Is A CID Or Government Subpoena A Claim?

• Published date: 26 June 2023
• Subject Matter: Corporate/Commercial Law, Insurance, Government, Public Sector, Corporate and Company Law, Insurance Laws and Products, Securities, Fiscal & Monetary Policy
• Law Firm: Foley Hoag LLP
• Author: Mr Creighton Page and Adam Aguirre (Summer Associate)

INSURANCE COVERAGE FOR THE COSTS OF RESPONDING TO A CID OR GOVERNMENT SUBPOENA AND THE IMPORTANCE OF PROMPT NOTICE

Key Takeaways:

• Companies should promptly notify their insurers as soon as a government subpoena, CID or other governmental inquiry is received.
• There may be coverage available under companies' D&O E&O or other liability policies for the potentially substantial costs of responding to a government investigation.
• Even if there is no coverage for the costs of responding to the government's initial investigation, prompt notice to the companies' insurers protects the company in the future if a related lawsuit or enforcement proceeding is brought one or more years later.

For many companies, particularly those in highly regulated industries, the receipt of a civil investigative demand (CID) or subpoena from the government can understandably trigger stress. What might not be top of mind is whether the substantial legal fees and other costs incurred responding to such governmental inquiries are covered by the company's insurance policies. But it should be.

In many jurisdictions, and under the language of many policies, a government subpoena or CID is a covered "Claim" for a "Wrongful Act" that entitles the insured to recover from its insurer the costs of responding by producing documents or deposition testimony. Companies should be aware that such coverage may exist and should promptly notify their insurers upon receipt of a government subpoena or CID so as not to forfeit the coverage that may be available. But even if the insurer does not agree to pay for the costs of responding, at a minimum, giving the insurer prompt notice is a prudent step to ensure that coverage will be in place down the road if the government's initial investigation later turns into an actual enforcement proceeding.

Is a CID or Government Subpoena a "Claim" that is "For" or "Alleging" a "Wrongful Act"?

Whether the costs of responding to a CID or government subpoena are covered by insurance depends on whether the CID or subpoena (1) is a "Claim" (as defined in the policy); (2) for or alleging a "Wrongful Act." Courts across the country have assessed both questions on numerous occasions with no clear judicial consensus emerging, even among those courts that have construed identical (or nearly identical) policy wording.

The "Claim" Definition

The definition of "Claim" can vary significantly from policy to policy. Some directors and officers (D&O) and errors and omissions (E&O) liability policies define "Claim" to specifically include all administrative or regulatory investigations or proceedings. See Guaranteed Rate, Inc. v. Ace Am. Ins. Co., 2021 Del. Super. LEXIS 552 (Del. Super. Ct. Aug. 18, 2021). Other policies may include only government proceedings, but not investigations, within the definition of a "Claim." See MusclePharm Corp. v. Liberty Ins. Underwriters, Inc., 712 Fed. Appx. 745 (10th Cir. 2017). Still, other policies take a middle road - only a government "proceeding" will be a "Claim," but the "proceeding" is deemed commenced by the filing of an "investigative order" or similar document, see MBIA, Inc. v. Fed. Ins. Co., 652 F.3d 152 (2d Cir. 2011), or receipt of a subpoena identifying the insured as a person or entity against whom a proceeding may be brought, see Biochemics, Inc. v. Axis Reinsurance Co., 924 F.3d 633 (1st Cir. 2019). The best D&O and E&O policies include express terms making clear...