July 23, 2018 Practice Points

Do Insurance Policies Cover the Cost of Responding to Subpoenas?

This dispute arises frequently in today’s business world

by Diana Shafter Gliedman

Policyholders and their insurance companies frequently disagree over what constitutes the claim needed to trigger the policy’s insuring agreement. This dispute arises frequently in today’s business world, as more and more professional liability policyholders are forced to defend against investigations by government regulatory agencies. Given the seriousness of such investigations and the glacial pace at which they typically proceed, policyholders can end up incurring millions of dollars in legal fees responding to subpoenas before formal legal proceedings even begin.

It is typical insurance industry practice to deny coverage for legal fees incurred responding to a subpoena by maintaining that the subpoena does not constitute a claim. Such was the case in the recently decided Astellas US Holding, Inc. v. Starr Indem. & Liab. Co., 2018 U.S. Dist. LEXIS 89725. In Astellas, plaintiff/ policyholder Astellas, a pharmaceutical company, found itself subject to a subpoena issued by the Department of Justice demanding documents relating to the DOJ's investigation of pharmaceutical companies for alleged “federal health care offenses.” Astellas, 2018 U.S. Dist. LEXIS 89725, at *3. The subpoena commanded plaintiffs to appear before government officials and to produce documents, advising plaintiffs that failure to comply exposed them to liability in judicial enforcement proceedings and punishment for disobedience. Id. at *4. Astellas provided its professional liability insurance companies with timely notice. Its primary insurance company, however, denied coverage, arguing that the subpoenas did not constitute a claim because the policy’s definition of Claim required a written demand for “monetary, non-monetary or injunctive relief” against an Insured, while the subpoena (according to the insurance company) simply requested that certain documents be produced. Id. at *8.

The U.S. District Court for the Northern District of Illinois, Eastern Division, did not agree, finding that the subpoena constituted a “claim” under the policy. According to the court, it was reasonable to infer that enforcement proceedings would follow any noncompliance by the plaintiffs in response to the subpoena and as such, the subpoena demanded, rather than requested, information. The court concluded that “[b]ecause courts may compel parties to give testimony or to produce documents as demanded in the subpoena . . . the subpoena demanded a form of non-monetary relief” which was distinct from the potential enforcement proceedings. Id. at *14.

The court also rejected the insurance company’s argument that the subpoena did not trigger coverage because the subpoena was not issued for a “wrongful act.” Although the SEC’s subpoena did not set forth any allegations of wrongful acts, the court looked to the plain language of the policy and held that it was enough that a wrongful act was alleged in some form, even if it not on the face of the subpoena. The policyholder’s complaint against the insurance company established allegations against it by the SEC, which provided a basis for concluding that the subpoena was issued for a wrongful act, even if the subpoena itself did not specifically contain the allegation. Id. at *16-17.

Not all courts have reached the same conclusion. Other courts, interpreting policies with different language or subpoenas making different demands, have found that subpoenas issued by the SEC did not constitute claims under an insurance policy and costs incurred responding to the subpoenas were not covered. Seee.g., MusclePharm Corp. v. Liberty Ins. Underwriters, Inc., 712 F. App'x 745 (10th Cir. 2017) (finding that because SEC subpoenas contained notices that stated they "should not be construed as an indication by the Commission or its staff that any violation of the law has occurred," the allegation of a “wrongdoing” by the SEC was missing and subpoenas did not constitute covered claims under the policy.) Nevertheless, policyholders on the wrong end of a government subpoena should examine their insurance policies carefully and pursue coverage for the cost of responding to said subpoenas whenever possible.

Diana Shafter Gliedman is with Anderson Kill, New York, NY.


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