The DOJ hasn’t made any secret of its plans to swing the False Claims Act club at companies that it believes engage in DEI programs that run afoul of federal civil rights laws. In a recent “D&D Diary” blog, Kevin LaCroix says that the Trump Administration’s use of the FCA in this manner creates all sorts of issues under D&O policies:

From a D&O insurance perspective, there are many concerns here. The first is, as I have noted previously on this site (most recently here), FCA claims are an awkward fit with the typical D&O insurance policy. There is in fact a long history of D&O insurance coverage disputes arising in connection with underlying FCA claims. (Refer, for example, here.) Notice timing issues are common.

Coverage for FCA claims under public company D&O insurance may be limited because the FCA claims are typically entity only claims, but the public company D&O insurance policy provides coverage only for securities claims (which the FCA action is not). The D&O insurers often contend that FCA claims are essentially non-covered contract disputes, or stem from excluded professional services liability issues.

Kevin says that the good news is that the authority increasingly appears to support of the conclusion that D&O insurers must cover FCA claims. However, he points out that the government’s use of the FCA in this area may also increase companies’ vulnerability to follow-on securities class action claims.

– John Jenkins