Federal Judge Rules D&O Coverage For Wrongful Acts Extends To Responding To Government Subpoenas

US District Judge Manish S. Shah in the Northern District of Illinois last week denied insurers' motion to dismiss a pharmaceutical company's action seeking insurance coverage for the costs associated with responding to a US Department of Justice subpoena in an ongoing healthcare fraud investigation. The opinion notably expands the scope of the factors courts consider in determining whether a particular insurance policy's "Wrongful Act" requirement was met for the purposes of activating an insured's policy coverage. The opinion may provide support for policyholders' requests to their insurers for coverage of the costs of responding to government investigation-related subpoenas even before any specific violation is charged.

In Astellas US Holding, Inc. v. Starr Indemnity and Liability Co., et al., No. 17-cv-8220, 2018 WL 2431969 (N.D. Ill. May 30, 2018), policyholder Astellas filed a declaratory judgment action seeking insurance coverage for the costs associated with responding to a March 2016 US Department of Justice (DOJ) subpoena. DOJ is conducting an ongoing investigation into allegations that Astellas provided donations to nonprofits that help poor patients buy the company's product, potentially in violation of the Anti-Kickback Statute.

The defendants—Starr Indemnity and Liability Co; Beazley Insurance Co., Inc.; and Federal Insurance Co.—filed motions to dismiss arguing that Astellas' policies "cover losses from claims for wrongful acts" and neither the subpoena nor a tolling agreement between Astellas and DOJ count as "covered claims."1 Judge Shah wholly rejected the defendants' argument and ruled that the DOJ subpoenas were covered under Astellas' policy language, and that Astellas is eligible for insurance coverage for the costs associated with responding to the subpoena.

Under Astellas' policy, "[t]he Insurer shall pay on behalf of the Company the Loss arising from a Claim . . . against the Company for any Wrongful Act." Therefore, the facts at issue must not only support that a claim as defined under the policy was filed, but also that the claim was for a wrongful act as defined under the policy. The critical analysis stems from the policy's definition of "Wrongful Act" as "any actual or alleged breach of duty, neglect, error, misstatement, misleading statement, omission or act by the Company."2 Judge Shah found that the DOJ subpoenas to Astellas can fall under coverage for "a written demand for plaintiffs to appear before...