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.
E&O policies, which cover the wrongful acts of a policyholder in its performance of specified business services, may also respond to FCA claims and government investigations. While E&O policies usually exclude losses resulting from fraudulent conduct or intentional wrongdoing, coverage for defense costs and resolution of FCA claims may exist if the alleged conduct falls short of that; if the fraud or intentional conduct is proven at trial, by legal admission or by some other specified means; or if some other negligence of the insured is alleged.
D&O policies can also provide broad coverage for FCA claims or government investigations. Under D&O policies, a covered “claim” may include civil, criminal, regulatory and administrative investigations. This can be beneficial in the FCA context, where a company can incur substantial costs merely responding to inquiries during an investigation.
CGL policies should also be considered as a potential source for recovery. These policies cover a variety of claims and circumstances, including suits seeking damages for bodily injury, property damage or personal and advertising injury resulting from an accident. These grants can be far broader in effect than they initially appear, as highlighted by a recent opinion issued by the U.S. Circuit Court of Appeals for the Fourth Circuit. The Fourth Circuit upheld a ruling requiring a CGL insurer to defend a pharmaceutical company facing an FCA complaint for its alleged role in a “pill mill” operation, finding that the allegations of the company’s “accidental” or “negligent” statutory violations were enough to demonstrate the potential for coverage.
Further, policyholders seeking this coverage should be cautioned to consider notice issues, as insurance companies will frequently rely on late notice defenses even if notice is delayed while a government investigation at issue remains under seal. If a seal is in place, the best practice may be to seek government permission to provide notice to the insurer or to provide the greatest amount of notice possible.