Governmental investigations of businesses are on the rise. In 2013 alone, the U.S. Department of Justice (DOJ) recovered $3.8 billion in settlements and judgments under the False Claims Act (FCA)—the second largest recovery in history.
The rise in FCA prosecutions affect nearly every industry in the United States. But an FCA prosecution is not the only government enforcement action that companies should be thinking about. Both the Securities and Exchange Commission (SEC) and the DOJ have also announced they will continue to bring major Foreign Corrupt Practices Act (FCPA) cases so companies operating internationally can expect increasing scrutiny. This increased activity makes it all the more important for businesses to secure proper insurance coverage prior to such investigations and to preserve and pursue existing coverage should an investigation or prosecution occur.
Receiving a subpoena or a federal grand jury “target letter” in connection with an FCA or FCPA investigation is likely to prompt a company to ask a multitude of questions, not the least of which is: “Does our insurance cover this?” The frequency with which policyholders will ask this question—and the stakes raised by the answer—will increase with the rise in governmental investigations and prosecutions. Expenses associated with responding to a subpoena or civil investigative demand (CID) against a company, or one or more of its directors or officers, are often incurred at the same time as the company is incurring legal fees and costs in connection with a corollary internal investigation. A company’s obligations to cooperate with the governmental investigation are usually substantial as targets usually find themselves at the will of the investigator and compliance is required regardless of the costs.
The broad scope of investigations, and corresponding litigation, may implicate several types of insurance policies, including directors and officers (D&O). Depending on the wording of each particular policy, costs associated with responding to subpoenas and the corresponding internal investigation may be covered. Companies can often overlook potential sources of recovery simply because the conventional wisdom says that those types of policies “aren’t meant for these types of claims.”