policy language is in the definition of claim. The broader the definition the better chance you have that coverage. Courts have construed different policy definitions of claims and many of them have held the claims often beginning with subpoenas are covered under those different policy definitions. And here is something you might not expect, even insurance companies have argued that the beginning stages of government investigations are claims under their policy. The bottom line is with the right policy language and the proper pursuit of coverage you can get insurance recovery for the cost of responding to a government investigation. For more on this topic please see the Miller Friel website and my blog entries on this topic, including a PowerPoint presentation that we did in May 2015.

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