Source: http://www.klgateshub.com/details/?pub=Dollars-and-Sense-Making-the-Most-of-Your-Companys-Insurance-Policy-When-Served-with-a-Government-Subpoena-07-16-2018
Timestamp: 2019-04-18 18:18:53+00:00

Document:
When a company receives a subpoena or otherwise learns it is a witness, subject or target of a government investigation, its initial response typically involves contacting outside counsel specializing in government investigations and then complying with and/or defending against the government’s inquiry. However, a company’s response should not end there. A corporate subpoena recipient should also consider whether the costs incurred in responding to the government’s inquiry—including legal fees and expenses and/or potential settlements—may be covered under its insurance policies, such as its Directors and Officers’ (“D&O”) liability policies and Errors and Omissions (“E&O”) liability policies. If there is a potential for coverage, the company should consult with coverage counsel to preserve its rights under those policies.
On May 30, 2018, the Northern District of Illinois reinforced this premise by denying three insurers’ motions to dismiss a policyholder’s complaint seeking coverage for defense costs incurred with respect to an investigation by the U.S. Department of Justice (“DOJ”) in Astellas US Holding Inc. v. Starr Indemnity and Liability Co., et al.  Similar to many other cases addressing the availability of coverage for regulatory investigations, the Astellas court focused on the specific definition of “Claim” in the policy. Like many other current policies, the definition of Claim at issue included numerous particular sub-parts, including (1) one sub-part that potentially afforded coverage for certain regulatory investigations, and (2) other more general sub-parts, including a “written demand for monetary, non-monetary or injunctive relief” and a “written request to toll or waive the applicable statute of limitations.”  The Astellas court rejected the insurers’ position that the availability of coverage turned solely on the applicability of the sub-part expressly related to regulatory investigation.  Alternatively, the court reasoned that the various sub-parts offered “alternative” and “overlapping” forms of coverage.  Based on the facts, the court denied the insurers’ motions to dismiss on the grounds that the DOJ subpoena was a demand for non-monetary relief and that a tolling agreement at issue satisfied the sub-part dealing with such agreements.
While policy language and state law varies widely, Astellas should serve as a reminder that policyholders facing a regulatory investigation should consider the availability of insurance coverage. Even if the sub-part of the definition of Claim related to regulatory investigations refers expressly to formal investigations, the independent sub-part for tolling agreements may afford valuable coverage if a regulator requests a tolling agreement during an informal phase of an investigation.
The definition of Claim varies widely in D&O and E&O policies, including with respect to regulatory investigations. Some definitions include one subpart that expressly addresses regulatory investigations (as well as other subparts), but the terms of such subparts also vary widely. For example, the policy at issue in Astellas included a subpart for a “regulatory investigation of an Insured Person, which is commenced by the filing or issuance of a notice of charges, formal investigative order or similar document identifying such Insured Person as a person against whom a proceeding … may be commenced.”  In contrast to the Astellas policy (which refers to certain investigations of an Insured Person), other policies include subparts that expressly afford coverage for certain regulatory investigations related to all insureds (including entity insureds). Some policies expressly cover “any investigation” (e.g., no restriction to “formal” investigations), while others might refer to specific parts of an investigation, such as subpoenas, target letters, formal orders, and/or Wells notices.
As noted, many policies include a definition of Claim that includes numerous subparts, such as subparts for civil and criminal proceedings and, more generally, for written demands for monetary or non-monetary relief and/or any written request for a tolling agreement. As illustrated by the Astellas case, policyholders may be entitled to coverage for a regulatory investigation under such subparts, even if the regulatory subpart does not apply.
Similarly, the court found that the tolling agreement amounted to a Claim because it memorialized a request for a tolling agreement between the parties, included statements indicating that the DOJ was conducting a civil and criminal investigation of Astellas and warned that Astellas may be charged with violations of the law.  The court went on to explain that the tolling agreement’s description of “potential violations” was sufficient to satisfy the definition of Wrongful Act.  The subpart for “tolling agreements” is potentially a valuable source of coverage for policyholders. For example, even if the subpart addressing regulatory investigations refers to formal orders of investigation, this “tolling agreement” subpart could afford coverage when a regulator requests a tolling agreement during the informal phase of an investigation.
Astellas is the latest in a line of D&O and E&O cases involving coverage for subpoenas and related government action against policyholders. Generally speaking, the cases turn on state law, policy language, and the facts at issue. State law varies widely on relevant issues, including (1) whether subpoenas and/or formal orders allege Wrongful Acts for purposes of triggering coverage, and (2) whether subpoenas are “demands for non-monetary relief,” as opposed to requests for information.
Notably, courts have reached mixed results on whether formal orders allege a Wrongful Act for purposes of triggering coverage. As noted, if the insurer expressly defines Claim by reference to a formal order with full knowledge of language typically used in such orders and the underlying legal process, certain courts have viewed with skepticism any arguments by Insurers that formal orders do not trigger coverage. In MusclePharm, the court cited language in the formal orders at issue stating that “the Commission has not determined whether any of the persons or companies mentioned in the order have committed any of the acts described or have in any way violated the law.”  But courts that have reached the opposite conclusion have cited other language that typically appears in formal orders, namely language that the staff has evidence that “tends to show” that violations of law have been committed.
On the whole, and despite mixed law on this issue, courts have indicated a growing willingness to consider subpoenas as “demands for non-monetary relief” and therefore as covered Claims.  Perhaps cognizant of this fact, and in response to demands from policyholders for greater clarity, many Insurers have begin offering D&O policy wording that expressly provides coverage for subpoenas and/or for formal and informal administrative and regulatory proceedings. This policy language is not uniform and has not been litigated extensively to date, so it is likely that there will be continued coverage disputes regarding these issues.
Policyholders and Insurers will likely continue to dispute the scope of coverage available for subpoenas and other actions taken as part of government investigations and proceedings. However, regardless of geographical location or jurisdiction, courts will likely continue to look to specific policy language and relevant facts at issue in determining the outcomes of these cases. Given that costs associated with government investigations are often substantial, policyholders would be wise to familiarize themselves with their existing insurance policies and consult coverage counsel where appropriate regarding the coverage afforded by their current policies and the opportunity to improve policy language at renewal.
 Astellas US Holding Inc. v. Starr Indemnity and Liability Co., No. 17-cv-08220 (N.D. Ill. filed Nov. 13, 2017). The Memorandum Opinion and Order dismissing Defendants’ Motion to Dismiss (referred to herein as “Astellas Order”), issued on May 30, 2018, is available in full here.
 Id. at 3 (“On March 3, 2016, the United States Department of Justice issued a subpoena to plaintiffs demanding certain documents relating to the DOJ’s industrywide investigation of pharmaceutical companies for alleged ‘Federal health care offenses.’”).
 Am. Compl. at ¶ 31, ECF No. 39.
 The tolling agreement stated that the DOJ is conducting a criminal and civil investigation of Astellas and its officers and employees for the possible violation of various federal criminal statutes.
 Id. The subpoena included the following statement: “Failure to comply with the requirements of this subpoena will render you liable to proceedings in the district Court of the United States to enforce obedience to the requirements of this subpoena, and to punish default or disobedience.” Amended Complaint at Exhibit D, Astellas, No. 17-cv-08220 (N.D. Ill. filed Nov. 13, 2017), ECF Nos. 39, 39-4.
 As discussed below, other courts have directly tackled this issue.
 2007 WL 1030293, at *3 (N.D. Ill. Mar. 30, 2007).
 652 F.3d 152 (2d Cir. 2011).
 40 Misc. 3d 1205(A), 975 N.Y.S.2d 370 (Sup. Ct.), aff’d, 112 A.D.3d 1379, 976 N.Y.S.2d 921 (2013).
 712 F. App’x 745, 758 (10th Cir. 2017).
 See, e.g., Patriarch Partners, LLC v. AXIS Ins. Co., No. 16-CV-2277 (VEC), 2017 WL 4233078, at *5–6 (S.D.N.Y. Sept. 22, 2017) (holding “nonmonetary relief” includes an SEC subpoena); Agilis Ben. Servs. LLC v. Travelers Cas. & Sur. Co. of Am., No. 5:08-CV-213, 2010 WL 8573372, at *6–7 (E.D. Tex. Apr. 30, 2010) (acknowledging that “‘relief’ is broad enough to include a demand to produce documents”); Minuteman Int’l, Inc. v. Great Am. Ins. Co., No. 03 C 6067, 2004 WL 603482, at *7 (N.D. Ill. Mar. 22, 2004). But see Employers’ Fire Ins. Co. v. ProMedica Health Sys., Inc., 524 F. Appx. 241, 252 (6th Cir. 2013) (holding that subpoenas and civil investigative demands sent by Federal Trace Commission sought information other than “relief” and therefore did not amount to a Claim under the applicable policy).

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