Insurance and The False Claims Act: FCA Policies and When to Notify Insurer

In defending clients against False Claims Act matters, I have not yet had an instance where the client had insurance coverage that covered False Claims Act liability.  So I was interested to learn both that insurance companies are offering coverage for False Claims Act liabilities and about some of the issues in obtaining insurance coverage for False Claims Act clams.

First, I came across an announcement  in the Insurance Business Review this week that the Beazley Group was offering a new "Healthcare Regulatory Liability Policy" to protect policy holders against errors & omission claims brought on behalf of government entities.  A spokesman for Beazley stated that clients had been asking for this type of coverage due to "increasing regulatory scrutiny."  The policy covers civil fines and penalties with a limit of up to $10,000,00, and protects providers against a wide range of regulatory violations, including the False Claims Act and Medicare/Medicaid billing investigations. 

Second, in an informative article, "False Claims Act Notice Issues:  To Disclose, or Not to Disclose," attorneys James Murray, John Gibbons, and Omid Safa at the Dickstein Shapiro firm address three insurance issues that arise in the conjunction with False Claims Act ("FCA") claims.  FCA claims, they point out, "can implicate several types of insurance policies, including comprehensive general liability, errors and omissions, professional liability, directors’ and officers’, crime/fidelity insurance, and employment practices liability policies, just to name a few."  They initially address whether insureds must notify their insurers if they receive an FCA civil investigative demand or an  Inspector General subpoena under "claims" or "occurrence" policies. Next, they discusses the whether and when an insured must notify its insurer when the insured has received notice that a qui tam matter pending is pending against but the matter remains under seal.  Finally, the article notes that insueds might encounter problems with obtaining reimbursement for costs they incur in responding to a government's investigation while the matter remains under seal but prior to the matter being "tendered" to the insurer.  They observe:   "Courts have reached differing conclusions on whether an insurer must reimburse defense costs incurred by a policyholder prior to giving notice or formally tendering a claim. Courts denying reimbursement have relied largely on standard policy provisions barring coverage for alleged 'voluntary payments' or mistakenly reasoned that tender is a condition precedent to coverage. Neither rationale appears to be well suited to addressing the unique issues raised by the FCA, however."

A. Brian Albritton
April 1, 2012