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Article | FINEX Observer

Insurance coverage for civil investigative demands

Financial, Executive and Professional Risks (FINEX)
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By Charles J. Madden, III | November 18, 2019

Civil investigative demands (CIDs) are demands to produce documents, answer interrogatories and provide written reports.

Background

Civil investigative demands (CIDs) are demands to produce documents, answer interrogatories and provide written reports. They may be issued by the Department of Justice, States' Attorneys General or federal and state agencies. A party receiving a CID may be the target of the investigation or a third-party witness. The CID may also advise whether the target is under investigation for possible violations of law. CIDs may relate to antitrust, consumer protection or false claims act allegations.

Upon receiving a CID, the target of the CID may negotiate to narrow its scope. When that does not work, the target of the CID may also challenge the CID in court. In any event, responding to and/or negotiating/challenging a CID can be costly.

Policy solutions for CIDs

More recently, language has been added to insurance policies to address the growing frequency of CIDs. Those solutions usually include adding the terms investigation or regulatory proceeding to the list of situations constituting a claim. The definitions of investigation and regulatory proceeding will include CIDs. There are some slight differences in how CIDs are handled within these definitions as demonstrated below.

Example A:

Investigation means an investigation of an insured by an enforcement unit, commenced when such insured is a target of the investigation for a wrongful act, and has received a:

  • Subpoena
  • Civil investigative demand
  • Grand jury subpoena
  • Search warrant
  • "Target letter" (within the meaning of Title 9-11.151 of the United States Attorney's Manual)
  • Wells Notice formal order of investigation

or

  • The foreign equivalent to any of the foregoing from such enforcement unit, provided that the company shall take into reasonable consideration all extrinsic evidence presented by the insured to determine if and when such insured is a target of such investigation for a wrongful act

Example B:

Regulatory defense and penalties to pay on behalf of any insured:

Claims expenses and penalties in excess of the retention, which the insured shall become legally obligated to pay because of any claim in the form of a regulatory proceeding, first made against any insured during the policy period or optional extension period (if applicable) and reported in writing to the underwriters during the policy period or as otherwise provided in Clause IX. of this policy, resulting from a violation of a privacy law and caused by an incident described in Insuring Agreement C.1., C.2. or C.3 that first takes place on or after the retroactive date and before the end of the policy period.

Claim means:… with respect to coverage provided under Insuring Agreement E only, institution of a regulatory proceeding against any insured.

Regulatory proceeding means a request for information, civil investigative demand, or civil proceeding commenced by service of a complaint or similar proceeding brought by or on behalf of the Federal Trade Commission, Federal Communications Commission, any authorized data protection authority, or any federal, state, local or foreign governmental entity in such entity's regulatory or official capacity in connection with such proceeding.

Example C:

Regulatory proceeding means a request for information, civil investigative demand or civil proceeding commenced by service of a complaint or similar proceeding that involves an electronic banking act, an electronic publishing act or a security breach taking place after the retroactive date, if any, and that is brought by or on behalf of the Federal Trade Commission, Federal Communications Commission, the Federal Deposit Insurance Corporation, the Comptroller of the Currency, the Consumer Financial Protection Bureau, the National Credit Union Administration, the Treasury Department or any federal, state, local or foreign governmental entity in such entity's regulatory or official capacity.

In Example A, broad coverage is provided for CIDs; however, coverage is limited to those situations where an insured is the target of the investigation. In Example B, coverage is limited to claims expenses and penalties. Finally, in Example C, coverage for CIDs is limited to specific acts.

When the policy is silent on CIDs

When the policy is silent on CIDs, coverage will likely be determined by what constitutes a claim under the applicable policy — and can lead to mixed results as to coverage. This uncertainty is apparent in a recent opinion issued by the Superior Court of Delaware on June 24, 2019.i

At the outset, the Court noted the split of authority as to what constitutes a claim, where the policy is silent as to coverage for CIDs. The policy at issue defined claim, in part, to include "a written demand for money, services, non-monetary relief or injunctive relief…" The Court proceeded to compare the contrasting case law to determine whether a CID is a claim.

The Conduent Court pointed out several court opinions indicating that a CID was not a claimii, as well as discussing several court opinions indicating that a CID was a claim.iii

The Conduent Court determined that the authority supporting the position that the CID constitutes a claim is more persuasive, noting that the CID requested information in connection with an investigation targeting the insured relating to unlawful acts possibly committed by the insured. As such, the Conduent Court ruled that the CID is a claim for non-monetary relief alleging a wrongful act.

In sum, where the policy does not specifically address coverage for CIDs, coverage will likely turn on a determination as to whether the CID is a claim for non-monetary relief. Some factors for such a determination include whether wrongful acts are alleged and whether the investigation focuses on the insured. Unfortunately, as demonstrated above, regardless of such factors, different courts have reached different results based upon similar facts. Such inconsistency is not helpful to insureds when faced with a CID.

In light of the above, we recommend including CIDs in the definition of claim for greater certainty. Willis Towers Watson works closely with insurers to address your insurance coverage concerns, including coverage for CIDs.


i Conduent State Healthcare, LLC v. AIG Specialty Ins. Co., CVN18C12074MMJCCLD, 2019 WL 2612829 (Del. Super. Ct. June 24, 2019).

ii See MusclePharm Corp. v. Liberty Ins. Underwriters, Inc., 712 Fed. Appx. 745 (10th Cir. 2017), (SEC Order and subpoenas were not a claim due to the lack of any alleged wrongdoing.); Employers' Fire Ins. Co. v. ProMedica Health Sys., Inc., 2013 WL 1798978 (6th Cir.), (FTC letter and subpoenas were not a claim due to lack of alleged wrongful conduct.); W.R. Starkey Mortgage, LLP v. Chartis Specialty Ins. Co., 2013 WL 12138896 (E.D. Tex. June 27, 2013), (DOJ request for information not a claim.); First Horizon Nat'l Corp. v. Houston Cas. Co., 2017 WL 2954716 (W.D. Tenn.), (CID issued by DOJ not a claim due to lack of allegations of a Wrongful Act.).

iii See Syracuse Univ. v. Nat'l Union Fire Ins. Co. of Pittsburgh, PA, 2013 WL 3357812 (N.Y. Sup. Ct.), (Grand jury investigation and subpoenas constituted written demand for non-monetary relief.); MBIA Inc. v. Federal Ins. Co., 652 F.3d 152 (2d Cir. 2011), (Government investigative subpoenas constitute claim.); Weaver v. Axis Surplus Ins. Co., 2014 WL 5500667 (E.D.N.Y.), Attorney general letter is a claim because it is a request for non-monetary relief.); Minuteman Int'l, Inc. v. Great Am. Ins. Co, 2004 WL 603482 (N.D. Ill.); (SEC order and subpoenas constitute claim as they were demands for something due.).

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